Tuesday, July 29, 2014

Nifty Long Term Elliot Wave Counts

Today on a holiday, let us step back and look at the Long Term Elliot Wave picture. In the day to day and weekly hustle bustle, the big picture is often lost and it is only the big picture which counts and nothing else.

I tried to count the wave structure from the bottom made in October 2008 and re-tested in March 2009.

This post is dedicated to Ralph Elliot, the father of Elliot Waves (Born 28th July 1871)
http://en.wikipedia.org/wiki/Ralph_Nelson_Elliott

 



Wave 1 was from 2253 to 6338 constituting 4085 points and lasting from October 2008 to November 2010. It tested the previous top at 6358.

Wave 2 was down from 6338 to 4531 constituting 1807 points, about 44 pc of the previous rise. It lasted from November 2010 to December 2011.

Wave 3 started in December 2011 at 4531
Wave 3.1 UP 4531 - 6229 in May 2013 (1698 points)
Wave 3.2 DOWN 6229- 5118 in August 2013 (711 points - 42 pc retracement)
Wave 3.3.1 UP 5118 - 6415 in December 2013 (1297 points)
Wave 3.3.2 DOWN 6415 - 5933 in February 2014 (482 points - 37 pc retracement)
Wave 3.3.3 commenced in February 2014 and has targets of 7631, 8680 or 10378

Wave 3 has traversed about  1908 points from 5933. depending on where it ends, the broader targets for Nifty could be around 10400-12000 points.

Overall, the top should be made sometime around November 2015 - Feb 2016 period as per the famous 8 year cycle, where every 8 years a serious top is made.

The negation point for all this break of 6350, the previous multi year top.

Strategy for me is simple:
I have just bought and held the 10 stocks I shared with my friends as my core portfolio on June 30th.
I will take a call on liquidating them in November 2015, in the intermediate book profits and keep reducing cost of acquisition.

Elliot is not the holy grail of investing and should be used just as 1 of the aids for looking at the big picture.

Sunday, July 27, 2014

Expiry week looms large

The markets gained 1.7 pc during the week to close at 7791. Next week is expiry and a truncated trading week to boot with a holiday on Tuesday.

1. The FII buying continues but with a slightly reduced buying intensity.

2. The monsoon has well and truly set in over the country and it may just be a case of delayed monsoon cycle where the entire cycle is pushed forward by 1 month.

3. The markets for this week have expiry and only 3 days to expiry. The markets would be bullishness above7841 and a range of +- 200 points can be expected over this week.

4. The fundamentals seem to be improving with sentiment sky rocketing.

5. Only warning sign for the BJP is the Uttarakhand by election results where the Congress swept all 3 seats including 1 seat held by the BJP for 20 years. This brings them closer to 35 seats and the Congress Government in Uttarakhand becomes safer. The longer term implications are that the BJP needs to be careful especially with elections in key states like J&K, Haryana, Maharashtra looming large in next 3 months.

6. Winning in these key States is essential so that the Rajya Sabha strength of the BJP increases.

How Modi handles the next 4 months will define his first term in office. Interesting times ahead.

Stay tuned for a special update on Nifty Long term Elliot Wave Charts on Tuesday morning.

Sunday, July 20, 2014

Cues Turn Positive

The markets have digested the budget and had a rally of 2.7 pc. The Q1 results are in the process of being declared.Let us look at the key factors influencing the markets.

1. The monsoon worries have abated and it is raining in most part of the country. The deficit has gone down to -15 pc from -43 pc. We may have a deficient monsoon but definitely not a severe drought as feared.

2. The FIIs were net buyers to a tune of 2000 crores last week thus being the major drivers for the markets.

3. The IIP numbers have improved. There is a change in sentiment in the markets. The mood of the people is upbeat. Often, it is the change in sentiment which drives economic activity. If people feel optimistic about the future then they spend money and consumption drives growth. It is a cycle and we may just have hit the bottom in terms of sentiment in early 2014 and moving up.

4. Auto sales for the month of June were good. These are early indicators of economic activity picking up and trends for the next few months needs to be monitored.

5. Globally, the Iraqi situation has stabilized and Brent crude prices are down. The Government is losing just Rs 2.5 over diesel and if this trend continues by the end of the year, the subsidy on Diesel should end. Diesel and Petrol being subsidy free, who would have thought about 4 years ago, when Petrol was made free from the subsidy regime in June 2010.

6. The Nifty is at a critical level between 7650-700 and a close above these levels would indicate further upsides.

7. Projected targets could be range from 8100 to 8400 levels.

8. The Results of companies have been fairly good. Reliance beat expectations yesterday and so did TCS.

Time to stay invested and reap the benefits of long term investing.

Sunday, July 13, 2014

Events out of the way. What next?

The last week was an action packed week with the Rail Budget, Economic Survey, Union Budget and Infosys results. The markets sold off on each event day thus fulfilling the adage “Buy on Rumors, Sell on News”. What has really changed in the past 1 week?
1. The Rail Budget met expectations. Most Rail Budgets announce lots of new Trains and there is no mention of how the funds are going to come in. 94 paisa out of every 1 rupee earned by the Railways goes in routine expenses like wage bills, maintenance. Nothing is left for the spend on Infrastructure. It makes sense to have fewer announcements and finish off existing projects.
2. The Union Budget was made within 45 days of coming to power. That is too short a time for any Government to make a meaningful impact.
The next budget is 7 months away and that is the real budget. The Budget announcement was a statement of intent and clarity on Retrospective tax, focus on infra spending are all positives.
The commitment to meet the fiscal targets and no major commitments being made on spending is heartening. The tax sops will improve sentiment amongst the middle class and the expansion of PPF limit to 1.5 Lakhs is most heartening. PPF is the most important form of saving for small investors like me and i would have welcomed if it had been raised to 2 lakhs also.
3. The Infosys results were average. The main show is yet to begin. The Attrition is good because the deadweight is being let go and time for a new Infosys to be built. Its price to earnings multiple is low compared to TCS and I expect Infosys to outperform its peers in terms of stock Price performance.
4. The Budget has come and gone and the monsoons have started to pick up at least in Mumbai. The negatives are getting out of the way and the time is to use every dip to buy good quality stocks.
I firmly believe such opportunities come once in a lifetime and we are sitting on the cusp of 1 such. I do not mind 500 -1000 points correction on the nifty as that gives us a chance to buy good quality stocks cheap.

Sunday, July 6, 2014

Pre-Budget Rally commences

The markets gained 3.2 pc for the week and closed above the previous highs to close at a lifetime high. The pre-budget rally has well and truly begun and the time to part book profits is very well near.

1. The markets have begun to run up and they need to take a pause somewhere before the next serious up move. Budget day becomes very critical as I dont see any correction before the budget now. The Rail Budget on Tuesday will be a pointer to the Union Budget.

2. The Union Budget will be high on reform announcements and could lead to an upward burst. Overall we are now in a secular bull market which i see continuing at least for the next 14-16 months. The 8 year cycle points to a top around early 2016 late 2015.

3. The FIIs in the last week have bought about 60 pc of what they had bought totally in the month of June.

4. The Iraqi crisis seems to be easing a bit. 1 co-relation is that a bull run in equities coincides with a bull run in Oil.

5. The monsoons have arrived in Mumbai, there would be poor monsoons but the impact remains to be seen. The handling of the Iraqi crisis has already earned the Modi Government credit and good will in Kerala and the rest of the country.

6. I expect some big bang announcements in the budget signalling the intent of the Government. Budget is meant to signal the intent and the implementation would be next 16-18 months.

7. This rally has legs to go and targets of 12000-15000 Nifty do not seem unrealistic. in fact, I see similarities between June 2006 and now when the markets almost doubled. In June 2006, the Nifty was 3128 and peaked at 6357 in early Jan 2008.

Now, is the time to build a portfolio of good stocks and remain invested. Use short term peaks  to book profits as we do not know when the eventual top will come.

Sunday, June 29, 2014

Buy the Dip Continues

The markets ended flat for the week. The markets are consolidating at support levels waiting for cues from the Union Budget which is just about 10 days away. Let us explore what could happen in the near future.

1. The Union Budget is 10 days away and the countdown has begun. I expect a budget which is reform oriented, signalling further its intent with a lot of push on Infrastructure. I do not expect the tax slabs to be rejigged more but the exemption for investing in PPF under section 80 could see an upward revision.

2. The Rail budget will give a clue what is coming. The fare hike has been identified and now the Budget should have Infra announcements. The markets could start rallying around the time of rail budget or even earlier.

. The FIIs are taking a cautious stand and the markets are not falling much. This means that the domestic players have jumped in to absorb the mild selling.

4. The monsoons are delayed and while they will catch up in terms of the quantity of rainfall, the distribution in terms of time will take a hit. This will impact agriculture growth. In 2009, we had poor monsoons, the markets had rallied on the UPA victory. The markets had corrected about 13 pc from the top. This time we have corrected about 6 pc from the top. We could either correct to 6700 or 7200 levels.

This would be the buying opportunity, the last chance to get in and watch the fruits grow. as per the 8 year rule, the markets should peak sometime in early 2016. We are about 18 months away from it and I expect a blow out rally to take place.

I have designed a Rising Sun - Top 10 Stock Picks for my friends. Those interested may please write to me at: nish.stockid@gmail.com

Sunday, June 22, 2014

Buy the dip

The markets corrected around 0.4 pc to close at 7511. It was a range bound market with markets making a lower top at 7663. What next in the expiry week?

1. The FIIs have sold in the last week for 3 days out of 5. Small quantities but the buying support has gone.

2. The Monsoon seems to have slowed down. It will be a delayed monsoon for sure now, the rainfall quatity may not change but the timing will affect sowing.

3. The rail fare hike will most likely ensure a gap up on Monday. The medicine may be bitter but if the Indian economy has to improve, bitter medicine has to be taken. Please read my guest piece on Subhankar blog next week for detailed analysis on Subsidy Raj.

4. Iraq situation has raised brent crude prices. Past experiences show that such shocks subside suddenly. Syria when markets a low of 5118 is 1 example.

5. The supports are holding, which means expect a breakout ay time.

6. Next week is expiry, so the real game begins after Tuesday and Wednesday.

7. It is time to buy the dip. Accumulate quality stocks. The Modi era has begun on the right foot and if the same continues, just buy stocks and forget for next 5 years.

8. Key Indicators to watch:

a. The Budget will give the signals on the road map of the Government.

b. Further reduction of subsidies bode well in the long term.

Everyone is waiting for the budget. So, expect either a pre-budget or post-budget rally. 8100 is coming, before or after the Budget I do not know. Before hitting 7200 or straightaway I do not know. But, in the next 1 year we will surely hit both these points at least once.

Friday, June 20, 2014

Bold and welcome move by the Government

The Rail fares have been hiked by the Government, passenger by 14 pc and Freight fares by 6.5 pc. This move is most welcome and a pre-cursor to Acche Din.

Freight fares cross subsidize passenger fares. The passenger fares have rarely been hiked in the past 10 years of the UPA. The subsidy burden was dragging the railways down.

Since, freight fares have been hiked marginally compared to the passenger fares, impact on inflation will be lesser.

My prediction:
Expect the budget to have Infrastructure announcements for the Railways.

A good beginning has been made by the Government. No pain no gain. Next in line will be kerosene subsidy. Diesel subsidy is almost at an end, Petrol has no subsidy, question remains of LPG. Next move coming would be to go back to 9 cylinders or even 6 per year and eventually do away with the subsidies.

The money saved can be invested into Inffrastructure and that will automatically increase producvity. The Mumbai Pune expressway is the prime example of this. It takes almost just over 2 hours from Navi Mumbai to Hinjewadi where the IT hub is. Paying 400 toll, one can leave in the morning, go to Hinjewadi and be back in the evening.

Earlier it used to take 4 hours 1 way from Mumbai to Pune. Nitin Gadkari is the man who conceptualized the much ridiculed 45 flyovers i Mumbai and Mumbai Pune expressway. Roads will be the focus in next 5 years.

If this continues, Congress can expect to be out of power for next 10-15 years minimum.

Sunday, June 15, 2014

Markets take a pause

The markets after having run up on expectations took a pause this week. Correcting about 0.5pc, The Nifty was hardly a representation of the true picture with many of the mid caps showing larger correction. What is next in store?

1. The FIIs were sellers only on Wednesday. they bought 1100 crores on Friday and buyers during the rest of the week too. This means the flow inflow contiues.

2. Iraq was run over in some parts of the country by rebels. This led to Oil spiking and markets correcting. Even more interestingly, Iran is willing to support Iraqi troops with own troops under US guidance. This is an event which is unbelievable but if this axis comes true expect crude oil prices to collapse in the long term.. This is perfect Game Theory scenario where each party has no choice but to co-operate to survive.

3. Iraqi effect on markets usually will be a short term flash in the pan event. I have noticed in the past such International flare ups quickly lose their impact o markets like Ukraine Russia or the Syrian crisis.

4. The Modi Goverment has realised the ecoomy is in worse shape than initially believed to be. It is like the treasury has been looted for 10 years ad empty coffers left. This will call for some tough measures in the form of subsidies beig reduced.

5. Modi brings his own luck and if Iraqi crisis fades soon  then diesel subsidy the largest of the lot amongst Diesel, Petrol and Kerosene will fade on its own.

6. The Budget is in the middle of July and soon, especially after this expiry is done with we can expect a pre-Budget rally on hope.Hope is the biggest thing in which markets rally on.

7. The markets has supports at 7489, 7400 and deeper down at 7223.

It is a buy on dips markets and we may be getting 1 more opportunity to buy the dip.

Sunday, June 8, 2014

Markets set for new highs, after maybe a pause

The Markets took off on Friday on the back of Oil and Gas sector stocks. with lots of news swirling around, the markets ended the week about 4.9 pc higher. What next for the markets then?

1. The Feel Good factor is at play. The Honeymoon period of the Modi Sarkar is in full play and I expect after some more consolidation, the rally to continue till the Budget announcement in mid July.

2. The Oil and Gas stocks were in focus. Policy reforms are expected and diesel also is almost de-regulated. The under-recovery is down to rs 2.80 and with the rupee strengthening and monthly hikes of 50 p, I expect the entire subsidy to be wiped out in next 2-3 months.

3. No subsidy on Diesel and Petrol, that leaves us only with LPG and kerosene. The Oil Marketing companies are set to rally on this.

4. The target for the Nifty could be 8100 by the time of the Budget presentation. The correction of the move from 6638 to 7564 seems to have ended at 7216.

5. The Rally is absolutely broad based now, and one must clean up the portfolio with dud stocks right now.

6. Those who invested in Gilt funds have a reason to smile, as the yields have fallen from 9.10 pc to 8.52 pc With the RBI signalling further easing, expect Gilt funds to do well.

7. The FIIs have been massive buyers during this week and one can expect this trend to continue.

8. The Monsoons have hit Kerala and that is a relief.

Looks like "Acche Din" have arrived at least for the Equity markets.