Wednesday, May 30, 2012

Target 5100 beckons

The first 3 days of trading have shown a net gain of about 30 points. Interestingly, I find my mid caps picks also moving up. 4922 remains a key support and I find it being tested. Technically, if the down move is still on, then we are Y -B corrective up move which should target 5050-5100. Post this, I see another re-test of 4800-4900 before the move up to 5650-5900.
4750 and 5100 remain the boundary areas beyond which further falls or rises can be speculated upon. June 17th when Greece votes we will see decisive moves. My sense is Greece will stay i EU and we will see a relief rally.

Sunday, May 27, 2012

Petrol price hike raises hopes

The Government bit the bullet and raised the Petrol prices by Rs 7.5 raising expectations that further reforms will take place in this small window of opportunity. The markets responded by closing 0.6 pc higher after several weeks of losses.
1. The Government raised Petrol prices but the real losses come from the sale of Diesel where there is under recovery of almost Rs 14. Only when these prices are raised or taxes increased on Diesel vehicles and extra tax amount paid to OMCs (Oil Marketing Companies) will the real losses be stemmed.

2. The Facebook IPO disaster will ensure that there are no more mega IPOs in the global markets in the near future.

3. The Indian markets now will be affected by the global cues only after the Greece elections on June 17th. Expect the markets to edge up till then. If Greece stays in the Eurozone, expect a rally in the global markets.

4. Domestically, also the key results are out of the way and the Parliament is shut. Only, some initiatives on reforms by the Government can lead the markets to rise.

5. Technically if one goes by the Elliot, we are till in the corrective way B to the up move from 4532. We are in the last leg of correction. B can be sub divided in w-x-y. w was from 5629 to 5136, x was from 5136 to 5342 and y -a from 5342 - 4789. y-b is on going and the a final fall up to 4750-4800.

6. Any fall below 4750 is a matter of concern and would place the entire up move in doubt.

Strategy remains to buy on dips below 5000 with a stop loss of 4750. One should look at good quality, high dividend yield stocks.
For those interested in individual stocks, we have the picks by me and Lakshmi.

The Government at least started taking tough decisions. For me, I still feel a Petrol car is a better bet with all the discounts available. In a  Diesel car, you save about Rs 3.75 per km. So, if your break even point will be around 33000 kilometers. For this your annual running should be more than 11000 kilometers or roughly 900-1000 km per month.

Wednesday, May 23, 2012

Mid Week Update

The Government has just hiked Petrol prices by Rs 7.5. The markets should take this as a sign of Government keen on reforms.
The key question of price hike of LPG and Diesel remain unanswered.
Technically, the market is at support levels and if it holds 4800 then we should bounce from here. The difference from the lows of last week is that several stocks are holding up and not falling down along with the Nifty which could be an indication of base formation for the moment.
4750 remains the key level. Any move below it would indicate retreat back into bear market territory.

Sunday, May 20, 2012

Markets: What next?

The markets closed 0.8 pc down to maintain the down trend from 5630.We are at a critical juncture right now and there are broadly 3 possibilities which can occur now. Let us try and examine them and see how we can leverage these for our benefit.

1. The markets bounce from here or around 4750. We then continue the 3rd and final leg of the up move from 4532. The reason 4750 is critical is that it is the 80 pc retracement of the up move from 4532 to 5629. We may go back and from a double top around 5629 or continue upwards at 5750-5800 region.

2. Second possibility is that we bounce from here and form a retracement to the down move from 5629 or 5342. In this case, we may bounce anywhere between 5100 and 5300.

3. The third possibility is that we continue to fall further and test the December 2011 lows. This would been that the downfall has begun giving us targets of 4300 and 3800.

So what does one do now?
One could buy a few stocks for trading and reduce the cost price by booking profits firstly at 5100-5200 levels and then at higher levels. If the markets fall, one could always average out at lower levels. For this strategy to be successful, one will have to focus on good quality dividend yield stocks.

For those interested in individual stock picks, Lakshmi and myself have identified a few stocks.

The Parliament session ends on May 22nd 2012. If the Government does not hike fuel prices within the next fortnight, it will never be able to do so. The Parliament is not in session for the next 2 months neither are any State level elections scheduled. This is the last chance for the government to usher in reforms.

The Greece crisis will play out only after June 17th when fresh elections are held. Greece may very well move out of the Euro.

Either ways, as I see it the next few weeks will usher in a few weeks of relief rally. The markets are testing the RSI level of around 28 around which historically there has been a bounce.Only in crisis like scenarios do the markets fall further.

The P/E of Nifty is now 16.85. The markets typically bounce from a P/E of 14-16 except in a crash like scenario where we may go down to 10-12 range. 14-16 means at current valuations Nifty should bounce from 4650 levels which is the fair valuation.

Friday, May 18, 2012

Where do we stack up now?

We hit a low of 4796 this morning. 4750 is the 80 % retracement of previous rise below which we will hit new lows. 4750-4800 is also the trend line support joining all lows from Oct'08.Below 4750, we are headed to fresh lows.
We should take support and one can buy quality high dividend stocks now.

Sunday, May 13, 2012

Negative news drags the markets down

The market have lost another 3.1 pc to end the week at 4928. The markets are at critical levels. So, what do investors do at such junctures?

1. The markets continued their downward movement on a variety of factors including Euro problems, policy paralysis by the government. The Government again postponed the FDI in insurance.
2. The Corporate Results continued to be a mix bag. One should focus on stocks which have low debt, are in sectors in which there is no Government policy confusion and give a steady dividend yield.
3. The markets broke through 4950 which was the 61.8 pc retracement level of the previous rise. The next critical level to watch is 4750. The markets may take support there and rise or if that is broken then we can test 4300, 3900 or even 3600.
4. The saving grace had been the falling crude oil prices though a weaker rupee has partially offset that. The Government shows no inclination of hiking fuel prices and the oil marketing companies continue to weaken.
5. For risk averse investors, the FD rates have started falling and this could be one of the last few chances to lock in at lower rates.
5. Another safer strategy is to focus on companies which give Dividend yields of around 5 %. Dividends are tax free in the hands of investors and yield about 7 pc if one were to consider the tax saved.
6. The markets are at a cross roads.

The reasons why the current fall is just a correction is that markets have corrected about 61.8 pc of the rise but taken more 1.5 times it has taken to rise. Usually, the falls take much time than the time it has taken to rise. Secondly there has been no major selling by the FIIs. They have stopped pumping in the dollars but have not made any major withdrawals.

Equities over the longer term always yield more than the FDs. For those who can afford to wait, the best option is to now continue thier SIPs and cash out when the markets hit their peaks. Also, bear markets typically last 12-15 months where as the bull markets go on much longer. The last 2 bear markets were from Jan'08 to Mar'09 (14 months) and Nov'10 to Dec'11 (13 months).

If we take this as a bear market from feb'12, then 3 months or almost 1/4th of the bear market is almost behind us.

So, the focus now should be high quality dividend yield stocks.

Wednesday, May 9, 2012

Mid Week Update

The markets have lost about 2.2 pc in 3 days and are at a critical level. 4950 is the 61.8 pc retracement level of the entire rise ad the markets should take support here.
After 4950, the next support comes at 4880. The entire up move will be invalidated  below 4751. Strategy could be picking up good dividend yield stocks. Many PSU banks have tax free dividend yield of about 5 % which is equivalent to more than 7 pc pre-tax. Such banks are a safe bet at current levels.

Sunday, May 6, 2012

Crucial Week Ahead

The markets ended 2.3 pc down to close at 5089. This is its lowest close since early Jan 2012. Is it all over for the equity story or is it a buying chance? Let us have a look.

1. The budget session opens on Monday. The government is expected to clarify on the GAAR issue and the Mauritius issue. Expect the government to blink. A deferment to 2013 with the DTC of GAAR and the markets will cross 5300 easily.
2. The French elections will be out of the way by Monday. Whatever knee jerk reaction with the election of Hollande will pass. Remember the markets have already factored in his victory.
3. The crude has corrected quite a bit. It has reached 113 dollars to a barrel. Rupee has weakened but any further weakening of crude will help the Indian economy.
4. Rupee is at an attractive level for the FIIs to bring in more funds at around 54. Even if rupee goes to 50 and markets do not go anywhere that is a 10 pc return on investment.
5. The FIIs are still buying. Friday figures were around 400 crores.

1. As per Elliot, we are in the last leg of the corrective wave B.
Wave A was 4532 - 5629. B is 5629 and ongoing. 50 pc retracement comes to 5081 which is already tested.
2. As per the trend lines, big support comes around 5000. If this violated, we fall back in the channel.which can take us to 4200.
3. The entire down move gets over above 5280. Hence 5000 and 5280 are 2 key areas to watch.

My assessment looking at the time taken for correction and the magnitude of fall is that this is just a correction and not a fresh impulse down. We should see one more up move taking us to 5700-5900. For the cautious folks, PSU banks giving a tax free dividend yield of 7 pc are the place to park their funds. For those interested in stock picks, we have Laksmhi and my list.