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.