How have the markets fared in the month of January?

The year is drawing to a close and we are nearing the key months of January to March. Typically, markets usually top out in these 3 months and if they dont top out then a major crash is seen in the month of May. Let us see historically how the month of January has fared for the markets?

1. The month of January usually sees the closing price of December violated at least once. Last year was an exception.1 also gets to see a price which is substantially lower than the closing price of December. With 2 trading sessions to go the closing currently is 6314.

2. The month of Jan has also seen huge swings on the downside with falls of 16 and 10 pc respectively. The gains have been 8 and 12 pc respectively.

3. When the month of December is positive, Jan is usually negative and vice-versa. Last year however was an exception to this rule.

4. Out of past 13 years, 6 have been positive January moths ad 7 have been negative. The years when the month has been negative, the degree of fall has been much more than the degree of rise when the month has been positive.

5. The average gain has been 5.5 % when the month is positive and the average fall has been 6.4 % when the month has been negative.

So what should our strategy be?

It should be buy on dips and if the statistics are correct, then 1 dip should come to around 6000-6100 levels which would be the time to buy quality stocks.

In the meantime, fixed income offers 9.01 pc tax free returns for the NHB bonds. Gold can be avoided at the current point of time.

Has Gold lost its lustre?

We Indians tend to be conservative as far as investments are concerned. Why is that? Perhaps because several generations of Indians have faced hardship and deprivation due to exploitation by our ‘rulers’ – both overseas and Indian. Lack of education and infrastructure have contributed to the tendency to ‘hoard’ rather than ‘invest’.
For generations, two of the avenues for investing our little savings have been in land and gold ornaments. This is true even today in the hinterland – where infrastructure and banking services remain primitive or non-existent.
In larger towns and cities, infrastructure and services have improved to the extent that other avenues of investment – like post office and bank fixed deposits, mutual funds and equity are readily available. But our fascination for investing in real estate and gold has not dimmed.
In this month’s guest post, Nishit suggests that it may be time to reduce investment in gold. Debt and equity investments are likely to provide better returns in the foreseeable future.

Please read my guest post on Subhankar's blog:
http://investmentsfordummieslikeme.blogspot.in/2013/12/has-gold-lost-its-lustre-guest-post.html

Has the Santa Rally started?

The markets digested 2 events of the Central Banks of the US and the RBI coming out with policy pronouncements. Let us see what they mean for the markets.

1. The US Fed has started slow tapering of the bond purchases from January. The markets did ot show any major negative reactions because it was reduced only by 10 billion USD and the Fed softened the blow by saying that the low interest rates regime is here to stay.

2. The tightening of the monetary policy means that the party for Gold is over unless there is some major event like a geopolitical event. Gold peaked at 1920 USD some time in September 2011 and has been on a downward spiral ever since. Now it is trading at 1200 USD. The price of Gold in rupee terms increased because the rupee has weakened by about 20 pc since September 2011. The exposure  to Gold can be reduced and no further Gold should be added to the portfolio.

3. The RBI has held rates becuase the inflation has been primarily been due to the food inflation. This is expected to come down in December and Januray and hence the rate hike has been deferred till the ext policy meeting in mid-January.

4. The markets rose on the RBI decision to hold the rates, took a momentary dip on the US Fed decision but then smartly rose on Friday.

5. The 6350-6360 remains a key resistance level for the markets to overcome. Once, this is broken and the 6415 previous highs are surpassed, once can expect the markets to rise. The targets remain of 6500-7000. The markets are entering the holiday season and one can expect lacklustre activity going forward.

6. The coming week is a truncated week on Wednesday being a Christmas holiday and expiry being on Thursday which can lead to volatility.

It is time to enjoy the Holiday season and maybe look for trading bets.

Sell on News comes true

There is an old adage in the markets, Buy on Rumours and Sell on News. The markets displayed this by hitting an immediate high on the news of BJP victory and then promptly retreating back to close the week 1.5 pc down. Let us see what can happen next?

1. The FIIs have continued to buy every single trading day in December. The DIIs selling is lessening. As long as this FII buying continues, the markets will not tank.

2. This week, all eyes will be on the Central Banks as we have the FOMC meeting and the RBI meeting. I expect some kind of Repo Rates hike in the RBI meeting. The FOMC is unlikely to make any statement which is dramatic as this would be the last meeting Ben Bernanke would be chairing. Typically, he would leave the tough announcements for the next chair Janet Yellen to make in January.

3. The markets gained 9.8 pc in October and have lost 2 pc in November and 0.1 pc so far in 2 weeks of December. This points out to some kind of correction rather than a top being formed.

4. Historically, the markets either correct in the Jan-March quarter or heavily correct in May. The rally will continue unless some really bad ews comes on US Fed tapering.

5. The support levels for the markets come at 6245, 6193, 6141, 6076 and 6061. Oly below 6061, oce can say the correction will extend much further down.

6. The tax free bonds have been drawing a good response and it would be a good idea to lock in some of the money in those while the rates are still high.

The markets usually never crash in December and it is time to enjoy the winter chill and watch the markets meander their way up.

Election Results indicate a clear anti-Congress wave

The ballots are counted and the victors have been declared. Who are the real winners and the losers? Are the election results a mirror to what is going to happen in the next 6 months, general elections? Let us try and explore. How will the markets react? Lot of questions to answer.

1. First things first. Whatever be the minor change in positions after now, the message is clear, the voters want the Congress out. The party has been almost wiped out in Delhi, in Rajasthan and Madhya Pradesh they have won very few seats. If the BJP can secure almost 2-3rd majority after 10 years in power in MP, it means Congress may eventually get wiped out from the Hindi heartland. Remember, no party can afford to remain out of power for almost 15 years in a State, the cadres start deserting the party.

2. In Delhi, the Congress will finish a poor third. This sends out a very strong message. The voters are fed up with the Congress. They will prefer anyone else but the Congress. Even the unkown Aam Aadmi Party will do. The results put the AAP in the best position of the 3 parties in Delhi. They can continue with their shrill rhetoric till the General Elections. As the Oppositio party, they can ask questions. If they had won, they would have to give answers soon.

3. Rajasthan has been a whitewash for the Congress. Losing a elections after 5 years in power is fine but this is a whitewash but with the opposition winning almost 75 % of the seats is a bit too much. The Congress may get decimated in Rajasthan.

4. The only silver lining for the Congress is the Chattisgarh elections. Here also, they had the advantage of 10 years of anti-incumbency factor, the sympathy factor for the massacre of their leaders and yet they are neck and neck with the BJP. A few seats here and there. No decisive mandate in their favor.

5. What does this indicate for the 2014 elections? A NDA led formation or a Third Front khichdi leading to instability. There may be 1 more general election about 2 years from this one. This reminds of the 1996 scenario where for 2 years we had the Third Front propped up by the Congress and then BJP coming with a mandate in 1998.

6. The ball will now be in Narendra Modi's court. If he can keep up the momentum and continue with the pace of rallies, the BJP may just be in power. Remember Modi needs just around 200 seats, with 200 seats the allies will come. Power is a magnet for the allies, idealogies be damned.

7. Where will the 200 seats come from? UP and Bihar are rich harvest states. Karnataka has Yeddyruppa coming back. Gujarat Maharashtra, Rajasthan, MP, Punjab, Delhi are few more friendly States. In the South, they would need Jayalalitha's support, and in Telengana the TRS support.

8. Now, where does that leave the markets? In the short term we would have the Santa Claus Rally if no tapering happens. remember, BJP victory is just a excuse, the rally is based on liquidity flows from abroad. The FIIs have already purchased 3500 crores worth of shares in the first week of December to go with the November net purchase 6500 crores.

9. The December rally also takes place as Fund Managers usually dress up their portfolios to get end of year bonuses. In the month of Jan-March, the markets usually top out and if they do not in May usually a big crash.

10. In the short term, watch how market behaves around 6357, if that is taken out then in a euphoria rush 6500-7000 on the cards.

11. The NTPC bonds were sold out in a day. The Hudco bonds and IIFCL bonds are still open. Invest for safe tax free returns.

All Eyes on December 8th Results

The markets rallied smartly by 3 pc during the expiry week to close just below the 6200 mark. The Elections are on in full swing with Rajasthan going to the polls now and Delhi on December 4th. The next immediate trigger for the market will the results on the 8th of December which is next Sunday.

1. The heartening part of this rally is that even the mid caps have begun to rally. Voltas gaied something like 23 pc last week. All signs indicate Nov-Feb rally with a market top for the year being hit sometime around the Jan-Feb period.

2. With the G-Sec yields around 9 pc, the tax free bond issues of NHPC and Hudco opening next week are very lucrative. With the interest tax-free and yileds of 8.91 pc and 9.01 pc, once can lock away some portion of the income for the next 20 years. Historically, these are very high returns post tax.

3. Technically, the markets need to close above 6350 to hit new highs. The way the markets rebounded last week was very heartening and point to a move in the upwards direction.

4. The GDP numbers came in at 4.8 pc, taking the half year GDP growth to 4.6 pc from the first quarter growth figures of 4.4 %. I expect the full year numbers to be between 5-5.5 %. The second half of the year has good agriculture growth as well as Election expenditure. Elections tend to add to the GDP growth numbers.

5. The fiscal deficit numbers for the period April-October has already hit 84 pc of the full year target of 4.8 pc. This is worrisome and could mean more measures like divestments and the Telecom spectrum auction i January.

6. The upside to the markets may remain capped due to the outflow of these issues, as well as the tax free bond issuance. The upside is again heavily dependent on foreign inflows which again is tapering dependent.

7. The short term moves of the markets in the next 2-3 months, is all dependent on liquidity. The fundamentals will start settling down after the outcome of the General Elections in May 2014.

Lack of Triggers for the Market

In the absence of any major decisive triggers for the markets, they continued to drift aimlessly losing another 1 pc for the week. Let us see if any triggers exist before the election results of the State Assemblies on the 8th of December.

1. The Talking Heads on Television continued to play games with tapering stoppage or no. This is a good game for traders. Short term movements of 100-200 points on either side are the norm.

2. FIIs have net bought 5600 crores for November so far and DIIs have sold 8200 crores. The markets have corrected by about 4.8 pc so far.

3. All eyes for any major swing will be on the 4 major State election results. As I see it, these results will have no major impact on the General Elections and are likely to favor the BJP in Rajasthan, Madhya Pradesh and Chatisgarh. Delhi should head for a hung assembly. The markets may take it as a thumbs up for the BJP and rise if the results favor the BJP. Worst case would be an equal split between the Congress and the BJP.

4. Technically speaking the markets have reached the 5 week low ema at 5996 and some bounce can emanate from these levels. If no bounce then the markets can touch lower levels, correcting the rise from 5701 to 6342. Levels in this case would be 5946, 5870 and 5829.Any fall below 5829 will be a harbinger of larger falls to come.

5. The area around 5850-5900 has a confluence of supports. They rage from the 200 DMA to the equality of last fall, to 38.2 pc retracement level of entire rally from 5118.

6. Pharma and IT stocks have led this rally and there would be no harm in booking profits in these sectors and taking the money home. Finally only the profits booked is the real profit. Rest all is illusory.

7. The bond yields are hardening at around 9 pc. At these levels, for a 2 year investment G-Sec funds are still a good buy.

Now, is the time to lie low and do detailed study to invest in quality stocks when the time is right.

Correction Continues

The market continued its correction, dipping further by 1.4 pc. Let us try and examine the pros and cons of  the market movement.

1. The markets are correcting gently, about 4 pc from the Diwali top. This could just be a bull market correction, looking at the slow nature of the fall.

2. The FIIs have been net buyers for all the trading sessions in November 2013. Only, when they start unloading will the markets have a major fall.

3. The major question is why are FIIs buying? It is not becuase of Narendra Modi but the continued avaailability of easy money thaks to Quantitiave easing. The battle is to attract money to India.

4. Jaet Yellen will take over from Ben Bernanke in Januarary and her statements indicate the divish stace of hers. If that happend then get ready for ovember to Februrary rally.

5. The markets have support around 5850 - 5900 levels.

6. The next major trigger for the markets is the State Election Results on December 8th. A BJP sweep (even if there is no material impact on 2014 elections) will lead to the markets zooming.

7. The Gilt yields continue to trade around the 9 pc mark. Only those with a long term view can stick to Gilts.

The markets are entering a quiet phase and it can be the lull before the proverbial storm. Buy on dips and stick to Quality stocks.

Correction in a bull phase

The markets dipped by around 2.8 pc for the week. The markets hit a new high for Diwali and since then have been correcting. Is it just a correction or is it something else?

1. The thumb rule is that the markets tend to react from the previous top. 6350 has been a sort of double top. It is natural that the markets react from here and then come back and blast through.

2. This has been an unusual correction, the large caps have corrected and the mid caps have rallied. This also means it should just be a correction before resuming the journey upwards.

3. The last meaningful correction was around 441 points. So if we extrapolate then we can correct till 5902.

4. Coming to fundamentals, what has this rally been riding on? Many talking heads claim it on the Narendra Modi effect. It is too early to talk about that. Elections are ot due till May 2014. A good 8 months away and anything could happen.

5. The markets have been rallying on easy money from abroad. The putting off of tapering, has resulted in flows of 3 billion dollars in October and November also about 1500 crores till date.

6. If tapering happens then the flows will stop and the markets will correct.

7. November to February is a period when the markets traditionally rally and hit a top in Feb-March. Let us see how this seasonality plays out this time.

8. The next major data point would be the State election results in December though that is not a relaible barometer for the National elections.

9. The G-Sec yields have almost touched 9 pc. Those ivesting for the long term can park their money here as a hedge when stocks correct to put the money back. The short term party is over though for Gilt funds. Oly those prepared to hang on for 2-3 years should invest.

10. This is a good time to clean up one's portfolio. If junk stocks rise, sell them without thinking twice. Ultimately only quality value stocks matter.

Market on the upswing:Happy Diwali

The markets continued their solid performance and gained another 2.6 pc to close above the previous 2013 high. We look all set to challenge old highs and how the markets react from there will set the tone of the markets.

1. The PSU Banks joined in the party this week and now one needs to see if the beaten down sectors join in the party or the rally fizzles out. Sustained closing above 6357 will herald fresh new territories to be conquered.

For this Diwali, I would strongly reccomend Godrej Properties trading around Rs 370. It recently came out with a rights issue at Rs 325 and the promoters hold about 75 % stake in the company. It comes from the house of Godrej, one of the best run management in the country.

They have premium projects across the country and the safety net comes in the development of huge Vikhroli land bank. The Godrej group has mandated that all real estate development of Godrej group companies has to be through Godrek properties only. They are also getting into the lucrative redevelopment market in Mumbai.

The Vikhroli model will isulate the compay from any downsides. They build huge towers instead of current factories which are leased to IT companies. They get huge rentals while the ownership remains with the Godrej group.

This is a safe low risk bet for those who want to take a bet on the real estate segment also.

One could also look at Larsen and Toubro, India's premium infrasturcture compay. if the economy has to revive, L&T will benefit.

Wish you a very Happy Diwali and enjoy your Mahurat trading.

Correction possible, but markets in an uptrend

The markets had a mild correction for the week, correcting about 0.7 pc from the previous week close. Overall, the markets are firmly in an up trend. Let us see what the pre-Diwali firecrackers are in store, if any.


1. This is a liquidity based rally and no mistake should be made about this. Once, the plug is pulled for whatever reason be it ease of tapering or hung parliament, the markets will collapse.

2. 1 leg up from 5118 is over at 6142 and the correction from it ended at 5701. If we are in a third wave up, then it can be a fast up move from 5701.
The first leg may be over at 6252 and we may correct to 6042, 5977, 5912. The up trend will be over at 5811.

3. The market rally is taking Pharma and IT stocks to new highs. We should wait and watch for the other stocks to join the party.

4. As I see the election scenario building some kind of Modi wave is surely building up. If that happens, then the markets will zoom upwards.

5. The 4 states which goto elections in November, their results will be out on 8th December which will be the key deciding factor for the rally.

Markets tend to rally in November to Feb period. If that is the case, then the markets may see new all time highs. The current scenario is that I am not putting in fresh money but selectively looking to book out profits.

A safe strategy remains to invest in fixed income and lock in the rates.

Alternatively, one can buy good quality stocks so in case the markets fall then one can always average them out.

All set for new highs but.....

The markets continued to inch up higher by 1.5 pc to close at 6189. They are now within touching distance of 2013 highs and very near to all time highs. It looks like the scenario of 6500-7000 is playing out.Let us see what we can do in such a scenario.

1. The markets are close to all time highs but the broader market is down. When I look at my portfolio very few stocks are close to their highs. It has been driven up on the back of IT companies especially TCS.

2. Every rally has gotten narrower. This could either mean we have a sudden collapse one day or as we gather momentum, the broader market picks.

3. If we look at my older posts, the targets of 6500, 6800 and 7300. The broader markets may well pick up. The rupee seems to have to stabilized around 61-62.

4. The level of 61-62 is significant as it makes exports very competitive and at the same time the burden of imports is not too high. The CAD is shrinking and gold, silver imports have fallen.

5. The results have been surprisingly resilient and I do not recall seeing any particular poor result. The best results are out of the way ad the results declared late are usually the poorer ones.

6. The markets may get into a festive mode and continue rising. The FII money is back ad thanks to the shut down drama the quantitative easing ball has been further kicked down the road.

The strategy remains to stay invested and book profits at higher levels. It may not be too prudent to buy stocks now especially if one is not a too nimble footed trader.

Equity is just 1 of the asset classes and may not be perfect one to invest always. There are several tax free bond offering nearly tax free interest of about almost 9 pc. One can think of locking in the money in those too.

Gilt funds are also attractive but the rate of higher interest rates remains. 1 should be prepared to take short term losses if investing in gilts.

US Shutdown, looming debt-ceiling and their effects on the Indian market

Since the beginning of this month, the US government has been in partial shutdown. That means all government services and activities barring a few emergency and security services have come to a halt and government employees have been asked to proceed on unpaid leave. Why?

I had written a guest post for Subhankar which can be accessed here:
http://investmentsfordummieslikeme.blogspot.in/2013/10/us-shutdown-looming-debt-ceiling-and.html

Infy surprises, US deadlock continues

The markets continued with their upward march to end the week with a gain of 3.2 pc. Infy had surprisingly good results (My unscientific analysis went for a toss) and the markets looked to be in a festive mood.

1. The IIP results came out after market hours. They were poor but that mainly due to poor Capital Goods data. The Capital goods data was very good in previous 2 months so normalized.

2. The US Gridlock needs to be resolved by by Oct 17th. India is a winner either ways. The longer the gridlock continues, the longer the easy money will be available.

3. Janet Yellen is a dove. She will not pull the plug on easy money so far. Enjoy the rally as long as it lasts.

4. 6142 if the market crosses then we are all set to challenge 6229 and then 6357. The figure of 6142 needs to be closely watched.

5.This will tie in with the pre-election rally, some experts are projecting. There can only be 1 rally, pre-election or post election rally.
This also points out to hung Parliament next year.

We live in interesting times. 6100 is not a time to make fresh entry ito the markets. Time to gradually book profits as we go higher. we all get chances to buy at lower levels.

Couple of months back, markets did visit 5118. The markets are always going to remain here and we all with get fresh chances. Impulsive buying can lead to losses and regret.

Waiting for Triggers

The markets gained 1.3 pc to close at 5907. The markets rallied smartly on Friday only to give back all the gains. The markets are currently awaiting fresh triggers. Let us try and examine what they could be.

1. The Results season is upon us.Infy Results will be upon us on Friday 11th October. They will set a trend for the markets.1 non scientific observation I have made is Infy Results usually on a Friday are quite bad. Lets see if the trend continues.

2. The US Government shutdown is still going on. If not resolved by Oct 17th, the debt ceiling will be breached leading to further problems. The markets are awaiting resolution to this problem.

3. The Rupee has strengthened to about 61 and if this continues then the stock markets will continue to do well.

4. Technically, the Nifty must clear the 5950-6000 range convincingly to go up.

5. October is a long series and it has often been seen in such long series, the markets are dormant over a period of time.

6. The bonds seem to be settling in the 8.5 % to 8.7 % range. Real recovery will not start until the bond yields come down to 7-7.25 pc range and the interest rates begin to fall.

The 3 options posted in last week's post still hold good.

From here, where the markets can be anybody's guess. There are 3 options:

a. Straight up from here (Least Likely)
b. Correct to 5500 levels and then rally up
c. Continue with the long term correction.

Options b and c have equal likelihood of occurring.

Sideways Market awaits H1 Results

The Nifty closed about 3 pc lower for the week. After a massive 1000 point rally from 5118, the index seems  to be cooling off as the breadth becomes narrower and narrower.

1. The news flow seems to have been exhausted for the markets. After the rapid movements of August and early September, the indices are cooling off which is a good sign.

2. From here, where the markets can be anybody's guess. There are 3 options:

a. Straight up from here (Least Likely)
b. Correct to 5500 levels and then rally up
c. Continue with the long term correction.

Options b and c have equal likelihood of occurring.

3. If it is just a correction, targets are 5751, 5630 (significant number) and 5510. Below 5323, we could conclude that the rally is over.

4. Fundamentally, nothing has changed. In fact the rupee has strengthened and is now at a level where exports are competitive and imports not as expensive as 68.

5. All fresh buying should be held back till we hit slightly lower levels or if previous highs are taken out.

6. The Results season will again dictate the market direction. The Q2 Results will not be very good for many companies (except IT companies). This is because the maximum brunt was felt in Q2.

7. The FIIs flow while they have been positive, they have been buyers in small quantities.

The markets seem to be in for a quiet time. Maybe, the lull before the proverbial storm.

Markets at Key Point

The Markets rallied on hearing the FED will not halt Quantitative easing and fell on the RBI policy. The markets closed up 2.4 pc for the week. Let us look at the Technicals and Fundamentals.

Fundamentals:

1. With easy liquidity on tap, as long as FIIs buy, the markets can go up. There were 2 main irritants, Syria and the FED stopping the easing.

2. The drama over shut down in US over spending and H1 Results can be negative for the markets.

3. The RBI has made it clear for the moment, it has done what it could have done. No more cues at least in the short term from the RBI can be expected.

4. The market may move sideways for sometime in the absence of any cues.

Technicals:

1. The markets have gone up much above the 80 pc retracement of 6229-5118. This could mean we could correct a bit and head for new highs.

2. Targets on the down side could be 5900, 5750, 5630 and 5509.

3. Below 5866, we can be sure of a deeper fall to the above levels.

The Strategy should be to stick to Quality Stocks which can be held even if the market collapses. Do we have the pre-election rally or post-election rally.

I would rather prefer a post election rally for obvious reasons.

News driven Week

The truncated week started with a big bang. The markets ended up with a net gain of 3 pc for the entire week. The coming week will be decisive for the markets in the short term.

1. The FOMC decision on tapering comes on Wednesday (our markets will get impacted on Thursday) and we have our RBI policy on Friday the 20th.

2. Both are news based events and it depends on what the FED says. My guess is some amount of tapering will be announced.

3. 6000 is a key resistance beyond which we may scale new highs.

4. Any rally has to correct. The current rally can retrace till 5621, 5525 and 5428 and still continue higher. A higher bottom needs to be in place.

5. The Thursday after next is Options expiry. Many times, just about 7-8 sessions before expiry the markets go in the opposite direction that they have been during the month. This gives the big time writers a escape route. So we may have a small dip coming.

6. We made most of the gains on Tuesday and spent rest of the week around that range. This indicates that the rally needs a breather. A correction would be considered healthy.

In a nutshell, trade cautiously as up side seems limited before some sort of correction. Of course, it could well happen that the markets rally higher till 6000-6100 before correcting. Any sustained closing above 6000 would indicate that new highs may be in the offing.

Relief Rally On

The markets have bounced back well from 5118 to rally almost 570 points. Let us see what the next steps for this rally could be.

1. The entire range from 5720 - 5800 has a lot of resistances. The golden ratio for the fall from 6093 comes at 5721 and for the entire fall from 6229 comes at 5804.

2. The 200 EMA comes at 5724 and the 200 DMA comes at 5834. The 50 DMA also comes in at 5704.

3. The current up move can lead to new highs if we cross the 6000 mark.

4. We have taken 9 sessions  to fall from 5754 to 5118 ad so far 7 sessions to reach 5680. If we cross 5754 within the next 2 sessions which would mean faster retracement of the last falling leg and can be bullish.

Nothing has significantly changed in the last few days except a speech by the new Governor. Let us wait and watch how the markets react. The real test begins now as the markets approach key resistance levels now.

At the very least, this week could see the onset of a 200-300 point correction in the markets. This week has key FOMC meeting where the tapering of fiscal stimulus cues could be got, Syria attack by US and RBI meet on 18th of September.

Remember the markets fell because of FOMC tapering the stimulus ad also because of Syria attack.

Trend lines: What do they say?

The markets closed the week flat to end the month of August with a fall of 4.7 pc. Let us see what is in store for the month of September.

Since, fundamentals do not change every day or every week to a very large extent, this week, I tried to capture the trend lines in 3 different time frames.

1. Daily Timeframe:

We are very close to breaching the down ward sloping trend line from 6093. Breach of this upwards means the whole down move may be over and we may be in for some large retracemnt of 6093 - 5118.

The targets could be 5490, 5605, 5720 or 5898.

2. Weekly Timeframe:

Above 6000, this entire down move will be over and we will head for new highs.

3. Monthly Timeframe:

Since October 2008, we are trading in a narrowing range. The break points are 5300 and 6300. A break of either sides will give a 1000 point fall or rise.

Breach of 5300 will lead to 4300 and breach of 6300 gives us 7300.

The month of September has given large moves in the past, and hence we need  to be careful. 5000 or 5800 could be the targets.

Settlement Week to drive the Markets

The markets had a sharp dip followed by recovery in the later part of the week to end at 0.7 pc down. The Rupee, Government Bonds and the markets all recovered towards the end of the week.

1. The Equity Markets will have their monthly settlement on the coming Thursday. Many times during the time before settlement, markets move in opposite direction to how they have moved throughout the month. This is a thumb rule and need not be the case always.

2. The Markets have over reacted and there could be some recovery towards the mean. The markets always tend to over react in either direction and then pull back towards the fair value.

3. The Monsoon Session will continue and this may be the last few sittings of this Parliament to get any meaningful work done.

4. The current levels were strong supports in previous falls and typically supports turn into resistances and vice-versa.

5. Export oriented stocks will do well with the fall in the Rupee

6. The Retracement levels to watch out will be 5504, 5563 and 5654 all historically key levels too.

7. The FIIs have kept on selling now. That is the figure which may keep the up moves in check. The markets move in strange ways. In early August when the FIIs were buying they kept falling and now when they are selling, the markets are rising.

The Strategy remains same. Use the high yields to park money and wait for lower levels to buy stocks.

Who sold on Friday?

The markets tanked on Friday thus undoing the gains of the entire week in 1 week and closing the week a net 1 pc down. What led to this panic fall?

1. The surprising part of Friday's fall was that there was no big gap down. In fact the market was trading mildly negative for some time. The usual suspects of FIIs have been blamed. The FIIs sold only 600 crores of shares and DIIs bought 732 crores.

2. Even more surprisingly, for the month of August the market is down more than 4 pc but FIIs have actually bought 1400 crores worth of shares.

3. This would led to rest speculation that the FIIs are to be blamed for the markets downfall.

4. Also, the US bond yields have risen to 2.71 pc. This would lead to lesser inflows into India as last year the yield was only 1.72 pc and it has risen to 2.72 pc. This makes it a safer bet to invest at home and ot worry about depreciating currencies.

5. In technical terms, the markets still have to break critical levels. The 5400-5500 band has lots of supports and breaking of these levels and closing below them on a weekly basis only would confirm major downsides.

Strategy:

We do not know the tops or bottoms of markets. In such a scenario, it is best to identify stocks and keep averaging them. Like if you buy 20 pc of your targeted quantity at 5500, for every 300 points lower keep adding another 20 pc. So, you will end your purchases theoretically at 4000.

The oly key is to stick to good quality stocks. If the Tiscos and the SBIs of the world are available so cheap why go for second and third rung stocks.

In any case the pre-election gap of 3800-4400 should be the floor in the worst case scenario.

The bod yields are also up at 8.9 pc. I do not think they ca up much higher else industry will suffer. Interesting times ahead for the markets.

Short Term Bounce can Materialize

The markets lost another 2 pc to close the week at 5565. The market appears to be oversold in the short term. This can result in some kind of bounce. We would have to see the nature of the bounce.

1. The FIIs have stopped selling in the moth of August. They have been net buyers so far in the month. The markets have continued to fall despite this.

2. 5400-5500 have a confluence of supports from which a bounce is due. When the markets fell from 6229, they fell till 5566 and bounced to 6093. The current fall has breached 5566 and hit a low of 5487. From the medium term perspective, this is bearish.

3. From the current levels, we may have a bounce till 5800-5900 levels. Only a sustainance above 5971 can tell us if the entire fall is over.

4. On the fundamentals front, nothing has changed much. We have new RBI Governor who comes in with very high expectations from him.

5. Fixed Maturity Plans of 1 year are giving about 10 pc returns. They can be looked at.

6. I leave you with 2 charts of RSI. Many times in the past, markets have bounced when RSI has reached the current levels. The bounce can be of 400-500 points on the Nifty.

Long Grind Ahead looms large

The markets continued on their downward spiral to close lower by 3.5 pc to close at 5677. The markets are clearly in their 3rd leg down from 6229. We may just be entering a 12-18 month bear market phase.

1. If this is merely a correction from the top of 6229, the markets should end their correction soon. Below 5627, we can confirm that the entire rally which started in Dec'11 is indeed over.

If this is a 3 leg correction A = 6229 - 5566,
                                        B = 5566 - 6093,
                                        C = 6093- 5649 and ongoing

2. Alternatively if this is an impulsive down move then we are in its 3rd leg down with targets of  5430 or 5020.

3. We may see a corrective bounce up with targets of 5818, 5871, 5924.

4. The rupee has deteriorated below 61 and the fundamentals are weakening. Banks have corrected more than 30 pc from their peaks.

If we are in a bear market then the stocks going strong right now would be the last to crack. Next week, we have the Parliament in sessions and fresh cues could also be got from the Parliament.

The time now is to conserve funds and let the stocks correct.

RBI Policy on 30th July to determine short term movement

The markets declined about 2.4 pc to close the week in the red. This was on the back of RBI further tightening the interest rates to prop up the rupee. This led to the banks tanking and taking the markets down with it. The Markets are at an interesting point right now.

1. The current rally from 5566 to 6093 has been led by FMCG, Pharma, IT and Oil and Gas Sector.The banks have taken a substantial beating. The Bank Nifty has corrected around 20 pc from its peak where as the Nifty has corrected only about 5 pc from the top.

2. This now leaves with 2 possibilities.

a. The Top is in at 6229 and we face a long grind down to 4000-4300 levels.

b. 1 more up move is pending to top around 6500-7000 before the grind down.

For the Bullish probability to come true, the Banks need to rally. Any further bad news on Tuesday and it is the end of the road.

3. If this is just a correction, then the markets should pause at 5829, 5767. A fall beyond 5671 will terminate the entire rally.

4. The market is touching a cluster of supports between 5820-5860. A bounce from here can face a resistance at 5950-6000 range. A move beyond 6050 will suggest a resumption in the up trend.

5. Fundamentally, a  good monsoon, reduction in Gold imports are all good signs. The Electoral uncertainty remains.

Now, is the time to be cautious and do only selective stock based buying. Stick to good quality stocks with ample liquidity.

Markets Continue to Tease

The Markets had a roller coaster ride last week. Nifty ended with a net gain of 20 points for all the twists and turns.Let us see what the markets have in store for us.

1. The RBI hiked interest rates in a surprise move on Monday to prevent the rupee from collapsing further. This led to the 10 year yield spiking up from 7.5 % to 8.1 %. By the end of the week, the yield had come down to 7.94%. This is a golden chance for those seeking to invest in Gilt funds as over a period of time, the rates have  to come down for the economy to improve. Over a period of few months, all the losses would be recouped. What happened on Monday was a Black Swan event.

2. The Results of TCS, Axis Bank and Reliance have been good. The Good Results are always declared early and we may have come to an end of the above average results.

3. Nifty fell from 6229 to 5566. 6100 is the key level if the market is able to sustain above it then we may reach new highs. The Markets like to tease everyone hence we may overshoot 6100 slightly or have a small correction before decisively taking out 6100.

4. Last week was a study in Index Management. 1 day the IT stocks held up the markets, the next day FMCG stocks held up the markets. The broader markets were declining which leads one to beleive that a small correction can set in.

5. The FIIs have pulled out 1 billion USD from the equity segment and 1.8 billion USD from the Debt markets in the month of July. Till this trend reverses, markets will not make new highs.

6. The money is moving towards the defesives like FMCG ad Pharma which continue to make new highs while the rest of the market flounders.

7. The Banking stocks have been shattered in the last week, but the index has moved higher. If these stocks recover, then new highs are a given.

8. Gold continues to drift aimlessly and is a clear avoid at this stage.

9. If the up move was just a corrective up move to fall from 6229 to 5566, then it should terminate in the next week.

The Strategy remains to buy on dips especially the Banking stocks closer to 5900. One could also wait for 3-4 closes above 6100 to buy.

Markets at Cross-Roads

The markets gave a breakout last week. It closed up by 2.4 pc over the previous week. So is the worse over for the markets? Let us try and explore this week.

1. The markets if they were correcting the down move from 6229 - 5566, then a 3 legged move was on.

Leg A 5566-5904
Leg B 5904 - 5760
Leg C 5760 or 5802 and ongoing.

If this is just a corrective up move then max, it will top out around 6100-6115. Ay move above this will lead to breakouts and new highs.

2. The FIIs have stopped their large sales and have small sale figures or net buys. If this continues, then we can expect new highs.

3. The Result season will be on next week with TCS and the Private Banks Results coming in.

4. Supports come in at 5935 - 5951. Also, 5840 and 5790 are other supports.

5. The Fed has given indications that the liquidity will continue for the next 6 months. This may lead the rally to continue.

The Strategy is to buy if markets sustains above 6100. The wait and watch strategy continues till we get clear indications from the markets.

Trapped in a Range, awaiting the Results season

The Nifty gained just 25 points or 0.4 pc for the week. There was an absence of major triggers for the markets. The next cue will be from the Q1 Results which will be kicked off by Infosys next week.

1. The markets are correcting the up move 5566 to 5904. This is a corrective down move featuring 3 legss.

A - 5904 - 5760
B- 5760 - 5900
C - 5900- ???

This could be anywhere in the range of 5760 to 5677. The supports come in at 5735 and 5695.

2. Typically, in the first 2 weeks of the months, sometimes the markets are kept range bound so that the premium is eaten up by the Option Writers.

3. HUL open offer helped the company to raise the stake to 68 pc rather than the targeted 75 pc. This is a vote of confidence in the HUL stock by its Management and in the longer term 600 may act as a floor for the stock. In the shorter term, the stock may come down to 520-550 levels.

4. Infosys results are due on July 12th which is Friday. The Results may be subdued. This is the first time, the Results are being declared after Murthy joined back on 1st June. The Street would be watching for future guidance from the Management rather than the current Results.

5. The 10 Year G-Sec Yield is now back up to 7.5% and this is a good opportunity to add up on G-Sec funds. I expect a return of around 10 pc from these funds in  the next 1 year.

6. Gold continues its downward spiral. Gold is 1 asset class which I would avoid for the next 6 months.

7. The FII selling has also stopped. Even though they are not buying huge quantities, the selling has stopped.

In a nutshell, a quiet phase in the markets. It is also a time to accumulate good quality stocks.

Relief Rally - How far will it go?

The Markets bounced back to close the week up at 3.1 pc over the previous close. The Government came up with Reforms at the end of the week in the Oil and Gas space to give further leg up to the markets.

1. India's Current Account Deficit (CAD) or the difference in Dollars between our Imports and Exports came down to 3.6 pc for the January to March period leading to the rally on Thursday.

2. On Thursday, evening the Government doubled the Gas Price to 8.4 USD from April 2014.This will give more incentive to invest in Oil Exploration leading to less imports.

3. On Friday evening, the Goverment hiked the Petrol prices. Thus, 3 set of good news from the Stock Market perspective came from the Government.

4. Gold prices continued to tank and it is a safe bet to stay away from Gold for some more months to come.

5. Technically, a pullback was due with the targets of 5819, 5897 and 5975. Above 6000, this rally could mean something more.

6. The previous falling leg from 5864 has also been nearly retraced in much faster time.

7. The FIIs on Friday finally made stock purchases after selling for several weeks. Sustained buying from the FIIs will lead to fresh rallies.

8. The Strategy remains to part book profits at 5900-6000 levels if bought at lower levels and see if the Idex sustains above 6000.

Till the index closes above 6000 for 2-3 sessions, this will remain just a pull back rally and nothing more.

Expiry Week looming ahead

The markets fell another 2.4 pc thanks to comments by the Fed Chairman. Let us try and see what the next week and next few months have in store for us.

1. The markets right now are poised around the critical support area of 5600. There is an iteresting study done by Sanjay Raghuvanshi, who has calculated that markets rarely have an expiry which is + or - 300 points then previous expiry. Last expiry was 6124 which also means that this expiry can be around 5800.

2. 5400-5600 has several key trend line supports as shown in the charts below. Falling below 5350 - 5400 will terminate the entire rally from 4532 in the month of December 2011.

 The Trend line support from the March 2009 lows comes to around 5350 - 5400

 The market is presently at the trend line support from last June rally

 The Trend line from the Dec'11 bottom is also pretty close by.

RSI is showing a positive divergence.

3. Saurabh had asked me about Debt Funds investing in Government Securities. The 10 year bond yield has rise to 7.44 pc from 7.14 pc low on the back of rupee weakness. I would say it is a chance to add more than exiting as the Equity Markets will bottom out only with Interest Rates falling down.

4. The Goverment has come up with a few set of reforms om Friday. I expect them to anounce more reforms in  the coming week which may help the markets rally.

5. Gold can be avoided as I have maintained that a steep fall will not be retraced so easily. I see a bottom for Gold around 1000 USD mark. The Rupee weakening has partly offset the fall in the Gold prices in Dollar terms.

The Market still remains a buy on dips market.

All eyes on the Central Banks

The markets declined by another 1.2 pc. They staged a very smart rally on Friday to cover quite a few losses. This current week is going to be a news driven week.The markets would be news driven with a knee jerk reaction either ways depending on the news flow.

1. The RBI Policy is on Monday and there cut be a rate cut of 25 basis points and a CRR cut of another 25 basis points. Last couple of times, markets have reacted negatively to the RBI policy and this time, it may just be a positive surprise. The way the markets rallied on Friday might be a hint of things to come.

2. The Second big event is further clues on the withdrawal of the Quantitative Easing program of the Fed of US. Any further statements on liquidity vanishing may lead to correction.

3. The Monsoons have well and truly set in. This can lead the markets to rise.

4. We have seen a 3 wave decline from 6229. Wave A from 6229 - 5937 = 292 points, Wave B 5937 - 6134 = 203 points, Wave C from 6134 - 5683 = 451 points. Wave C was 1.55 times of Wave A.

5. If the above calculations are correct, then we could have begun a fresh up move. The markets gapped down to 5729 and gapped up to 5739. This leaves an unfilled island of 10 points and this would be the stop loss for all longs. The immediate resistances come in at 5860 - 58880 range and after that at 5950.

6. If we look at my previous analysis, I had mentioned we could easily go down to 5662. We have reached 5683.

7. One of the disturbing features was the mild selling by the FIIs. If that continues, then the rally may be short lived.

In a nutshell, all longs should have stop loss of 5728. The Buy on Dips continues.

Monsoons and RBI Policy next triggers for the markets

The Nifty lost 1.8 pc to close at 5881. The markets have completed 3 weeks since hitting the top of 6229. If this is just a small correction it should get completed in the next week. Let us look at the next triggers for the markets.

Fundamentals:

1. The Monsoons have set in well. Thus, 1 major negative trigger is out of the way.Any signs of a delay in monsoons would have led to the markets falling.

2. A good monsoon also sets the earliest timeline of elections as November 2013. The Govermet would like the money from the good harvests to be in people's pockets before voting.

3. Good monsoons can lead to lower inflation and lower rates by the RBI. The RBI policy on June 17th is 1 key trigger in the short term.

4. The corporate Results will start around 10th of July as also the Parliament will be in season post 15th of July. Till then there are no major triggers in terms of policy for the Government.

5. FII flows continue to flow in to India. The markets will continue to rally as long as liquidity is there.

Technicals:

1. 5850 is a very key level. It is a confluence of many supports and +- 20 points from here the markets can rally.

2. If 5850 is breached convincingly, then expect a drop of another points before the next support.

The Strategy remains to buy on All Dips.

Correction should Continue

Last week on Friday, the markets retraced the gains of the entire week to finish the week flat. Let us try and explore what the markets have in store for us.

Fundamentals:

1. The Monsoons have arrived on  time and the prognosis is for good monsoons. This should bode well for the markets.

2. The GDP figures have come as expected and are behind us. For all the talk by RBI, the interest Rates should soften.

3. The Hike in Diesel and Petrol prices should underline the Givernment commitment on fiscal stability.

4. The crude oil prices continue to weaken and Brent crude continues to hover around 100 dollars a barrel, which is aother positive for the markets.

5. The only negative factor is the weak Indian rupee. A weak Indian Rupee will wash away the gains made by crude oil falling.

Technicals:

1. Supports are at 5936, 5850 and 5750. I expect 5850 to be tested.

2. If this is a 3 legged correction, then A was 6229 - 5937 =  292 points

B was 5937 - 6134 = 197 points

Now C can extend to 180, 292 or 472 points.

This gives us targets of 5937, 5842 or 5662.

Only below 5627 would this rally be over.

Also, this correction should get over by next week.

So, in a nutshell, it would be a good idea to add stocks on every decline because I believe this rally has legs to ride on.

Good chance to accumulate Quality Stocks

The markets tanked about 1.3 pc. After 5 weeks of solid up move, this correction was much needed and healthy. Let us try ad see the road ahead for the markets.

1. The up move which started from 5477 can extend to 6350, 6500 or 7000. The first leg got over at 6229 and this is the correction to the move from 5477 to 6229. The markets can halt at 5942, 5853 or 5765. Only below 5627, the rally has ended.

2. The prices of crude oil have stabilized at lower levels and gold imports are also slowing down. This will help the economy and the current account deficit.

3. The Gilt prices have come down to 7.1 pc down from a high of 8.9 pc about a couple of years ago.This will help the Government lower the borrowing costs.

4. Looking at the Open Interest, Expiry is expected at around 5950- 6050.

5. Larsen and Toubro came out with poor results but its Order Book has improved. The current correction is a good chance to add the stock.

6. The current fall has all the characteristics of correction and not a fresh down move. This may well be the last chance to accumulate good stocks before a final blow out rally.

7. In our statistical analysis at the begininng of the month, the range provided was :

The moves could play out as:

1. Up in the beginning of the month, then highs of around 6300 and settle down near 6000.
2. First a down to 5600-5700, then a close to around 6100 levels.

We stopped at 6229. So, the number 6000 becomes a key number and there is a lot of open interest  bulit around this umber.

8. The Monsoons have almost reached Kerala. A good monsoon is the next trigger for the markets to move up.

This is the time to add good quality stocks. The time to reap the harvest would come in after the monsoons around September.

Markets looking to test old highs

The markets gained another 1.3 pc to touch 6200. There are several reasons why the markets can touch the previous highs and exceed them. Let us try and explore the probabilities.


1. The FIIs are continuously in the buy mode. The liquidity is propelling the markets higher. The DII selling is easily getting absorbed.

2. The Parliament is having its recess and will open only in the Monsoon session in the last week of July. This will ensure that there are no political storms to spook the markets.

3. The Monsoons are said to be on track.Looking at historical data and probability we should be having a good monsoon.

4. Inflation is down and due to this, the interest rate cuts will continue. This will lead the Banks and Interest rate sensitive stocks to new highs.

5. Crude oil is down and this will help the Indian economy. Gold prices continue downwards. This also implies lower imports. After the Indian gold demand sees lower prices then the buying frenzy will abate. The fall in Gold has been so sharp and so deep that I will we are unlikely to see a recovery in Gold prices before Diwali.

6. Every small dip is a buying opportunity and profit booking at every level is a must.

7. The PSU Banks have not yet rallied and say an Andhra Bank with a price of Rs 92 ad a dividend of Rs 5 offers a dividend yield of 5.5 % tax free.

8. The Gilt funds have given amazing returns of absolute 11 pc in the past 6 months. Their performance will peak in the next 1 year.

The strategy remains the same. Buying every dip ad booking profits at higher levels thereby lowering the cost price of the shares in the long term portfolio.

Stock Market Behaviour Prior to Elections

The next general elections for Lok Sabha seats are less than a year away. Political parties have already started pre-election activities like choosing likely candidates for the PM’s post and discussing possible alternative alignments for government formation.
The period prior to a general election is usually one of uncertainty for investors. Uncertainty leads to selling, or at best, staying on the sidelines – neither being particularly conducive for a bull phase. In this month’s guest post for Subhankar, I had presented a different viewpoint

Continue Reading at:
http://investmentsfordummieslikeme.blogspot.in/2013/05/stock-market-behaviour-prior-to-general.html

A Look at the Longer Term Elliot Wave Chart

It has been a long time since we have looked at the big picture. Now, is a good time to look at this picture.

1. The up-move which started from 4532 in Dec'11 can be of 3 legs.

A - 4532 - 5629 = 1097 points

B - 5629 - 4770 = 859 points

C - 4770 - xxxx

where xxx can be 4770 + 1097 = 5867

                            4770 + 1.618* 1097 = 6544

                             4770 +2*1097 =  6964

                             4770 + 2.618* 1097 = 7641

The 1st target has been met and now the 2nd target seems likely. Targets beyond the 2nd target, let us ignore for the time being.

C -1 = 4770 - 6112 = 1342 points

C-2 = 6112 - 5477 = 635 points

C-3 in progress.

C - 3 can have targets of 6306, 6500.

All these are targets are negated below 5604.

What does this mean for Investors?

All dips are buying opportunities. A dip should materialize soon to 5850-5900 zone which should be a buying opportunity.

In my guest post for Subhankar in the mid-week, I will analyse the implications of the Political situation.

How have Markets fared in May?

For the month of April, the range arrived statistically was 5500-5900. We ended up doing 5477-5962 with a close at 5930. Now let us look at the month of May. There is one disturbing fact for May.

1. The low of the May month is always much below the close of April moth. The close for April was 5930 and a close of 6 pc below that leads us to a figure of close to 5600.

2. Overall, May month on an average leads to a flat close.There are swings of at least more than 3 pc either sides on a closing basis. This means we may close the month of May at 6100 or 5750.

3. What this also implies is that for the month of May, the upside is limited. In case, of a large fall early on the we will spend the rest of the month covering up for the fall and makig a margial gain.

4. Taking, this hypothesis further it means we are likely to get 2 sufficiently large moves on either side. If 1st half of the moth is negative the the second half will be positive or vice versa.

5. If we take the May high, the it has also usually been at least 6 pc higher than the April close. This could mean upsides of 6300.

If we look at all the probabilities, it means we are in for big moves in May.

The moves could play out as:

1. Up in the beginning of the month, then highs of around 6300 and settle down near 6000.
2. First a down to 5600-5700, then a close to around 6100 levels.

The conclusion from this is that may is a month of big moves, once one catches the direction it would pay to hold on to positions till a move of about 4 pc is made in any 1 direction.

5700 and 6100 remain the immediate 2 possibilities with extreme moves taking us to 5600 or 6300. Right now we are almost at the center of the range. Sustaining below 5900 or above 6000 will give us the clues to the next moves.

RBI Policy: All factored in?

The markets soared again this week eking out a gain of 1.5 pc. The RBI Policy has been factored in with all this rise. Let us see and explore what the markets have in store?

1. The markets have built in so much expectation that a 25 basis point announcement will lead to the markets correcting. Only 50 basis points and more can help continue the rally.

2. The markets have also reached the key 5920-5950-5970 levels. It has been an almost breathless rally from 5477 levels in a matter of 2 weeks. The markets may well keep going up in the early part of the week.

3. The RBI announcement is also due on a Friday.Last few years I have been noticing that whenever key announcements are on Fridays, people tend to take money off the table. Infosys is a key indicator for such types of trends.

4. If the markets are to rally to new highs, a correction is necessary and healthy. Maybe the credit policy may be an excuse. Everything is factored in the markets and events are usually just excuses for corrections.

5. The Gilt funds continue to be the best performing asset class easily giving 12-13 pc safe returns.

6. Gold has given a bounce but this bounce should be short lived. One can think of buying gold at lower levels or above the 200 DMA at 1620 USD.

7. If the correction happens, it would be a good time to add good quality stocks which ca be traded and sold at 10-20 pc higher.

8. I still believe the entire bear market from early 2008 is still not over and 1 last dip to cover the pre-election of 3700-4000 is still pending.

9. The Gap may well be completed with the next elections making it a nice cycle from 1 General Election to another.

By part booking profits, one ca lower the cost price of shares, enjoy the dividends and keep the shares for the future.

I would certainly not add at these levels but wait for a correction to add. We can easily see the levels of 5650-5725 in early part of May which would be the time to add positions.

Markets Rebound: Is it sustainable?

The markets gained 4.6 pc this week, to stage an amazing recovery. Let us try and examine if the recovery is sustainable. The next week should be a volatile week as is it a truncated week with expiry also down the corner.

Fundamentals:

1. Gold crashed below the 1400 USD ad Brent crude is trading below the 100 USD. These are 2 key fundamental factors which should help the rally if this continues. India's main problem are the high level of crude oil and gold imports. Lower prices of these 2 commodities should help keep the Current Account Deficit low.

2. The inflation came in lower and a rate cut is expected in the RBI policy on May 3rd. This is what is keeping the Banking stocks on a high.

3. A large number of bills are lined up in Parliament on Monday and a lot depends on how the opposition allows the Parliament to function.

4. The Results have been good for TCS, HCL Tech and some of the private sector banks. There have been no major unpleasant surprises so far barring Infosys. This should sustain the markets.

Technicals:

1.The Nifty fell from 6112 to 5477. Now there are several probabilities at play here. 1 is that this was the first leg of the down move and what we are witnessing now is the corrective up move to the entire fall. The fall took about 10 weeks. The current rally is corrective up move to the fall with targets of 5720, 5795 and 5870. Beyond 5985, we can treat this as a fresh leg up.

2. If the scenario mentioned in 1 is correct, then from the levels above we should see a fall of 400 - 600 points to form the final bottom.

3. The up move which has commenced from 5477 can have a retracement till 5673, 5636 and 5598.Below 5540 we can say a fresh down move has commenced.

4. Long term Trend line support is 5250 below which we will enter a bear market. The entire fall from 6112, trend line resistance is 5840 beyond which we can say a new rally has commenced.

Strategy:

Buy on Dips towards 5670 with a strict stop loss of 5600 and 5540.

Infosys Triggers the downside

Infosys came up with a poor set of numbers again and that led to the markets tanking on Friday. Overall, the week ended with a loss of 0.4 pc on the Nifty. Let us try and examine what has changed.

1. Crude came down to 102 dollars a barrel and Gold plunged. This will help the Current Account Deficit as the 2 majors imports of India are crude oil and Gold. A falling Gold price will have 2 impacts, one is cost will be less and secondly demand will abate for sometime.

2. Gold seems to have broken quite a few supports. Gold for quite a few past years has never broken its February low for the year. This year it has and that has bearish implications for Gold.I would add Gold either above 1620 USD or below 1400 USD.

3. The next week has a lot of key Results lined up and they will set the tone for the markets. TCS will be a key Result. If it also is poor then the markets will tank. TCS Results should be better than Infosys.

4. The Inflation Data and the IIP data point to a 25 basis points rate cut in May. Gilt funds still remain the safest option for parling money and getting a decet return. They are highest yielding asset class i past 1 year.

5. The markets are below the 200 DMA for about 7 trading sessions. Typically, if it is just a correction they bounce up within 15-20 sessios. Hence, if the markets remain below the 200 DMA for more than 1 week more than we are in for a lengthy time below the 200 DMA.

6. 5650 comes across as a significant resistance and only if the market moves above this, we ca expect a significant rally.

The Strategy remains the same. Buy on dips and stick to good Quality Stocks. The coming week is a curtailed week for the stock markets. Friday is a holiday for Ram Navami.

All eyes on the Results Season

The markets continued on their journey south. They lost another 2.3 pc to close at 5553, a crucial support level. Let us try and see what can influence the markets in the next few days.

1. FIIs have also started selling and that led the markets to go down further. The FII selling is only in small quantities but the support being provided to the markets so far is absent. Further selling by the FIIs can lead to the markets tanking further.

2. The commodities are also correcting.Crude and Gold, 2 of India's biggest imports are also falling down.The seeds of the next bull run can be seen in these falling commodity prices.

3. The Government continues to act on the Reform front.Sugar price decontrol was a long over due reform.

4. The Budget session is in recess and the Parliament will reconvene only on April 22nd. The Result season will also be kicked off on next Friday. If there are o global cues, then I expect the next week to be a week of subdued trading.

5. Technically, the markets have breached the 200 DMA and 200 EMA averages. These are long term support levels and the difference between a bull market and a bear market. The indices need to be remain under these levels for another few days to be sure we are entering into a bear market.

6. The main problem the markets have is that the sentiment is spoilt. Talk of elections is making people nervous. This uncertainty is driving the markets lower.

7. My strategy remain buying quality stocks on dips. Some of the stocks are at almost December 2011 levels. PSU banks offer a very good dividend yield and strong PSU Banks can be targeted for buying.

8.Gold is at important support levels and fresh buying should be avoided till the trend is clear. I would buy Gold only if it closes above 1620 levels in dollar terms for at least 1 week.

The bottom line is to be very careful with our stock purchases and to stick to Quality Stocks.

How have the markets fared in April?

The month of March has drawn to a close. Let us see how the markets have usually fared in the month of April. March ended with a marginal loss of 0.2 pc which was ironically the average loss in the month of March.

1. The month of April has almost always seen a loss of at least 2-3 pc below the March close. This implies that 5500-5550 should be tested at least once.

2. The month of April has been positive 5 times and negative 7 times in the past 12 years. In the recent years, April has become a positive month. The average gain in the month of April has been around 1.5 %. This leaves us with the targets of 5750-5800.

3. The upside seems limited for the month of April. The range which seems to emerge is 5500- 5900 at the upper side. The bias seems to be flat to negative.

4. If the up move which has begun continues then we may see 5800-5900 before coming lower during the results season.

5. It is a new month and a new financial year. The Gilt rates have gone back up to 7.96 % to 7.99 %. This is another opportunity to enter Gilt Funds.

Overall, the markets direction seems sideways for the moment with a negative bias. It is a buy on dips markets with good fundamental stocks.

Time for a Bounce?

The markets had a free fall in the last week losing about 3.8 pc. There seems to be despondency all around. Is it really all gloom and doom as portrayed? This week let us step back and look at the next 1 year.

1. The elections can be held latest by April 2014. There are 3 windows right now, September 2013, December 2013 or April 2014. The most likely option looks to be December or April. The reason for this being is that the logistics demand at least 3 months post the the Government falls. June-September is the Monsoon season in India.

2. For all the posturing no one is ready for elections just as yet. Mayawati is waiting for the Samajwadi to mess up further, the Left front is waiting for Mamata to become more unpopular, the BJP is still to decide who will lead them and are waiting for UPA to become more unpopular.

3. The complex Mathematics will keep the Government aflloat. This coupled with the Congress track record of always completing their term may well lead to the elections being held 1 year ahead.

4. The next trigger will be the full year corporate earnings which will come around the 15th of April. Till then, there are no major events lined up. Cyprus should be settled today and if that happens the markets should rally up.

5. The year end NAV game will start in earnest from Monday. The Fund Manager bonuses are paid based on the March end NAV values. Hence, I believe at least the large caps should rally in the next week.

6. Many book losses in March to offset short term capital gains against losses. This is to pay less income tax. This could also lead to midcaps being further hammered.

7. Logic suggests that markets should rally before elections so that the funds are available to fight the elections. One of my good friend has carried out a study about pre-election year performance and almost always there has been a 20 pc gain in the markets.

8. Technically, the markets should bounce. 5950 is the key level. Any move beyond 6000 and we still may see new highs.

Will the RBI cut Interest Rates?

The markets are having a roller coaster ride. They are up 1 day and down the other. So, let us see what they have in store for us for the remainder of this financial year. For the last week, the markets were down 0.6 pc.

1. The key event for the next week is the RBI policy on Tuesday. If there is a rate cut, the markets will rally. I think there would be a rate cut in some form. Let us see what the RBI Governor has in store for us.

2. The advance tax figures may point to some revival in growth figures.It is ow for the RBI and the Government to build on these, by providing appropriate stimulus at the right time.

3. The cut in Petrol prices and no hike in Diesel prices means there is no under-recovery on Petrol and a Rs 8.64 under-recovery on Diesel. I suspect once the Parliament closes, we will see a hike a 50 paisa hike in Diesel prices. Diesel subsidies account for 60 pc of fuel subsidies and sooner they are eliminated better it is.

4. Debt funds especially the Gilt funds still are very attractive to be added with a year long horizon. If I check the Value Research site for the last 1 year, Gilt funds have beat Equity and Gold Asset classes.

5. I expect the current rally to pick out in May or June at levels between 6500-7000.

6. It makes sense to add quality stocks on every dip. Even if the markets collapse, the stocks can be averaged out.

7. Elections are scheduled for April 2014. I expect that the markets will peak out much before that. The elections and the period around the elections I believe will offer a good opportunity to accumulate quality stocks. As per the 8 year cycle, the next peak should be in 2016. Typically, 2 years before a new peak, the markets rally the most. 2014 - 2016 is the time to be invested in stocks.

8. Gold is trading at the lower end of its trading range. 1500-1800 USD band has been its trading range for quite some time now. A break on either ends will lead to the to the testing of 1200 USD or 2100 USD.

Let us wait and see what Dr Subba Rao has in store for us. After the credit policy, there are no triggers for the next 3 weeks till the early full year corporate results. If the policy is positive and the liquidity flow continues, markets will rally.

Will the Rally sustain?

The markets rallied by 4 pc in the past week. The rally caught many by surprise and let us what lies ahead for the rest of the month. Whatever be the short term direction of the market, India remains a strong growth story in the long term.

1. 15th March is the time to pay advance tax final installment. market typically remains subdued expect in a few years.

2. The inflation numbers are out next week and the RBI policy on the 19th of March. Any rate cuts and the markets will rally.

3. The Government has made a lot of announcements, a pragmatic budget has followed and the Results have of Corporates have been declared.

4. There are no positive triggers left except liquidity gushing out. What I have noticed is this up move from 5663 - 5953, many of the stocks have not moved.

5. 5950 - 6000 becomes a critical resistance zone due to many moving averages, previous resistaces, supports lying in this zone.

6. Elliot throws up 2 possibilities. The wave 4 has ended at 5663 and this is last leg of the rally heading towards 6400-7000 range or 1 more down leg is pending to re-test 5400-5550.

In either of the 2 cases, the market is in no trade zone. It has rallied over 300 points so at least a correction of 100 points is due. 5850-5880 are support areas where 1 could add to their positions.

Nothing beats investing in good quality stocks at every dip.

For those interested in Options, I will update my Options link comments section.

Option Strategy for March

Here is 1 Option Strategy that can be tried out.

Sell March 5900 call @ 44 or more.

Hold till expiry.

If Market touched 5900, buy 6000 March Call.

Will keep you updated in this thread if any change in positions

Note: Please refer comment section of this thread for updates.

How have the Markets fared in March?

It is a new month and time to again check statistically how the markets have fared in the month of March. The expected range for Feb was breached on the lower side thanks to the budget day effects. The downward bias was maintained in the month.

Gains in March over the years

1. Traditionally, march has been a down month with 7 out of 12 past years it showing a negative bias. Only 2006 and 2009 have been huge positive years.

2. The good news is that whenever February has been negative, march tends to be positive. This year we had a negative February with a 5.7 pc decline.

3. The average gain for the month of March is 0.17 which is hugely misleading as there have been huge swings across the years.

4. The markets generally tend to go below the February closing price in March. On an average it could be around 4 pc. This would mean 5470 - 5500 on the lower side.

% below Feb Closing

5. On the higher side, the markets can go up even 7 pc. This means an upper range of 6091 which is improbable but not impossible. A more likely figure will be a gain about 5 pc which is what last 5-6 years average indicates. This gives us a figure of 5977.

The Range which is in play is roughly 5500 - 5950. We are right now at 5719 which is very close to the mid point of the range at 5725.

It could very well happen, that in the first half of the month we test the upper half and then the lower half. Let us wait and watch how the markets behave. based on this range, I will post a derivative strategy for Thursday.

The Budget was a non-event and a pragmatic budget. Let us accumulate quality stocks at lower levels.

Update on Budget Strategy

If one had gone for the Put Strategy,

Morning 5800 feb put got for 24 and 5800 march put possible to sell at 75

End of day 5800 feb put fetched 109 rupees which means 87 rupees profit.

87+ 75 = 162 rupees profit so far. We are covered till 5638. 200 EMA at 5649 so a bounce on cards

Morning 5800 feb call at 60 bought and march 5800 call written at 125.

During the day I hope some money could be salvaged in 5800 call and march 5800 call at 57 so made 68 rupees.

If salvaged money Feb 5800 call at least 20-30 rupees profit.

Risk free money made.

Option Strategies for the Budget Day

It is February 28th and time for the budget. This time the budget day is unique in a way that it matches with expiry day. Let us see if we can profit from this 1 off event.

There are some strategies which come to mind and I am penning them dow here.

Rule for trading in Option: Effective Risk Management. 1 should not loose large amounts of money in a single trade. Small losses are acceptable and part of the learning process.

How will market react to the budget?
There are 3 possibilities, go up, go down or remain flat.

The volatility decreases tremendously after the event and even if market goes up or down 50 or 60 points, premium decays. The Option Writer profits.

Strategy 1:
Sell March 5800 put @ Rs 90 and buy Feb 5800 put @ Rs 43

If market goes up: Feb put value gone to 0, and March premium can be pocketed.
If market goes down sharply, Feb put will help cover losses in March put. Remember you are pocketing 90 rupees hence you will make losses below 5710 in any case.

Strategy 2:
Sell march 5800 call @ 109 and buy Feb 5800 call @ 36

If market goes up, Feb 5800call will make you money. You make losses only after 5936 in any case. The Feb 5800 call will give you money which increase the level which you make losses to above 5936.

If market goes down you pocket the difference in premiums of 73.

This strategy is only for today. It will fail if markets remain flat. Tomorrow is another day and then other dynamics will come into play which we can see tomorrow.

The trick in options is to make small profits but completely risk free. 1 should take care of all eventualities that a trade can fail.