Sunday, May 25, 2014

Broad based rally in the markets

The markets gained 2.3 pc for the week. this was not the real story, it was the action in the mid caps and small caps which was where the real action took place. Let us now look at the possibilities ahead.

1. There seems unlikely to be a real correction now in the markets, it has become a buy on dips markets. The FIIs were sellers for 3 days in the markets, but they made up for it on Friday.

2. Above 7400 and 7477, we are headed to new highs in the markets. This is a good time to remove all dead stocks from the portfolio and move into quality stocks.

3. The next week, markets will cheer the Cabinet formation and the next significant event will be the Union Budget in mid July. Unless, the monsoons are a total washout, they will not affect the markets.

4. Infrastructure, Power, roads are the themes which can be looked on.There are several reasons for it. this is likely to be the thrust of the new Government and also these stocks have been badly beaten down.

5. All corrections from hereon are buying opportunities. The market has changed from sell on rises market to a buy on dips market.

6. Gold prices have come down on import relaxation. Gold as an investment class should not be a option now. Gold works when there is fear in the world and uncertainty is there.

7. One must book profits at regular intervals, else when the crash comes, all is lost. The profit can be locked in fixed income or real estate.

Sunday, May 18, 2014

Markets need some cooling off before next up move

The votes are counted, the voters have made their statement and a new government will be sworn in soon. Let us see what we can expect from the markets.

1. It is clearly a buy on dips markets after a multi-year breakout from 6350-6400 levels. This will serve as a deep stop loss.

2. The famous 8 year cycle is due in early 2016. The next 18 months can see markets hit new and record highs.

3. This up move started from 5118 in August last year. The first wave was 6415 - 5118 = 1297 points.
 Wave 2 corrected from 6415 to 5933, a loss of  482 points. wave 1 took 3.5 months and wave 2 took 3 months.

4. Wave 3 started from 5933 and wave 3.1 ended at 6870 or 6819 a gain of 937 points and took a time of 2.5 months.
Wave 3.2 took about a months time and ended at 6639.

Wave 3.1 = 886 points so wave 3.3 = 7525 already done or 8072 or 8958 which should be hit in the august to October time frame.

The current correction can take us to 7100 or 7000.

Now is a good time to book some profits as if the projections go wrong one would be left with nothing in hand.
After some more spikes. I expect a consolidation for about a month before the monsoon and the Budget expectations kick in.

Friday, May 16, 2014

Modi wins: Profit Booking sets in

Finally, after all drama the votes have been counted and the BJP has come to power on its own.Today also the FIIs were big buyers and DIIs marginal sellers. Profit booking kicked in around 2 pm and lets look at the road ahead.

1. The Technicals I will visit on Sunday. Looking at the fundamentals, its the best possible result. BJP has a majority on its own and with allies close to 340.

2. The next trigger for the markets is the cabinet formation which will take about 4-5 days. The choice of Ministers, especially the Finance minister will set the stage for the next up move.

3. Post the Cabinet formation, the next trigger is the Monsoon followed by the Union Budget.

4. There will be a series of Assembly elections in key states like Maharashtra, Delhi, Bihar around Diwali. That will be a trigger down the year.

5. Over the weekend, many FIIs will re-evaluate their India allocation and that could be a trigger in the next week, especially on Monday.

6. The markets have got what they wanted, a clear decisive mandate for 1 party. Now, the next moves will depend on the party and their policies. As per 8 year cycle, we may have a dream run peaking in 2016. All dips, can be bought into.

I wonder if it was the retail who sold today? FIIs bought big. DIIs sold 10 pc of the volume FIIs sold.

At the present moment, it is prudent to book part profits in stocks bought between 5933-6600. One can always re-enter at lower levels.

Sunday, May 11, 2014

All set for D-Day: Likely Scenarios

After months and days of speculation, the D-Day is approaching next Friday and let us look at what could be the various scenarios at play here. The rally before the Results does put question mark over the post 16th May scenario.

1. If Modi wins we rally another 5-10 pc. That would be the time to definitely book profits.If you look at 2009, a top was made in next 2 days after the results and then about a 10 pc correction set in. Next 4-5 months, we moved around 4500 which was hit 2 days after the results.

2. If there is uncertainty in forming the Government and if a compromise candidate within the BJP has to be found out then the markets would correct a bit. If there is a hung Parliament, then expect a 15 pc quick correction to take us to 6000-6300 levels.

3. The markets have begun a fresh leg of rally. The first major leg was 5118 to 6340, a rally of 1222 points. This leg began at 5933 giving targets of 7155 or 7910. Now, the tricky part is that if we reach 7155 or there about before the results what next?

4. It could very well happen that the next week may have a significant top in place.

5. As per Elliot, we are on the cusp of 3rd of 3rd wave which is the most powerful wave and will have several strong gap ups in place.

I would post an update on Thursday and Friday based on the prevailing trend which would give us an idea what to expect post the election results.

Sunday, May 4, 2014

May - a month of big moves

Historically, the month of May leads to huge moves in the markets. April, as predicted turned out to be a range bound flat month. let us see how May has affected the stock markets.

1. In all election results month of May has lead to huge moves, May 2004 - minus 17.4 pc, May 2006 - minus 13.7 pc, May 2009 plus 28.4 pc.

2. The preceding April 2004 was 1.4 pc, April 2006 was 4.6 pc and April 2009 was 15 pc gain. April 2014 was flat with 0 pc gain.

3. The average high low pct for May is 7 pc above and below April close which gives a range of 6227 - 7124 range for the markets. If we correct before the Results, chances are we may see a rally after the elections.

4. The May low has always been at least 1 pc below April close. So, we should re visit 6600-6650 once before any up move.

5. The present correction is an opportunity to add more stocks as long as the markets remain above 6350. The may high has always been 3-4 pc above the April close usually and hence we should be making 1 more new high in the month of May.