Sunday, August 14, 2011

Markets: What next?

The markets lost a further 2.7 pc to close down at 5073. This is on the back of further negative news from Europe and US, a sharp spurt in Gold prices, good IIP numbers and FII selling.

1. The FIIs have sold almost 11000 crores this year ad 7000 crores in the first fortnight of August. The DIIs have picked up almost 20000 crores of shares this year and about 6000 crores in August. The market is down about 17 pc YTD. It is clear that the market dances on FII tunes. If the rupee weakens and the FIIs pull out cash, the market will go down.

2. Gold has given a breakout and is a buy on dips. As the currencies of the world weaken and the debt crisis increases, gold will go up.

3. SBI had a poor set of numbers. The NPAs are increasing and also the Rate Hikes look set to continue. Avoid the autos and the banks.

4. We had good IIP numbers and yet the markets fell. Why was this? This is because good growth means the RBI can hike the rates further to tame inflation and afford to sacrifice some growth.

5. Looking at the Elliot Waves, we are C wave from 5944

Wave 1 was 5944 - 5196 = 748 points
Wave 2 was 5196 - 5741 = 545 points
Wave 3 was 5741 - 4946 = 795 and ongoing.

Wave 3 should end this week and get set for a rally of about 450-500 points on the Nifty.

6. The band 4750 - 4900 has a confluence of supports and should hold for the present moment.

7. The gap area of 5204 to 5323 will act as a strong resistance. This gap getting filled up is the first sign of a bounce.

8. Open Interest points out to support at 5000 levels and resistance at 5200 and 5300 levels.

Strategy for the Week:
Historically for the past few months, the markets bounce towards end of expiry and hence cut shorts around the 5000 levels and be prepared for an expiry around the 5200 - 5300 levels.

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