The Range Bound Trading continues

The markets lost 1.5 pc this week to close at 5209. In the last 2 weeks, the markets have gained a net of 2 points. Its a listless and range bound trading. The optimist may say that the markets are not going lower. The pessimist may say neither is it going higher. Either ways the markets need a strong trigger. Let us try and explore the positive and negative triggers.

Positives:

1. The Parliament will be back in session in a few days time. If the provisions of GAAR are softened, the FII flows will return.
2. The early forecasts about monsoon are positive. If the trend continues, the markets have a reason to rally.
3. Facebook IPO is scheduled for early June. Globally markets may be kept buoyant till the IPO goes through. It will have a spill over effect on our markets.
4. We have rallied for 2 months and corrected for 2 months. In spite of this we have corrected just barely about 50 % retracement which implies that this down move is only corrective in nature.

Negatives:
1. The FII flows are drying up. Without the FII money our markets will go nowhere.
2. The policy paralysis continues. Diesel is being subsidized by 15 rupees and petrol by 7 rupees and the government seems intent on doing nothing and let the oil companies bleed.
3. Ruckus in the parliamentary session and inability to pass any key bills will led to further tanking of the markets.
4. The Spanish worries if they escalate could lead to the global markets tanking. Our markets will just follow the global markets.
5. A weak rupee is making oil imports expensive. The Iran threat has almost passed.

I see a downside of maybe 100-150 points and then a potential upside of about 500-600 points minimum. Rallies don't peter out in a whimper. There has to be buying frenzy before we end this up move. This is missing. Hence, I would be a buyer on dips accumulating quality stocks.

Mid-Week update

Just a quick update looking at the charts. Markets are likely to go a bit lower. The Corrective B correcting the up move from 4531 to 5629 is not yet over. Only legs A and B are over. 1 more down leg starting from 5378 is ongoing.
The target for this could be 5074 which coincidentally is close to 50% retracement of the up move. Be prepared to nibble at lower levels.

RBI surprises by a Rate Cut of 50 basis points

The markets rallied by about 1.6 pc after the RBI surprised by cutting rates by 50 basis points instead of the widely expected 25 basis points.

1. The corporate results are beginning to pour in. The results of HCL Tech and HDFC Bank are good. Reliance had a poor quarter and about 42 pc of its profits came from investments. It means that Reliance has a lot of cash on its books and doesn't know where to deploy it. Reliance is a stock which I would stay away from at the current moment and look at only about 10-15 % lower.

2. HCL Tech results again underlined the poor results of Infosys. Infosys was and is a great company. It is not going away anywhere but it is losing its aura where it could command a higher premium both in terms of its pricing with customers as well as on the markets. The other IT companies are catching up with it.

3. Infy decision to freeze salaries as well downsize variable pay is going to increase attrition. People with Infosys on their CV are in demand in the market. Infy may see a spike in attrition from the current 12 pc to about 15-18 pc.

4. Spain worries come and go. It will still be some time before the bubble bursts and till then its trading time in the markets.

5. The markets are oscillating in the zone of 5200-5300. Till it breaks above 5400, I expect this to continue.This time the action is focused outside the Nifty. The Nifty may not be going anywhere but the individual stocks are zooming.

6. All dips are buying opportunities as the FIIs continue to buy.

7. The US Presidential years are ones where the markets generally do well. The QE-2 will end in June and I expect the Fed to come up with some further stimulus which will act as band aid and hold the markets.

8. The RBI rate cut means a marginal relief to home buyers. It signals the end of the rate hike cycle. Further rate cuts will hinge on a good monsoon, crude prices and the subsequent impact on inflation.

9. This may be the last chance to lock in FDs at attractive rates for a period of about 5 years.

10. The strategy to be adopted for the week will be to trade light and wait for a close above 5400. It would not be a bad idea to focus on good mid cap picks.

Infosys disappoints and weak global cues

The markets lost 2.2 % to close the week at 5207. The European cues and Infy results dragged the markets down.

1.Infosys results cannot be taken as the benchmark for IT as a whole.Its best to wait and watch the results of TCS and Cognizant. Infy is set to move to third spot with Cognizant taking over. No pay hikes this time at Infy may lead to increase in attrition. The best days of Infosys may be behind it.

2. The RBI credit policy on Tues has a Repo cut of 25 basis points factored in. With inflation still pretty high, its difficult for anything more. At best a CRR cut of 25 basis points and a Repo cut of 25 basis points.

3. Wave C began at 5136 with a target of at least 5650. We have retraced almost 80 pc of this. Sustaining below 5180 would open further downsides.

4. FIIs have been sellers in the month of April. They have sold to the tune of 284 crores. Till they start buying, the markets will not go anywhere.

5. The movement is likely to be stock specific. The resistance area around 5350-5400 needs to be cleared for further upsides. The good part is that the stocks are not tanking much.

6. The European markets tanked because of Spain bond auctions. The yields rose making it more expensive for Spain to borrow. This may be a trailer of future crisis in Europe.Spain is much larger than Greece and if it faces a debt crisis expect the world markets to tank and Gold to rise.

7. The markets are looking for an upside trigger which may come in the form of RBI policy. Let us wait and watch.

For those interested in stock specific views,
http://vipreetinvestments.blogspot.in/2012/04/follow-broader-picture.html

Mid Week update

The markets seems to be bottoming out. Above 5341, the markets will have ended the down move.
Trend line study shows a higher close tomorrow will end immediate down trend and above 5326, the intermediate down trend will be over.
The only negative factor has the been the FII sell figures this week.
The positive factor is that the indices have tanked but the stocks have ot fallen by much.

Awaiting the Results season

It was a three day trading week and the markets went up by 0.5 %. The Results season is almost upon us. Infosys comes out with results on Friday.

1. The 2 key events which could drive the markets in April are the earnings and the RBI policy on the 17th of April. I do expect a CRR cut in this policy as well. Inflation has started heading up again and unless we have good monsoons, it is unlikely that the inflation will come down fast.

2. The Results are usually factored in by the markets and unless we have very good or very bad results, there should not be any impact on the stock prices.

3. As per Elliot, the C wave of a A-B-C up move is ongoing from 5136. C wave will be in terms of 5 waves.
Wave 1 from 5136-5378 = 243 points. Wave 2 ongoing with targets of 5286 (already done), 5257 and 5228. Only below 5184, the entire up move is over.

4. Waves 3 to 5 should take about 1.5-2 months and target about 5650-5977. We will analyze the sub waves as we come across.

5. This also means that a short term trading buy opportunity is staring us in the face. If anyone is interested, there is a list of stocks identified by me and Lakshmi. I trade in and out of these stocks.

6. This may be a bear market rally in a long term bear market. The reason being the 10 year gilt rates are still at 8.68 % not far from the 8.92 % peak rates. Bear markets always end with interest rates coming down. These are not showing any signs of coming down. Crude oil is at 125 dollars a barrel.

7. Such markets should be treated as trading opportunities to lower the cost of acquisition and move out. Keep these stocks for the dividend yield and build a very long term portfolio.

I had a query from Ganga that if the markets topped out in May, how would they reach 4200-4300 in June. The markets will begin the process of going lower in May and would at least take a year to hit lower levels.

The Correction Ends

The markets finally rebounded on Friday.It closed the week with a gain of 0.3 %. The more heartening fact was the support it got in the 5150-5200 region.

1. The Current up move which started in Dec'11 can be treated as a corrective up move to whole down move from 6339 to 4532. I believe post this up move which can end any time between May and June we will see a final fall which will have a final bottom any where from 3400-4200.

2. The current up move had a leg A from 4532 to 5630. Leg B from 5630 to 5136. Leg A was 1098 which was corrective about 45 % by leg B.

3. Leg C can have a target of 5813 which is 61 pc of leg A. In any case it should not extend beyond 5977 which is the 80 pc retracement of the entire fall.

4. Banks, infrastructure and power sector could be the sectors to lead the rally. This rally should be used to lower the cost of acquisition of shares. The same shares could be held in the long term portfolio.
An example is if 100 shares of Yes Bank were bought at Rs 332. The price when it reaches Rs 373, one could sell of 85 shares. The remaining shares will cost approx Rs 100 and a dividend of 4 rupees expected ( You get a 4 % dividend yield which will rise as the years roll by).

5. The first of the resistances should hit us around 5400-5450.

6. Larsen NCD is again quoting around Rs 995. It has a yield of 10.24% over the next 8 years and with good liquidity, is a very good option. One can sell it like a stock and get the money within 2 days.

7. The global factors are at ease. The domestic issues like Budget, UP elections are behind us. The P Notes issue has been solved (This is a trick since the days P Chidambaram was FM). Raise the issue, the markets get a beating, then come and make the right noises and we back up. I used this down move to add good quality stocks identified by me and Lakshmi. The lowering of cost price strategy has worked very well for me.

8. The Annual results are already factored in. I have noticed every quarter that very rarely the results influence the markets.