Sunday, October 28, 2012

Tight Range Continues

The Markets had another flat week losing about 0.4 pc. The market continues to grind in the range from 5640-5730. Only once this range breaks we can expect a substantial move on either side.

1. The next trigger is the RBI policy on Tuesday 30th October. I expect a CRR cut of 25 basis points.Anything more and the markets will rally.

2. The Results season is all but over and a few results have been stand out like M&M, ITC and Larsen. This again goes to show that the quality of management does make a big difference.

3. I have posted the long term Elliot chart in my previous post and expect the market to head higher for the rest of this year after a minor dip in between.

4. The key levels to watch would be 5633, 5603 and 5527. Around 5500 would be a very good buying opportunity.

5. The Cabinet reshuffle has happened and it is not a big deal. It is just that more people from the Congress have got a chance to enjoy the fruits of being a Minister. They have tried placating AP and West bengal, a move which is unlikely to reap any great dividends.

The bottom line is wait for the tight trading range to break either at 5730 or at 5633. A break on either side would give a move of at least 100 points. 5830 therefore becomes a place to book some profits and 5500-5530 becomes a place to add some of the blue chip stocks.

We got a very good response for the Picks launched by me and Lakshmi. It is now time to close the subscriptions. Thanks to all those who subscribed. It was a great learning experience for me too and I have become a better investor in the process.

Wednesday, October 24, 2012

Long Term Elliot Chart

I have tried to map the move from Jan 2008 till date in terms of Elliot waves. The chart is self-explanatory.

Sunday, October 21, 2012

Markets ready for a breather

The Markets gained 0.1 pc for the week and formed a Doji on the charts. A Doji is usually formed when the markets are indecisive. The markets are continuing the correction started from 5815. Let us see how deep the correction can go.

1. In Elliot terms, we are in the third leg of the upmove started from Dec'11.

A was 4532 - 5629
B was 5629 - 4770
C is 4770 - 4829 and ongoing

C can have targets of 5867, 6174 and 6544.

C is sub-divided into,

Wave 1 4770-5348
Wave 2 - 5348 - 5032
Wave 3 (i) 5032 - 5448
             (ii) 5448 - 5216
             (iii) 5216 - 5815
             (iv) 5815 - 5637 and ongoing

I expect the correction to halt at 5586, 5515 or 5444.

2. RIL results came and were disappointing. I have put up a detailed analysis at the below link:

3. The global markets are correcting and I expect our markets to continue to correct. October months are notorious for lack of movement.
We are -0.3 pc for the month so far and I expect a dip till this expiry and then a pullback to finish the month marginally in the red. The coming week is a truncated week with a holiday on Wednesday and expiry on Thursday.

4. TCS and HCL Tech results were good and they again reiterated the fact that Infosys is falling back. TCS had greater client addition as well. In terms of profit margins also, Infosys is falling behind TCS. Once upon a time, Infosys used to claim much superior profit margins.

5. The Corporate results season is on in full swing. There have been a few standout performances like ITC and TCS. Some like RIL have disappointed.

In a nutshell, this is a buy on dips markets till there is no global trigger. Use every dip to accumulate good stocks.

Sunday, October 14, 2012

Mild Correction to Continue

The markets were down 1.2 pc for the week and the market was range-bound for most part of the week. Let us try and find out what the market direction will be for the current week and in the medium term.

1. The markets had a target of 5674, 5586, 5515 and 5450. Of these 5674 was achieved before the markets bounced back from the support area.
2. The liquidity flow is keeping the markets at higher level. A consolidation and a mild correction is essential before the markets start the next leg up.
3. The bye-elections results over the weekend where Congress lost in their stronghold in Uttarakhand and the President's son just scraping through in West Bengal means that the tide may be further turning against the Congress.
4. The Government may try to push through more reforms before opting for elections at the earliest in September 2013. This would again depend on next year's budget and the monsoons in the next year.
5. The stocks with stronger fundamentals are rallying. The Q2 results have started trickling and Infosys disappointed again. Infosys need not be an indication of the IT Stock results because in the past couple of quarters we have observed that other IT companies come up with better results.
6.The broader trend of the market remains up and targets of 5944 - 6200 remain on the horizon by Diwali.

I will post the Broader Elliot picture over the course of the week. As Octobers are usually quiet periods especially when we have had strong Septembers, the markets have played true to formand have declined just 0.5 pc in the first half of the month.
Come Navratri and Lakshmi Ramachandran and myself are launching our Top 10 picks, after the success of Cherry Picks and Midcap magic which netted 47 pc in 1 year and 52 pc in 9 months respectively. For those interested, they can get in touch with Lakshmi.

Sunday, October 7, 2012

Buying Opportunity beckons shortly

The markets have had a wonderful run up in the past few weeks. This has been mainly due to a confluence of 2 factors. Government making positive reform announcements and abundance of liquidity thanks to the measures announced by the US Fed. Let us look at how we can profit from these 2 factors.

1. As we saw in last week's study, if we have a very positive September, then the Octobers are usually flat or with a limited upside. For this expiry, I see the top at 5800-5850 and a base at 5350-5400. We have tested the upper side and now it is time to test lower side of the range.

2. The last up move has been from 5216 to 5815 which is almost 600 points. A retracement to this can lead us to 5728 (already done), 5674, 5586, 5516, 5445, 5357 and 5336. Below 5336, this bull market would be over. Since, we are in a strong up trend I do not expect the markets to fall beyond 5516-5586.

3. We are in the last frenzied up move of this rally which started from December 20th 2011. We had 3 legs from Dec'11. First was 4532 - 5629, second was 5629-4770 and 3rd is ongoing from 4770-5815. 1st leg consumed about 2 months, second consumed about 5.5 months. The 3rd leg has been ongoing for about 2 months now. I expect it to go on for 3.5 months. (Time for Up move = Time for Down move)

4. Fundamentally, the rupee has strengthened to Rs 51.8, thus cutting down on the import bill and also reducing the fiscal deficit.

5. The FII inflows continue unabated. The next 1.5 months will be a great opportunity for the traders to trade in and out of the markets. It also is a time for long term investors who can buy, book part profits, reduce their cost of acquisition and wait it out enjoying the dividends.

6. The US elections in November further strengthen the case for markets remaining bouyant. Obama was routed in the debate but came up with a good jobs number. Hpw accurate or true are the numbers is a matter of speculation. This type of newsflow will add fuel to the fire of keeping the markets up.

7. The Government will try to push in the disinvestment while the markets are buoyant. For this very reason, expect positive newsflow from the Government till the model code of conduct kicks in for the polls in Himachal Pradesh and Gujarat. BJP retaining these 2 states will state the stage for the markets to correct.

To sum up, the positives for the market are the liquidity, reforms announcement from the Governments.

The negatives are Spain crisis looming large, the domestic and US election results. The negatives are still further down the road and it is time to enjoy the good times while they last.

Lakshmi and myself have come up with a revamped fresh set of stock picks with which long term investors can benefit. Our last 2 set of picks have returned 47 pc in 1 year and 52 pc in 9 months respectively. For those interested, they can contact Lakshmi.