Markets continue to meander

The markets gained about a 1 pc for the week on the Nifty and continued trading in a range. This range bound trading has gone on for several weeks and will soon lead out to a breakout in either direction. Let us try and examine the various possibilities both technically and fundamentally.

Fundamentals:

1. The Government is pushing through the Divestment program. LIC has been allowed to buy upto 30 pc of a company. It was 10 pc earlier. This coupled with the news that LIC plans to invest 25000 crores in the equity markets in the remaining 4 months. LIC will be forced to puck up the stakes in the divestment program which also means that LIC will not shore up the markets. This makes the market more dependent on the FIIs.

2. The RBI credit policy review in Dec-Jan may cut rates. Gilt funds are looking great for investment right now. In the past 1 year, the Interest Rates have gone down by about 0.5 pc and Gilt funds have returned about 12-13 pc returns. I expect the Interest rates to go down by at least 0.5 pc in the next 6 months.

3. Gold has quietly gone up to 1751 dollars to an ounce. Any close above 1800 USD will lead to a breakout and at least 10 pc price appreciation in the price of Gold. The rupee has also weakened to 55 to a dollar thus increasing the price of Gold in rupees.

4. Eurozone has gone back into Recession. If one looks at my older posts, I had spoken of a W shaped recession worldwide. Europe has already gone into the W shape, with the US following it if the fiscal cliff is not resolved soon.

5. The equity markets are waiting and watching for the Winter session of Parliament. I expect no reforms to be done till December 20th till which points the markets will drift. Reforms will follow only after the Parliament closes.

Technicals:

1. Technically, we are in the 4th wave down from 5815. We are correcting the rise from 5216 to 5815. This 4th wave has completed a from 5815 - 5583, b from 5583 - 5777 and leg c is in progress.

For the leg c, c-x from 5777 - 5548, c-y 5548 - 5643 and ongoing.

Once, 4-c-y is complete we will have the last leg 4-c-z to end somewhere between 5400 and 5525.

This sets the stage for a downward market till Parliament is in session and then for a new year rally, culminating in a major top around 6000-6200 region.

4 wheeler sales in India

Auto Sales are very closely tracked  to monitor the ecomony of a country. I had written a guest post for Subhankar yesterday. It can eb accessed at the below link:
http://investmentsfordummieslikeme.blogspot.in/2012/11/a-look-at-4-wheeler-auto-segment-guest.html

Today, there was an article in the Economic Times, reproducing it for your beneift. This article can be accessed at the below link:
http://economictimes.indiatimes.com/news/news-by-industry/auto/automobiles/car-wars-maruti-on-top-hyundai-tata-motors-mm-toyota-in-race-for-2nd-spot/articleshow/17316735.cms

Markets: Time for a bounceback?

In a truncated week of trading, the markets fell about 2 pc to end at 5574 which is below its previous low of 5583. Is it a time for a bounce? Let us try and explore what the markets have to say.

Last week, I had mentioned of 3 probabilities:

I would give the 3 probabilities, following % chances of coming true:

1. Wave C-4 continuing till 5450 - 5525 (40 pc)

2. Wave C5-2 in progress till 5625 (40 pc)

3. Major wave down till 4000. (20 pc)


Probability 2 is now firmly ruled out. So, now either the market bounces from slightly lower levels or continues falling.


The reason I feel we are in for a bounce are:


1. The FIIs bought almost 900 crores last week. The DIIs sold marginally. This means there is no selling pressure.


2. The sentiment has not been damaged. There were good auto sales with Maruti and Hero Honda posting record sales on Dhanteras.



3. The markets have technically closed just the week 5 week low ema and generally do not spend much time below this level inn bull markets. The next week could well be the make or break week for the markets.

4. The gap from 5435 to 5528 has acted as a major support and should act as support once more.

5. Technically we are in wave 4 correction of major wave C.

4 A was 5815 - 5583
   B was 5583 - 5777
   C is ongoing and either wave C-a is coming to an end or the entire 4 - C is ending. Either ways a bounce of at least 100 points is on the cards.

People can go long with a stop loss of 5525 for the short term traders. I still believe we are in for a year end rally to 6000-6200.

Three Possibilities for the Markets

Obama has been re-elected, 1 major event out of the way and also the Q2 results have been declared and done and dusted. The markets were down by about 0.2 pc (Nifty) last week and now 3 distinct possibilities exist.

The markets made a significant top at 5815 and has been correcting since then.
5815 - 5583
5583 - 5777
5777-5677

The above has been the flight path of the index.

This path tells us that there are 3 distinct possibilities.

1. The market is still correcting the rise from 5216-5815 and we are in the last leg down in which case we have a target from 5450-5525.

2. The market completed the correction at 5583 and the final C-5 poised to take us to 6000-6200 has commenced and we are in the corrective second wave of such an advance.

3. The market has already topped out at 5815 and we begin the long slide towards 3700-4000 before the next bull run.

So, what are the points of negation of these probabilities.

Below 5623, option 2 is ruled out that we are correcting the rise from 5583-5777.

Above 5750, option 1 is ruled out.

Below 5350, option 3 comes into the picture.

So, how does one play the situation now.

The safest option is buying on dips. Some quantity to be bought between 5625 and 5675. Add to this between 5450 and 5550.

Alternately, one can wait for 5750 to be breached by which time the prices would have risen.

I would give the 3 probabilities, following % chances of coming true:

1. Wave C-4 continuing till 5450 - 5525 (40 pc)

2. Wave C5-2 in progress till 5625 (40 pc)

3. Major wave down till 4000. (20 pc)

My assumptions are based on the parameters that euphoria is yet to be seen in the markets signalling a major top.

The problems of the world are still not yet solved. We are not yet done with the bear market started in Jan 2008.

Wish everyone a Happy and Safe Diwali.

Some signs of Green Shoots

Over the past week, some data coming out has been encouraging. Auto Sales are on the rise again, retail chains are logging in good festive sales, so are we out of the woods yet?

The period from 2008 to 2015 was predicted to be a great period of strife for the world economy, a period of hardship and suffering which was only rivaled by the Great Depression.
The Great Depression began in 1929 with a stock market crash, the same as in early 2008. People lost jobs, banks closed, great institutions faced extinction and it was a time of great economic hardship.
Similarly, the period from 2008 onwards is a troubled time in the global economy. There are periodic bright patches of sunshine amidst the gloom.
The Auto sales have risen in October, there are long waiting lists for several models of cars. Retail sales have gone up but at the same time the hiring is at its lowest. Companies are doing all sorts of ridiculous cost cutting.
It will take time to get rid of all the problems facing the world economy, but I strongly feel by 2014, the global economy would have entered into a new growth phase. The Indian elections also would be out of the way by that time.
Between now and 2014, there should be 1 major dip in the indices which would be the last opportunity to stock up on good quality equities.
We are more than halfway through the tough economic period and the light at the end of the tunnel appears to be closer.
Coming back to the markets,

1. The range bound trading continues. We are still stuck in that trading range, though we did have a breakdown below 5630. One could go long only on a break of 5726 and if the market sustains above it.
I do not foresee any major downside except maybe about a couple of 100 points. 5450 - 5526 should be able to provide good support.

2. The US Elections will provide further direction to the markets on Wednesday. If there is a clear cut winner, the markets should rally.

3. The Results season is over and the markets will look now to Global Events. If Romney wins, there may be a short term blip as he is opposed to the loose monetary policy. If that happens then, gold prices should correct now.