EOD Analysis for 14th October and Outlook for 15th October 2011

Nifty opened on a soft note today and played in a pretty narrow range through out the day. OI in Nifty futures was hovering around the 25 million mark and VIX has cooled a lot to sub 27 levels. Banknifty managed to retest the 9650 levels and at one stage almost looked set to cross over the 9700 mark on spot price. Premiums have returned to the Nifty futures significantly compared to yesterday and this is the 3rd consecutive closing above 5032. Out of the crucial resistances, 5125 has been retested twice now expecting a retest of 5150-5177-5196 if Dow continues the happy Friday and sad Monday phenomenon.

Volumes are still a concern and hence upside looks limited unless a good number of fresh longs enter the system. Bulls have achieved a lot this week and retained the crucial levels of 5032 and 5092. Now the litmus test is to generate a close above 5150 levels that will open Nifty for another 144 points to the upside filling in that last pending gap towards 5328 levels. Weakness can only be confirmed with a close below 4980 on Nifty and 9500 on Banknifty. A close below 4980 will open Nifty for a retest of 4880 and a close below 4880 will open Nifty for a retest of critical levels 4663-4693-4720. For now, most falls should be bought into and to the extent 4800-4840 hold for next week, bounces can be expected.

There is nothing great on the bourses happening and would like to remind all reading this that from 26th August '11, all that Nifty has done is to gyrate between a range of 4720 and 5170 odd levels. A retest of 4550 is very much on the cards but that should happen around November [I keep on harping on this point as a lot of traders have the tendency to go on shorting blindly or worse - just keep on loading Puts only to see premiums erode away]

Dow must be watched very carefully today as the crucial technical condition of 2 consecutive closes above 11450 has been met with and hence Dow is open for a retest of 11875 odd levels and should that happen, some more upside may be visible on global indices. Markets are not out of the woods and the Fixed Income markets have shown the zignals clearly - yields on all 'perceived risk-free' instruments have been on the rise [higher yield implies market expectations of risks and lower bond prices]

Yet another example of power of charts - my lovely spiderman had explained the significance of 2700 levels on Infy and importance of 235 on DLF spot a couple of days ago. Now all that one needed to take for a 2nd confirmation was to observe how the options and volumes in these counters were moving along with 30 minute/60 minute candle confirmations on the spot prices.

Infosys when it managed to retain a 60 minute candle with low greater than 2700 today, it raced all the way towards 2750 on spot [just fell short of it for a few points] It would be prudent to see what happened with all the aggressive Put Writing that took place this week for INFY 2600/2700 - writers ran for cover to lock in the gains and Put prices dropped [also a lot of Stop Losses were triggered for those who were long on these Puts] Now, one should remember that INFY has just given 1 close above 2700; if it manages to post another close above 2700 levels, it may retest 2800-2825 levels on spot price before turning south

For DLF - it was a systematic FnO game on the 220 Put and 240 call. The close over 235 did bring in some upside but all that has happened so far is that the Puts were crushed yesterday and the Calls were crushed today. So first thing one has to do when a stock is on the verge of a breakout or break down, identify the crucial levels [harshal bhai will explain this on his blog page today] and then look at a slightly ATM/OTM Put and Call behaviour of the stock. Trendlines, Momentum, EW probable paths and the behaviour of options can give a very probabilistic case of where a counter is headed.

Global market updates will be provided tomorrow. Hope all of you enjoyed the profits and for a change, we are not in a position to say that this week. With the EoH (Edge of Hedge), most of us escaped with minor losses but this corrective of corrective did try our patience and anticipation of price action on Nifty this week.
We hope and pray that you continue to make profits and hopefully, we should be able to turnaround our current positions next week in good fashion. Enjoy the weekend and I hope to meet some of you online on Skype tomorrow for QOji's session.

EOD Analysis for 13th October and Outlook for 14th October 2011

Nifty opened on a positive note today but the OI in Nifty futures was not convincing with just a shade below 23 million and in due course of time it started falling. Just as expected, within 25 points of the fall, another 2 million OI came into Nifty futures in a jiffy. Banknifty did cross over 9650 levels at one point of time but started cracking a bit but it is still over the crucial 9500 mark. At least BNF October futures saw a lot of shorts enter the system as the BNF October futures saw discount to spot price towards the end. Markets are not out of the woods and whilst 5092 did not hold today, it is the second consecutive close above the crucial level of 5032 IMHO. If 5032 survives at close tomorrow, there is still a chance to retest the 5125-5150-5177-5196 levels. A close over 5150 will generate around 144 points further to the upside filling up that last pending gap around 5328 mark.

On the downside, a close below 9500 on Banknifty and a close below 4980 will again bring in a lot of weakness on the bourses and all the efforts of bulls may go in vain again. On stock specific counters, Infosys did manage to post some gains today though it did not manage to stage a close over 2700 [a lot of short put covering was seen on this counter in the morning session where even the November 2700 Put made a high of 150 and immediately made a low of 105 within 10 minutes. 2 consecutive closes above 2700 can bring some more upside on Infy whilst a second close below 2700 levels will bring in a lot of profit booking on this counter and this stance may get vindicated with the way Euro is experiencing profit booking today]

Unless 4880 is breached on the downside, one can expect some smart rebounds by Nifty and most critical support levels are at 4663-4720-4728 levels. There is a gap at 4750-4880 odd levels that will eventually fill up within 22nd November 2011

Most vulnerable period on Nifty is expected to be around the 16th Nov to 22nd Nov period where one can start looking for value buying opportunities with a 2 to 3 year time horizon of generating good returns.

EOD Analysis for 12th October and Outlook for 13th October 2011

Stellar performance on all 3 majors, Nifty, Banknifty and CNXIT; VIX dropped a good 2 points and OI in Nifty futures was higher at about 25.3 - 25.5 million today and the OI increased with the rise; still not enough to sustain the upside as an upside of 100 points should have brought in at least 3 to 3.5 million in OI and shorts yet again were trapped royally; markets are still not out of the woods but bulls did manage to stage the close above critical levels of 5032-5092 and this is a remarkable achievement

As mentioned earlier, now we need some more volumes for Nifty to sustain this rally or else we can see profit booking soon. The close above 5092 has opened Nifty for a retest of 5125-5150-5177 levels. If Nifty manages to stage a close above 5150, then we may get another 144 points on the upside from there.

Banknifty is at 9500 [adjusted close at 9482] levels and may try to go towards the 9750 levels where one should look to exit longs and start opening shorts in a staggered format [with appropriate hedges]. Now weakness will only be confirmed with a close below 4994-4944 levels and whilst it is good to see some cheer on the bourses - the threat of retesting 4720 levels is very much on the cards with the critical time zone being 16th Nov to 22nd Nov

Like I mentioned earlier as well, there is a Rate of Change for Nifty is 10 points per day on either side and if one takes the intra-day fluctuations apart, the markets have moved no where between 26th Aug till date. We have been stuck in a 4720-5032 range for umpteen sessions and it is the lure of quick money on the bourses via Puts and Calls that have ruined many a trader. Today finally the 5032 level has been broken and some more steam is probably left. After the gap down from 5328-5348 levels, the maximum upside we got is 5169 and twice we have kissed the 4720-4728 levels - so one should judge for oneself where has this market moved so far?

IMHO upside is still capped at 5225 levels and a close above this may finally give some cheer to fill up the gap towards 5328-5348 [and a close above 5150 would be a good barometer] Also if one looks at the rise compared to the fall, the falls have been far steeper than the rise. Stay hedged, adhere to Stop Losses and enjoy the ride till it lasts - the next wave of 'bull market' is a long way away. Success mantra still remains Buy Fear Sell Greed [Buy Low - Sell High]

EOD Analysis for 11th October and Outlook for 12th October 2011

Following global cues, Nifty opened with a significant gap-up but yet again, the OI in Nifty futures was hovering around the 24 million mark from morning to the middle session.  The gap up was quickly filled with downward price action and VIX that was at sub-30 levels in the morning has marginally spooked up again.

As mentioned earlier, critical levels remain unchanged

These are the critical support and resistance levels.
4800-4840-4880-4911-4944-4994-5032

Bulls did manage to take Nifty above 5032 but the volumes and news from Europe did not support sustaining this level. The bull story will only get bolstered by a close above 5032 that opens Nifty for a retest of 5092-5125 levels and a close above 5092 will open Nifty for a retest of 5150-5177 levels and a close in the 5150-5177 region will give at least 144 points in the same direction

For the bears, 4880 is a crucial level and if they get a close below 4880, they might try to take it all the way down to fill in as much of the gap as possible for Friday's upmove. To the extent 4800-4840 levels hold, Nifty will get some bounce via short covering. Still no signal of fresh longs in the system as the OI is pretty low for Nifty futures. Interest rate sensitives and banks continue to remain under pressure and are vulnerable to a fall any time. The real estate pack seems to have got exhausted a bit and may see one more round of profit booking considering that they bounced back pretty smartly.

PS: A couple of live examples of charts tend to drive news and not the other way around. Despite so much negative action with regards to Maruti, it staged a modest comeback today aided by short-covering

DAX had a countertrend rally towards 5700 [in fact it went to 5800] and is now going through routine profit booking. Even without any piece of news on the recapitalization by Merkel and a gloomy outlook for Euro-zone by Trichet [first time he has openly admitted it and that too when he is days away from vacating his chair
http://www.bloomberg.com/news/2011-10-11/trichet-says-debt-crisis-shift-to-larger-countries-increases-systemic-risk.html]

That is the power of charts and while they do stump us occassionally [frankly, I was amazed to see bulls take Nifty beyond 4950 and DAX above 5700] but there was no need for any news. Even without these announcements, hot money would have ensured the same price action with some throwover or throwunder.

As mentioned yesterday, gaps do tend to get filled especially because most of the gaps that we are seeing on Nifty right now are 'exhaustion gaps' from either bulls or bears [bull and bear trap classics] - so if we are in for a Diwali bumper and 4663-4693-4720 holds for Nifty on downside, that last pending gap towards 5328 may get filled with a close above 5150 levels; and the downward gap from 4750 to 4880 is bound to be filled within 22nd November '11.

EOD Analysis for 10th October and Outlook for 11th October 2011

A pretty good day for the bourses with a lot of short covering seen on Nifty, metals, auto and the IT pack. Banknifty did not participate too much into the upside though there were some good moves from individual stocks like IDFC. Airtel actually rose pretty well from the lows of the day and Reliance played a good move to the upside as well. It was good to see VIX cool off significantly today to 30.5 odd levels but as seen in the a recent past, it just takes a fall of 50 points and VIX starts spooking up. The OI in Nifty futures was pretty much unchanged around 23-24 million despite such a good pullback. This also is one barometer for Nifty; on the downside, a fall of 30-40 points manages to attract OI of 2-3 million but even a rise of 100 odd points does not significantly add up to the OI and this is disturbing.

The outlook remains unchanged that we are currently stuck in a range of 4720-5032

Bulls can only cheer beyond an EOD above 5032 and then 5092
Bears should wait for a confirmed weakness below 4880 before going ahead with shorts.

The threat of retesting the recent lows is very real and will happen in a jiffy when it decides to do so. One key point to note today is that deeply ITM Puts like 5100/5200 were carrying some premium. Markets are not out of the woods yet and any upside now actually represents a shorting opportunity IMHO

The Great Chinese Economic Paradox

Outright Disclaimer: This is purely a hypothesis and it may be completely wrong and baseless. This post intends to just open up a possible perspective in the economic dynamics amidst volatility in global capital markets.

Currently, we are under the asusmption that China holds a lot of foreign reserves and it is indeed true that countries, banks are lining up at Beijing in the hope that some relief can be sought from there with the vast foreign reserves that China has. So far so good - there is not an iota of doubt that currently, China is the largest holder of US T-Bills, and Euro Bonds from different countries and these very bonds are helping as collateral to provid the lines of credit to Chinese exporters and western importers to enable transactions take place. However, my opinion is that all this will only work well to the extent exports from China do well and payments are being honoured.

Now it would be very naive to assume that with constant devaluation of USD and EUR, the value of Chinese foreign reserves would keep on depreciating and if China knows this fact, why is it continuing to buy these reserves? Partly the answer lies in the fact that China is trying to establish economic hegemony and as it acquires this debt, it is managing to gain access to cheaper resources as well in other countries along with ensuring that the exports go on as smoothly as possible. Resources now belong to Chinese governments in a number of countries like - African countries for timber and minerals and oars; quarries and steel mines in Australia so on and so forth.

However, the biggest worry from Chinese economic activity is something else and can have implications far worse than a simple default on sovereign debt from western countries and banks [that is a given and it is only a matter of time before it explodes] For the last 10 years, China has demonstrated remarkable progress in building up the infrastructure and a lot of modernization. Something has to pay for that as well - is it possible that China has actually utilized the holdings of these potentially toxic assets [western bonds] as collateral to borrow money for building up all of the modern facilities?

If that is the case then banks and investors are in a double whammy situation - in case of a demand for payments come in a jiffy, China can simply wash its hands off as the value of collateral is tied to Euro and US bonds! The infrastructure is in place now and all that China has to do is gain access to the remote control similar to that of US!. So if one thinks that China should be worried if the toxic assets of western world will affect China severely - it acually ma be the other way around. The very western world should be worried because China has managed to keep itself in a win-win situation; If the recovery of western debt and concerns go as expected, then China is fine with a lot of high yield debt in hand. The recovery will have no major impact for the western world as they have auctioned bonds at very high yields and low prices! On the other hand, if the western sovereign and banks fail, China will also stop payments citing challenges with the collateral security!

Think about this perspective as it will send down negative jitters across global bourses and in such a condition, the bear market conditions can extend for another 15 to 18 months!

Global Markets Update - 8th October 2011 - Special Coverage for Indian Banks

Nifty has managed to hold 4720 right now and critical support levels are in the 4663-4693-4720 zone for now. Banks and financials have regained some base after a massive short-covering rally and some easing of concerns over Euro-zone liquidity concerns. How far will this go ahead for supporting banks - only time should tell. LnT, BHEL have regained some lost ground and all auto stocks seem to be rebounding well courtesy expecations of higher sales for the festivity period.

IT is trying to regain some ground on the back of the rollar effect that is expected to boost the balance sheet. All this just indicates a temporary boost and will fail miserably to cheer the bourses. Short term upside momentum will be very very short-lived. Once all the major bad news gets factored and stocks get beaten down - we should see some fresh buying coming in from the mid-segment traders and end the year 2012 hopefully above the 5k mark. 16th Nov to 22nd Nov is the most bearish time period IMHO where will see a lot of panic on the bourses and extremely high VIX [39-30 levels or more - similar to the levels we saw during the post Lehman Brothers period]. We will not go below 3800 levels IMHO for the current fall and then start moving upwards.
Cash continues to be king and this is not the time to buy gold/silver as an investment. For now, I can say that one can start looking at Moser Baer, Navneet Publications, Clutch Auto, IFCI in a staggered format; 10% of capital can be deployed in times of current panic in the next 4 to 6 weeks with a target of 30% plus returns PA with a 3 year horizon.

Blue chips like Tata Motors, M&M, LnT etc need to wait for some more time till they get badgered further. Regardless of what happenes, IMHO, we are very much close to a bottom now and the 3800-4800 entire zone on Nifty presents good buying opportunitites directly into equities and Index units like Nifty Bees and BankBees [7800 - 8800 is the buy zone] and one may also consider Hang Seng Bees now [12k to 15k is the buy zone] and once can expect at least doubling the value of these Bees instruments within a 3 year time frame. No point fishing for a bottom - time is ripe to make some investments now.

Disclaimer / Disclosure: The counters mentioned here with levels are an estimate made by me and by no way represent a guarantee of returns. There could be further corrections as well and these suggestions are made with a 3 year time frame. An individual must consult a financial advisor before taking the plunge. I hold some of these stocks and have recommended these stocks to people in my private circle as well.

Profit or loss arising from any positions taken in the counters mentioned above is solely the individual's responsibility.