Sunday, April 20, 2014

Truncated Week brings a flat market

It was a short trading week with the markets being in the negative for the first 2 days and making up the losses on Thursday. The highlight of the week were the IT Results.

1. The IT companies posted pretty decent set of results lead by TCS. This lead to a spurt in the IT stocks and the markets. As mentioned earlier, the IT stocks can act as a hedge for a BJP defeat.

2. The FIIs were net sellers on Tuesday ad Wednesday and were buyers on Thursday. The pace of flows has slowed down. In April, they have bought only 4000 crores so far as compared to 25000 crores in March.

3. Reliance results after markets hours on Thursday were ok meeting expectations.With a 3 year perspective, RIl becomes a buy now.

4. Next week is a truncated week with expiry on Wednesday and Thursday being a election holiday. The supports mentioned last week stand and are 6610, 6480 and 6376. If the market crosses and sustains 6819, then we may see new highs.

5. I have worked out certain post poll scenarios, which I would publish on Wednesday.

Net-net, no change from last week, buy on dips and wait for May 16th continues.

Sunday, April 13, 2014

Range Bound Market in the first 2 weeks of April

The markets have gained 1.1 pc for the first 2 weeks of April. The broader market is catching up and the front line stocks are taking a short breather.

1. After a blockbuster rally in March, April was supposed to be a range bound market and so far it has played true to form. In March, the FIIs bought almost 26000 crores worth of stocks and in April the figure has been only 3500 crores with the FIIs having sold stocks on Friday worth 362 crores.

2. The markets have crossed the multi year top of 6350 and sustained above it now for 6 weeks. This now becomes a major support and the market should test this support once before May 16th.

3. The targets for the correction remain 6610, 6480 and 6376.

4. Infosys results are on April 15th and will be keenly watched. Markets tend to correct around the Results season and lets watch out for that.

5. Next week, the markets trades for only 3 trading days. the likely range at the beginning of the month was stated to be 6400-6900. we have tested 6819 and now maybe the time to test 6500-6550.

6. The Gilt fund yields have cooled down a bit to 8.95 % and the Gilt funds may give a good return if the interest rate cycle dips.

We are in a bull phase now and every dip is a buying opportunity to be either hedged at the time of election results with puts or part profit booking.

Sunday, April 6, 2014

Buy on dips Strategy continues

The markets closed absolutely flat for the week and the FIIs continued to buy. The markets displayed some very strange behaviour this week but which also implies bullishness.

1. The markets took a dip towards the end of the week. Logically, the Puts should have shown an increase in value where in fact they lost money. The markets corrected 80-90 points from the top and the Puts lost money. I am seeing it for the first time in my life except for event related days.

2.April is a slow month as there are 4 trading holidays.

3. The opinion polls are predicting BJP win which will ensure that markets remain buoyant till the elections results are out.

4. The yields have again shot up, good time to add Gilt funds.

5. Targets for this correction could be 6578, 6456 and 6355. Beyond this I do not see the markets correcting further before the elections.

6. In Diwali Picks I had recommended Godrej Properties at Rs 370 post split at Rs 185 it is now at Rs 225 and Larsen at around 1000 which is now around rs 1300.

Larsen is a good proxy for the markets. If the markets move up then Larsen has to go up.

April seems to be a leisurely month. Buy on dips and wait for the election results.

Sunday, March 30, 2014

How have the markets fared in April historically?

March seems to be a very positive month with the markets already gaining almost 7 pc. We are in uncharted territory now, and let us look at how the markets usually behave in April.

1. We have had a rally from 5933 to 6703 almost a rally of 770 points. A breather of 300-400 points is necessary to begin the next move up.

2. Out of last 13 years, April has been negative 6 times which does not say much. Every year, the low has always been at least 3-4 pc compared to March closing which means 1 visit to 6400-6450 zone is likely.

3. Also, the high has always been 1-2 pc higher than March close. So, either at beginning of the month or end of month we will see the markets going to 6750-6800 levels.

4. When March is positive, then April also generally tends to be a net net positive month. April is also a month where there is no substantial downside or upside so a range bound month is likely ahead.

5. The likely range comes to 6400 to 6900.

If we look at the Elliot waves, then some kind of wave seems to be coming to a close from 5933 to 67xx. since, we are in a bull market the correction should bring the market to 6521, 6408 or 6320. I do not see the markets going below these levels in the month of April.

Strategy for the elections:
Looking at the markets at new highs, and breaking the log term resistance of 6358, best is to buy on dips and hence portfolio with Puts nearer to counting day.

Sunday, March 23, 2014

Markets continue their consolidation

After a rally of 4 pc in the first week of March, the markets continued to consolidate around the 6500 mark for 1 more week. The markets are taking a breather after a move to new lifetime highs.

1. The Government mopped up almost 10000 crores through the sale of ETF in PSUs and the Axis Bank stake sale. This sucked out some of the liquidity from the markets.

2. The Opinion Polls continue to put the BJP ahead and this is what is keeping the markets up. The capital Goods and the Infrastructure space is coming into the picture slowly.

3. The markets hit a bottom on the 4th of Feb 2014 and then have been on a up move for about 32 sessions. April may well be a month of correction after a up move of about 650 points in 32 sessions.

4. If the markets correct, they would be correcting the move from 5933 to 6575. targets on the downside would be 6424, 6330, 6254 and 6179. Considering that the markets are so bullish, we may not go down below 6330. Also, the 6350 have been the previous top many times and would now act as a solid support.

5. There are select stocks which are still available at good valuations. Godrej Properties, L&T finance, Sunil Hitech are a few which come to mind, where the risk reward ratio is favorable.

6. The next triggers for the markets will be the full year Results after the 10th of April. Till then, in the absence of major triggers the markets may keep drifting aimlessly. also, around 7-10th April, the last round of Opinion Polls will hit the wires before the freeze comes into the picture at the time of elections.

The next week may see the markets being held up to dress up the NAVs of Mutual funds as the year bonuses are dependent on them. I expect the early part of ext week to continue the buoyancy in the markets.

Sunday, March 16, 2014

FIIs continue to Buy

It was a week of consolidation for the markets and they had a minor correction to close the week about 0.3 pc down. The coming week is a truncated week with Monday being a holiday for Holi.

There are several key points to focus on:

1. The FIIs continue to buy. As a result, the rupee is strengthening and hence the export oriented IT and Pharma stocks are correcting. also, people are booking profits in these sectors and moving the money to beaten down stocks.

2. The economic data is coming in good as far as inflation is expected ad hence the Banking stocks will continue to rise as the probability of a rate hike in April recedes.

3. The Opinion Polls continue to point to a BJP victory. so, till the election results are out there will not be any major correction, some minor dips which will be bought.

4. Preparing for the worst case scenario, one can get rid of dud stocks in the portfolio right now and focus on high quality stocks. If there is a Hung Parliament, expect the markets to remain down for 1-2 years.

5. Technically, right now a correction can be expected to 6350-6400, the rectangle from which the breakout happened.

There can be 2 scenarios right now, we immediately correct to 6350-6375 or first rally to new highs and the correct.

The fresh up move from 5933 is nearing maturity now. Post this, we will have the correction to this entire up move.

Then if the wave counts are correct, post the Results there could be another blockbuster rally.  What the pre-election rally has done is that it has give people a chance to exit their positions at least once and book profits.

Sunday, March 9, 2014

Will the markets sustain the new highs?

It was a stellar week for the markets gaining around 4 pc to close at new all-time highs. The rally was on the back of FII flows anticipating a Narendra Modi led NDA victory. The rally also leads to a few troubling questions. Let us try and answer them.

1. The rally has been led on the back of FII flows of 2500 crores in the first week of March. This is almost same as what they had put in the month of Feb'2014.

2. Now let us look at 2 scenarios post the election results and markets being at 6500-6800 at that time.

a. Narendra Modi wins.

The victory will already been have factored in and what is left on the table for the markets to rise further? A few 100 points further being turning back?

b. Third Front comes to power

If this happens, we will definitely see a down circuit or two. The dust to settle will take a couple of years during which times we will re-enter a bear market.

In both situations, a rise for the markets right now is very dangerous and speculative. Opinion polls do not have a spectacular track record and have a tendency to fail. they usually only point to a trend not absolute numbers.

The current assumption is based on BJP doing spectacularly well in UP and Bihar with seats going from 12 to 50 in UP and to 16 to 30 in Bihar.

Elliot wise,

As per Elliot, we had stated,

A rough labeling of the waves from 5118 can be as follows:

1. 5118 - 6142 (1024 points)
2. 6142 - 5700 (442 points)
3. 5700 - 6415 (715 points)
4. 6415 and on going was the earlier hyopthesis.

Now, the 4th wave ended at 5933 and the last wave up is in progress.

It has potential targets of 6648 and 6957. This would also imply that the rally would exhaust within 3-8 weeks.

We are already 4 weeks from the lows and the rally could terminate within the next 1 month or so. It would make sense to take some money off the table and sit in cash.

The markets have always give chances  to buy whether it was Dec'11,Aug'12, Apr'13, Aug'13. Patience pays.

April-May'14 may just provide a similar buying opportunity.

Sunday, March 2, 2014

How have the Markets historically fared in March?

The month of February is behind us. The range arrived at statistically was between 5850 - 6300 and the markets played true to form by being in the range from 5933-6282. Let us see how the month of March behaves historically.

1. It is the last month of the financial year and has given negative returns 8 out of past 13 year,. when the month of Feb has been positive like for this year, the returns have been negative 5 out of 7 times.Only in 2006 we have seen a massive rally in the month of March.

2. In 10 out of 13 years, the March low has been below the Feb close. This seems likely this year too since the markets have closed at the monthly high point.

3. The average gain for the month of March has been -2.2 pc, also march is susceptible to huge swings from 10 pc loss to 10 pc gain. This gives us a range of  5640 - 6903.

4. Average low below feb close is around 4.5 % which gives us a target of 5994 on the downside. average high has been around 5 % which gives us 6590.

So now we have the broader range between 5640 - 6903 and within this range between 5994 - 6590

Thursday, February 27, 2014

Vote-On-Account - What this year's interim budget means?

The Vote-On-Account has come and gone. Let us try and explore its implications. I had written a guest article for Subhankar which can be explored at the below link:

Sunday, February 23, 2014

The significance of March

The month of February is almost over and the markets have gained around 1.1 pc. The markets have proven their historic Feb behaviour of significantly going below the Jan close and bouncing back to give a mild up move. Now, the month of March is historically a very significant one.

1. March 15th is the last date for payment of advance tax. Historically, March has low liquidity and short term interest rates spike up. This leads to withdrawal of margin funding and usually markets are lacklustre. more about that in next weel's post.

2. The opinion Polls are veering towards a NDA led government. At the same time opinion polls need to be taken cautiously. If a BJP led formation comes to power the markets will spike up.

3. A major correction is due, either before the elections or after the elections. The markets could go upto 6500-7000 and then correct or correct before reaching those heights. As time passes, the likelihood of a rise first increases.

4. If one takes into consideration, the Elliot patterns, then we should finish this correction around 5800-5900 before beginning the final wave up to coincide with the results of the elections.

As per Elliot, we had stated,

A rough labeling of the waves from 5118 can be as follows:

1. 5118 - 6142 (1024 points)
2. 6142 - 5700 (442 points)
3. 5700 - 6415 (715 points)
4. 6415 and on going

Now, a logical end to this wave would be at 6141, 6057, 5973 or 5843 which matches with our figures in point 1.

we seem to be in the last leg of the down move A-B-C.

A was 6415 - 6130
B was 6130 - 6358
C could be 6358 to 5896 """

Now this C wave could be broken into:

C-a 6358 - 5933
C-b 5933 - 62XX
C- b can be spilt into a 5933- 6106, b 6106-5985, c 5985 and ongoing to end at  6158 or 6264 approx.

So what could be our strategy now?

Buy at 5800-5900, quality stocks and be prepared to watch them go lower if the rise doesn't materialize.

The risk reward is better at 5800 than at 6200.

Followed by C-c finishing between 5750-5850.