Tuesday, June 26, 2012

Expect Action after the expiry

The Markets absorbed all the positives and the negatives for the last week to close a mere 0.1 pc up Let us try and chalk the road ahead for the markets.

1. A major overhang of Greece is out of the way at least for the time being for a couple of months. This does away with a big negative factor holding back the markets.
2. The RBI policy came and went with no change. The fact that the markets did not tank on no cuts bodes well for our markets.
3.Crude oil has continued around the 90 dollars a barrel mark. This bodes well for the country i terms of import prices. I expect the Petrol prices to be cut by another 2 rupees by this week.
4. The monsoons now represent a key trigger for the markets in either direction. While the monsoon has been delayed it has not been a complete washout either. There still remains hope.

Technical factors:

1. I would put the markets in a Technical bull run on a sustained close above 5227. The markets can from here do 3 things:

a. Re-test 4770.
b. Do a corrective to this up move till about 4900-4950.
c. Continue up to 5270-5350 before doing a correction.

So what does one do in this case?
4900-4950 are safe buying zones with limited downside risks. For those interested in indivdiual stock picks, I have Lakshmi and my picks

One should focus on Dividend yield stocks as they offer a margin of safety from the downsides.

Sunday, June 17, 2012

Make or Break Week Ahead

Very rarely in recent times have so many events been stacked up together. The early part of the week will decide if the markets will continue their ascent to 5600 odd levels or there will be a dip to 4800 levels and below. Let us try and dissect each event and find out the implications of each.

1. The Greece election results should be out by Monday.Why are these results so important? The reason is that the party coming to power will decide whether to stay in the Euro zone or not. If the Greeks decide to exit the euro it may lead to the unraveling of the Euro. There are various parties in the fray both pro and anti austerity. If the radical Syriza comes to power than the markets may tank.

2. The RBI mid quarter review is set for Monday. The markets have factored in a 25 basis points cut. Anything more and the markets may rally. If there is no cut than the markets fill fall especially the Banking stocks.

3. The US Fed meets on Tuesday and Wednesday. There are expectations of a third round of Quantitative easing or fiscal stimulus. If no announcements come, the markets will fall globally.

4. The election of the President of India has seen the announcement of the UPA nominee as Pranab Mukherjee. The next question is who will replace him as the Finance Minister. If the PM keeps the portfolio with himself, then the markets will view it favorably.

The Crude oil prices remaining below 100 dollars a barrel are a great relief to the government. If the trend continues, then the probability of stocks going up greatly goes up.

The question is has the Leg C upwards commenced. Leg A was 4532-5629, B was 5629 to 4770. The moot point is correction over?
1 view could be that the last down leg remains to re-test 4770 before the up move. The second option could be that leg C has commenced up. This would be confirmed above 5150 and 5227.
As I see it, any correction between 4900-4950 is a good chance to add up stocks.

Many stocks are going to be ex-dividend in the next few weeks and give an opportunity to load up on. For those interested in stocks, we have the stock picks from Lakshmi and myself.

Sunday, June 10, 2012

Will the bounce continue?

The markets had the best week, this calendar year and bounced 4.7 pc to close almost at the high point of the week at 5068. Can the bounce continue? Let us look at few technical and fundamental reasons which can impact the markets.

1. The 50 DMA is at 5090 and 200 DMA is at 5066. These are the immediate 2 resistances for the markets to scale.
2. If we consider the fall from 5342 as 1 leg, then the 50 pc retracement is 5056 and 51.8 pc retracement is at 5123. Also, for the entire fall from 5628, the 38 pc retracement comes at 5098.
3. The markets are touching the upper end of the Bollinger Bands showing immediate overbought positions.

From the above Technicals, we can note that fresh buys can be considered only on a closing above 5125. If we consider downsides from here as a corrective, then the targets can be 4964, 4927 and 4889. One can consider long positions at 4964 and 4927 with a stop loss of 4889.

1. The Crude prices further stabilized at around 100 dollars a barrel. If this sustains then the petrol prices can be further reduced. In fact, the price before the hike of Rs 70 was the correct price for the Petrol.
2. Growth has faltered making a rate cut more likely in the next meeting of the RBI in June.
3. Spanish banks have received a bailout thus preempting a Spanish economic crisis for the moment. All eyes are on Greece with next Sunday's crucial elections.

If parties supporting a move to stay within the Euro win the Greece elections, expect the rally to continue. I expect the week to be a quiet week in anticipation of the results and also domestically waiting for the progress of the monsoons and the RBI policy meet decision.

Taking Elliot into consideration, I feel there are 2 possibilities:
1. Of the XYZ move from 4532 in December, we have started the last leg up with targets of 5650-5850.
2. Y leg down is still continuing, and we are Y-c-b. That is a corrective up move before a last fall to around 4650-4750 levels.

So, what can one do? Restrict buying levels around 4900-4950 and invest in good dividend yield stocks.

The reason, I say so because in any case I feel a test of 4900-4950 is due before a fresh up move.

Sunday, June 3, 2012

Key Triggers to Watch out for

The markets tanked on Friday, dragging the markets down 1.6 pc for the week.Let us have a look at a few of the triggers which could influence the markets in the coming weeks.

1. Crude oil prices tanked on a global slowdown. Brent crude was trading at 98 dollars to a barrel down from the peak of 125 dollars in March. These should ease the Government subsidy burden.
2. The Petrol price hike means the Government finally wants to take some action on the Reform front. If more such reforms come through, then expect a rally.
3. The FIIs are not pulling out big time. There are sporadic bouts of selling which are getting absorbed by the markets.
4. Many stocks are trading higher than they were when last time the markets tested 4800 odd levels. Reliance is a major drag on the markets.

1. The Global investment climate is getting worse. World markets are tanking and we cannot be immune to a global slowdown.
2. The GDP growth has come down to a 10 year low of 5.3% for the last quarter of FY 2012. There will be downgrades if the situation persists.
3. Government needs to take steps to sort out the Telecom mess. Fresh auctions, reserve price for the auction all need to be sorted.

Key Events:
1. The Greece elections on June 17 and whether they remain i the Euro will be key trigger for the markets. That will decide whether we test 4300 or 5600.
2. Spanish default looms large. How this event is handled will decide the course of action.

Course of Action:
Many stocks are trading at a dividend yield of 5 %. The dividends are due in about a month's time. 1 way of looking at it is over next 13 months, one will receive about 10 pc returns as dividends only givnig a fair margin of safety. I would like to buy such stocks identified by me and Lakshmi.

Buying at 4750-4800 levels which are strong areas of support, these dividend yield stocks gives a very good margin of safety.