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.