Saturday, April 24, 2010

Markets Next Week: Political Uncertainty

It was another week at the markets where news dominated the events. It was a crucial results week also with heavyweights like Reliance, Wipro and the banks came out with results.

1. Reliance came in with Results which were below street estimates. The profits for Q4 were expected at 5200 crores on an average consensus and between 4700-5700 crores. It came in at 4700 crores. More worrying was the fall in operating margins from 21 % to 16 % and the fall in refining margins. Wipro too came in with just about average results. HDFC Bank and ICICI Bank will come out with results today.
So far, the Results season there have been no major surprises or major disappointments.

2. The Goldman issue died down within 2 days. Greece is again hogging the headlines. The looks of it is that the cockroaches will start coming out again. The fiscal deficits of Ireland and Greece are in the range 12-14 %.

3. What the weakness in Europe means that the USD will strengthen and the Euro will remain under pressure. US markets will continue to outperform the other markets in the short term.

4. The Dollar Index has been going up from 74 to 82 in the past 6 months, but the rupee has strengthened to 44.50 from 48-49 levels. This is because of heavy FII inflows. What can reverse this inflow?

5. Political uncertainty has increased. The Opposition is presenting an United Front and the Government is veering from 1 disaster to another. From Naxal attacks to IPL Gate to now phone tapping. The Finance Bill is yet to be passed. The government is forced to make compromises with folks like Mayawati to ensure its passage. It has a strength of 271 members in a house of 540 members. The mandate of last year seems to be in the danger of being frittered away.

6. Forecast of a good monsoon is a positive. The weather department has not forecast even 1 drought in last 150 years. Till the rains come in, we can keep our fingers crossed.


1. The markets are consolidating in this range. The expiry is this week and lets looks at the Open Interest. Max OI is at 5300 strike price with about 68 lakhs puts and 64 lakhs calls written. Normally expiry occurs +- 50 points of max OI concentration. This gives an expiry target of 5250 - 5350.

2. Interestingly, trend lines support above theory. If you see the convergence of trend lines, they form a triangle at 5305. Upward breakout at 5325 and downward at 5265. This should get resolved by Tuesday.

3. Weekly charts suggest resistances at 5345 and 5370.

4. Break of downward channel comes in at around 5328 levels.

5. If we see the charts, a cluster of resistances comes in from 5325-5370 levels. 80 pc retracement comes in at 5352.

6. 5228 is a key sipport level as market made a bottom aorund these levels twice this week.

On the whole, things have just stagnated and for the markets to go up, the negative newsflow has to stop. I do not see the markets going up unless the controversies stop.

The current week should resolve this dilemma one way or the other. The expiry week can also increase the volatility. 5258 - 5332 is the range. Break can give us 5400 or 5200.

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