Sunday, November 28, 2010

Worry Clouds on the Horizon: The Big Picture

Over the last few weeks, several events which have occurred which are a reason to ponder over if not outright worry. Fundamentals do not change overnight but are a work in progress and suddenly one day the symptoms become apparent to all and the trend changes. The build up to such a trend change takes a long time.

Global factors:
1. The US came up with the QE-2 program of pumping in 600 billion dollars. This just confirmed the worst fears that the US dollar will be toilet paper sooner or later. Aything in excess is bad and excess dollar printing debases the value of the dollar. The only thing holding up the dollar is its safe have status. It just needs 1 event to trigger panic and have the world lose faith in the dollar. The event could be anything, war, economic collapse, trade wars.
2. Gold is the only safe haven. QE-2 demonstrates that. The price of gold has accordingly behaved the same. It has stayed above its previous peak of 1280 dollars for quite a few weeks.
3. Europe is in a bigger mess. Greece is gone, Ireland is gone. Portugal will be next and then Spain. As the economies get bigger, the bailouts will extract a bigger price. Spain bailout may well test the future of the Euro. Countries like Germany simply cannot continue to enjoy the advantage of a weak euro aiding their exports and not take the pain of supporting the weaker economies.
4. Japan is already talking of currency wars as their strong Yen is hurting their exports. China with its weak Yuan policy is already adding fuel to the fire.
5. Conflicts like the Korean are just small blips on the horizon. A conflict will hurt all parties concerned. Its mere shadow boxing. If it goes out of control, then we have a problem on the hands.

So far, the global crisis was a selling point for the Indian story of growth and 9 pc GDP. Over the last few weeks, the series of corruption crisis have severely dented Manmohan Singh's credibility.
1. The 2 G scam siphoned off huge sums of money from the Nation. What is even more worrying is the brazenness of those involved. The JPC probe demand is justified and necessary. JPC is answerable only to the Parliament and can summon even the PM. If the Congress has nothing to hide, why create such a row over JPC.
2.Adarsh scam has indicted the defense establishment. The judges of Allahabad High COurt are also under scrutiny. So far, it was an established fact, that politicians are corrupt, now the malaise is spreading to the pillars of the Indian society.
3. These events do not have an immediate impact. They have a domino effect and one day the Dominos fall.Already, Transparency International has lowered India's rating by 6 places. TI is a world renowned anti-corruption watch dog.Many MNCs base their decision to invest in a country on these ratings.
4. Victory of Nitish Kumar and its margin suggests the electorate supports good governance. Gujarat is also one more example of good governance. 9 pc GDP growth cannot be taken for granted. As I see, Congress may well lose the 2014 elections. Remember in 2004, Congress was written off. Similarly, history could repeat itself and NDA may well make a comeback with a reduced role for the BJP.
5. The FIIs have just withdrawn 4000 crores, less than a billion dollars and the markets have fallen 9 pc. This doesn't speak much of the depth of Indian markets. If FII selling intensifies, markets will just collapse. What is especially worrying is how midcaps have just collapsed. HCC from a peak of Rs 81 to Rs 40, loss of 50 pc and several more companies have fallen similarly. Just open Economic Times to see the number of companies making 52 week lows.
6. This butchering of the midcaps is what sets this correction apart from other corrections since Mar'09.
7. We may well have 1 more round of up move left. Caution bells are ringing loud and clear. Its time to take profits off the table, and also invest only in blue chips if you must.
Bullish scenario:
Bull markets end with a big bang. Remember Jan 2000 and Jan 2008. This time the fall is channeled, so just a correction.
Bearish scenario:
Sentiment has gone bad. Mid caps slammed. This normally doesn't happen in simple corrections.

Sunday, November 21, 2010

Expect a bounce ahead

It was a week of losses at Dalal Street but are things as bad they seem to be? Let us try and explore.

1. The markets lost about 3 pc to close at 5888.DIIs bought worth 865 crores and the FIIs bought worth 32 crores. Now, this can be interpreted in 2 ways. Markets fell in spite of 2 pillars not selling indicating shallow market. Else, it was operator driven selling.

2. We have trend line supports at 5803, 5830. These are very important supports as breaking this we enter the previous channel and 1 trend line is line joining lows from March 2009.

3. 5960 becomes a very key level as 5 week low ema and 5 day low ema is around this point.

4. The Bollinger band has touched the lower line after touching the upper band implying a bounce is possible anytime soon.

5. Ireland crisis seems to be over, 2G is settling down. Even if we have hit the top, expect a corrective upmove to 6045, 6101, 6156.

Corrections are part and parcel of trading. One should follow the trend for trading. We are near key supports and expect at least corrective bounces any time. We have now fallen for about 9 sessions and usually all falls are for 8-11 sessions.

Saturday, November 13, 2010

How has November been historically for the Markets?

November has been a positive month for equity markets. The high has always been in positive terms. Max of 15 pc, min 2 pc and average of 8.8 pc. This gives us probable targets of (6920, 6139 and 6547)
The low points have varied from -13 pc to 0.21 pc. We can exclude -13 pc because we were in the midst of a bear market. Average has -2.8 pc giving us a potential low of 5845.
The close has been positive 8 times out of 10. Average close has 5.6 % higher than October. This gives us a target of 6355.
So now we have a potential low of 5845, high ranging from (6139, 6547, 6920) and a potential close of 6355.
It is a buy on dips market totally. Most money is made or lost in the last leg of bull market. Euphoria is needed for bull market to end. Coal India and Obama may give this much needed last fast rally.
The Bollinger Bands on a weekly basis give us a target of 6420.

The monthly Bollinger band gives us an overbought picture last seen in Jan 2008. This gives us the possibility of a crash sooner or later.

Based on current evidence at disposal, recommendation is to be long with trailing stop losses as given in Daily Levels. Also, no writing of puts. Either buy calls or write calls.
Targets of 6422, 6547, 6920 are on the cards. On the lower side, 5540, 6017, 6142 are stop losses for longs.

I had done this analysis last week but forgotten to upload it. Taking this week into factor, keep 6000 as key level.Below 6000 down we go.

Thursday, November 4, 2010

Diwali Picks 2010

It is that time of the year.New Mahurat, new beginnings. Have a look at this year's prediction and may each one have a wonderful year ahead.

Thank you Lakshmi and Lalita without whose tireless efforts, this presentation would not have been possible.

The Technicals are by Lakshmi. She is one of the finest Technical Analysts I know.

The link to her blog is

The presentation can be accessed below:

Wednesday, November 3, 2010

All Indicators in buy mode

I did not take get time to upload charts but all my indicators are firmly in buy mode. A strategy could be buy 6300 call and 6000 puts and see how it goes tomorrow.

US Elections: Mixed Signals

Contrary to the expectations, the Democrats have not been trashed as badly as expected.Holding on to the Senate is a major face saver for Obama.
Mid-term elections are just a milestone onto re-election 2012. The present results may mean that QE-2 is just a damp squib. The probabilities increase of a lower QE-2.

If before elections it was 80 % in favor of big bang and 20 pc in favor of less, now its 60-40.( 60 pc big bang, 40 pc small amount)

Technicals indicate upmove. Keep watching for updates as we go.