Markets looking to test old highs

The markets gained another 1.3 pc to touch 6200. There are several reasons why the markets can touch the previous highs and exceed them. Let us try and explore the probabilities.


1. The FIIs are continuously in the buy mode. The liquidity is propelling the markets higher. The DII selling is easily getting absorbed.

2. The Parliament is having its recess and will open only in the Monsoon session in the last week of July. This will ensure that there are no political storms to spook the markets.

3. The Monsoons are said to be on track.Looking at historical data and probability we should be having a good monsoon.

4. Inflation is down and due to this, the interest rate cuts will continue. This will lead the Banks and Interest rate sensitive stocks to new highs.

5. Crude oil is down and this will help the Indian economy. Gold prices continue downwards. This also implies lower imports. After the Indian gold demand sees lower prices then the buying frenzy will abate. The fall in Gold has been so sharp and so deep that I will we are unlikely to see a recovery in Gold prices before Diwali.

6. Every small dip is a buying opportunity and profit booking at every level is a must.

7. The PSU Banks have not yet rallied and say an Andhra Bank with a price of Rs 92 ad a dividend of Rs 5 offers a dividend yield of 5.5 % tax free.

8. The Gilt funds have given amazing returns of absolute 11 pc in the past 6 months. Their performance will peak in the next 1 year.

The strategy remains the same. Buying every dip ad booking profits at higher levels thereby lowering the cost price of the shares in the long term portfolio.

Stock Market Behaviour Prior to Elections

The next general elections for Lok Sabha seats are less than a year away. Political parties have already started pre-election activities like choosing likely candidates for the PM’s post and discussing possible alternative alignments for government formation.
The period prior to a general election is usually one of uncertainty for investors. Uncertainty leads to selling, or at best, staying on the sidelines – neither being particularly conducive for a bull phase. In this month’s guest post for Subhankar, I had presented a different viewpoint

Continue Reading at:
http://investmentsfordummieslikeme.blogspot.in/2013/05/stock-market-behaviour-prior-to-general.html

A Look at the Longer Term Elliot Wave Chart

It has been a long time since we have looked at the big picture. Now, is a good time to look at this picture.

1. The up-move which started from 4532 in Dec'11 can be of 3 legs.

A - 4532 - 5629 = 1097 points

B - 5629 - 4770 = 859 points

C - 4770 - xxxx

where xxx can be 4770 + 1097 = 5867

                            4770 + 1.618* 1097 = 6544

                             4770 +2*1097 =  6964

                             4770 + 2.618* 1097 = 7641

The 1st target has been met and now the 2nd target seems likely. Targets beyond the 2nd target, let us ignore for the time being.

C -1 = 4770 - 6112 = 1342 points

C-2 = 6112 - 5477 = 635 points

C-3 in progress.

C - 3 can have targets of 6306, 6500.

All these are targets are negated below 5604.

What does this mean for Investors?

All dips are buying opportunities. A dip should materialize soon to 5850-5900 zone which should be a buying opportunity.

In my guest post for Subhankar in the mid-week, I will analyse the implications of the Political situation.

How have Markets fared in May?

For the month of April, the range arrived statistically was 5500-5900. We ended up doing 5477-5962 with a close at 5930. Now let us look at the month of May. There is one disturbing fact for May.

1. The low of the May month is always much below the close of April moth. The close for April was 5930 and a close of 6 pc below that leads us to a figure of close to 5600.

2. Overall, May month on an average leads to a flat close.There are swings of at least more than 3 pc either sides on a closing basis. This means we may close the month of May at 6100 or 5750.

3. What this also implies is that for the month of May, the upside is limited. In case, of a large fall early on the we will spend the rest of the month covering up for the fall and makig a margial gain.

4. Taking, this hypothesis further it means we are likely to get 2 sufficiently large moves on either side. If 1st half of the moth is negative the the second half will be positive or vice versa.

5. If we take the May high, the it has also usually been at least 6 pc higher than the April close. This could mean upsides of 6300.

If we look at all the probabilities, it means we are in for big moves in May.

The moves could play out as:

1. Up in the beginning of the month, then highs of around 6300 and settle down near 6000.
2. First a down to 5600-5700, then a close to around 6100 levels.

The conclusion from this is that may is a month of big moves, once one catches the direction it would pay to hold on to positions till a move of about 4 pc is made in any 1 direction.

5700 and 6100 remain the immediate 2 possibilities with extreme moves taking us to 5600 or 6300. Right now we are almost at the center of the range. Sustaining below 5900 or above 6000 will give us the clues to the next moves.

RBI Policy: All factored in?

The markets soared again this week eking out a gain of 1.5 pc. The RBI Policy has been factored in with all this rise. Let us see and explore what the markets have in store?

1. The markets have built in so much expectation that a 25 basis point announcement will lead to the markets correcting. Only 50 basis points and more can help continue the rally.

2. The markets have also reached the key 5920-5950-5970 levels. It has been an almost breathless rally from 5477 levels in a matter of 2 weeks. The markets may well keep going up in the early part of the week.

3. The RBI announcement is also due on a Friday.Last few years I have been noticing that whenever key announcements are on Fridays, people tend to take money off the table. Infosys is a key indicator for such types of trends.

4. If the markets are to rally to new highs, a correction is necessary and healthy. Maybe the credit policy may be an excuse. Everything is factored in the markets and events are usually just excuses for corrections.

5. The Gilt funds continue to be the best performing asset class easily giving 12-13 pc safe returns.

6. Gold has given a bounce but this bounce should be short lived. One can think of buying gold at lower levels or above the 200 DMA at 1620 USD.

7. If the correction happens, it would be a good time to add good quality stocks which ca be traded and sold at 10-20 pc higher.

8. I still believe the entire bear market from early 2008 is still not over and 1 last dip to cover the pre-election of 3700-4000 is still pending.

9. The Gap may well be completed with the next elections making it a nice cycle from 1 General Election to another.

By part booking profits, one ca lower the cost price of shares, enjoy the dividends and keep the shares for the future.

I would certainly not add at these levels but wait for a correction to add. We can easily see the levels of 5650-5725 in early part of May which would be the time to add positions.

Markets Rebound: Is it sustainable?

The markets gained 4.6 pc this week, to stage an amazing recovery. Let us try and examine if the recovery is sustainable. The next week should be a volatile week as is it a truncated week with expiry also down the corner.

Fundamentals:

1. Gold crashed below the 1400 USD ad Brent crude is trading below the 100 USD. These are 2 key fundamental factors which should help the rally if this continues. India's main problem are the high level of crude oil and gold imports. Lower prices of these 2 commodities should help keep the Current Account Deficit low.

2. The inflation came in lower and a rate cut is expected in the RBI policy on May 3rd. This is what is keeping the Banking stocks on a high.

3. A large number of bills are lined up in Parliament on Monday and a lot depends on how the opposition allows the Parliament to function.

4. The Results have been good for TCS, HCL Tech and some of the private sector banks. There have been no major unpleasant surprises so far barring Infosys. This should sustain the markets.

Technicals:

1.The Nifty fell from 6112 to 5477. Now there are several probabilities at play here. 1 is that this was the first leg of the down move and what we are witnessing now is the corrective up move to the entire fall. The fall took about 10 weeks. The current rally is corrective up move to the fall with targets of 5720, 5795 and 5870. Beyond 5985, we can treat this as a fresh leg up.

2. If the scenario mentioned in 1 is correct, then from the levels above we should see a fall of 400 - 600 points to form the final bottom.

3. The up move which has commenced from 5477 can have a retracement till 5673, 5636 and 5598.Below 5540 we can say a fresh down move has commenced.

4. Long term Trend line support is 5250 below which we will enter a bear market. The entire fall from 6112, trend line resistance is 5840 beyond which we can say a new rally has commenced.

Strategy:

Buy on Dips towards 5670 with a strict stop loss of 5600 and 5540.

Infosys Triggers the downside

Infosys came up with a poor set of numbers again and that led to the markets tanking on Friday. Overall, the week ended with a loss of 0.4 pc on the Nifty. Let us try and examine what has changed.

1. Crude came down to 102 dollars a barrel and Gold plunged. This will help the Current Account Deficit as the 2 majors imports of India are crude oil and Gold. A falling Gold price will have 2 impacts, one is cost will be less and secondly demand will abate for sometime.

2. Gold seems to have broken quite a few supports. Gold for quite a few past years has never broken its February low for the year. This year it has and that has bearish implications for Gold.I would add Gold either above 1620 USD or below 1400 USD.

3. The next week has a lot of key Results lined up and they will set the tone for the markets. TCS will be a key Result. If it also is poor then the markets will tank. TCS Results should be better than Infosys.

4. The Inflation Data and the IIP data point to a 25 basis points rate cut in May. Gilt funds still remain the safest option for parling money and getting a decet return. They are highest yielding asset class i past 1 year.

5. The markets are below the 200 DMA for about 7 trading sessions. Typically, if it is just a correction they bounce up within 15-20 sessios. Hence, if the markets remain below the 200 DMA for more than 1 week more than we are in for a lengthy time below the 200 DMA.

6. 5650 comes across as a significant resistance and only if the market moves above this, we ca expect a significant rally.

The Strategy remains the same. Buy on dips and stick to good Quality Stocks. The coming week is a curtailed week for the stock markets. Friday is a holiday for Ram Navami.

All eyes on the Results Season

The markets continued on their journey south. They lost another 2.3 pc to close at 5553, a crucial support level. Let us try and see what can influence the markets in the next few days.

1. FIIs have also started selling and that led the markets to go down further. The FII selling is only in small quantities but the support being provided to the markets so far is absent. Further selling by the FIIs can lead to the markets tanking further.

2. The commodities are also correcting.Crude and Gold, 2 of India's biggest imports are also falling down.The seeds of the next bull run can be seen in these falling commodity prices.

3. The Government continues to act on the Reform front.Sugar price decontrol was a long over due reform.

4. The Budget session is in recess and the Parliament will reconvene only on April 22nd. The Result season will also be kicked off on next Friday. If there are o global cues, then I expect the next week to be a week of subdued trading.

5. Technically, the markets have breached the 200 DMA and 200 EMA averages. These are long term support levels and the difference between a bull market and a bear market. The indices need to be remain under these levels for another few days to be sure we are entering into a bear market.

6. The main problem the markets have is that the sentiment is spoilt. Talk of elections is making people nervous. This uncertainty is driving the markets lower.

7. My strategy remain buying quality stocks on dips. Some of the stocks are at almost December 2011 levels. PSU banks offer a very good dividend yield and strong PSU Banks can be targeted for buying.

8.Gold is at important support levels and fresh buying should be avoided till the trend is clear. I would buy Gold only if it closes above 1620 levels in dollar terms for at least 1 week.

The bottom line is to be very careful with our stock purchases and to stick to Quality Stocks.

How have the markets fared in April?

The month of March has drawn to a close. Let us see how the markets have usually fared in the month of April. March ended with a marginal loss of 0.2 pc which was ironically the average loss in the month of March.

1. The month of April has almost always seen a loss of at least 2-3 pc below the March close. This implies that 5500-5550 should be tested at least once.

2. The month of April has been positive 5 times and negative 7 times in the past 12 years. In the recent years, April has become a positive month. The average gain in the month of April has been around 1.5 %. This leaves us with the targets of 5750-5800.

3. The upside seems limited for the month of April. The range which seems to emerge is 5500- 5900 at the upper side. The bias seems to be flat to negative.

4. If the up move which has begun continues then we may see 5800-5900 before coming lower during the results season.

5. It is a new month and a new financial year. The Gilt rates have gone back up to 7.96 % to 7.99 %. This is another opportunity to enter Gilt Funds.

Overall, the markets direction seems sideways for the moment with a negative bias. It is a buy on dips markets with good fundamental stocks.

Time for a Bounce?

The markets had a free fall in the last week losing about 3.8 pc. There seems to be despondency all around. Is it really all gloom and doom as portrayed? This week let us step back and look at the next 1 year.

1. The elections can be held latest by April 2014. There are 3 windows right now, September 2013, December 2013 or April 2014. The most likely option looks to be December or April. The reason for this being is that the logistics demand at least 3 months post the the Government falls. June-September is the Monsoon season in India.

2. For all the posturing no one is ready for elections just as yet. Mayawati is waiting for the Samajwadi to mess up further, the Left front is waiting for Mamata to become more unpopular, the BJP is still to decide who will lead them and are waiting for UPA to become more unpopular.

3. The complex Mathematics will keep the Government aflloat. This coupled with the Congress track record of always completing their term may well lead to the elections being held 1 year ahead.

4. The next trigger will be the full year corporate earnings which will come around the 15th of April. Till then, there are no major events lined up. Cyprus should be settled today and if that happens the markets should rally up.

5. The year end NAV game will start in earnest from Monday. The Fund Manager bonuses are paid based on the March end NAV values. Hence, I believe at least the large caps should rally in the next week.

6. Many book losses in March to offset short term capital gains against losses. This is to pay less income tax. This could also lead to midcaps being further hammered.

7. Logic suggests that markets should rally before elections so that the funds are available to fight the elections. One of my good friend has carried out a study about pre-election year performance and almost always there has been a 20 pc gain in the markets.

8. Technically, the markets should bounce. 5950 is the key level. Any move beyond 6000 and we still may see new highs.