Sunday, June 28, 2015

Monsoon worries swept away

It was another week of heavy rainfall and the markets to went up. If this continues for a couple of weeks more, the monsoon fears may become irrelevant. Let us see what next for the markets?

1. The monsoons are already in surplus of +26 pc. This against the Met department forecast of -12 pc. Now, for the Met department forecast to come true there has to be a swing of 38 pc overall for which from now on the rains will have to be very poor.

2. Another interesting feature of the rains this time is that it has cover all regions more or less equally. Every year not only the quantum of rain but the distribution is very important.

3. Normal rains means another rate cut could be coming in August-September.

4. The Greece drama continues. For some reasons, the markets seem to be pretty confident it would be all right in the end. No markets are showing signs of panic as in  the past.

5. The markets are critically posed in the 8400-8500 resistance zones. This zone is particularly important because if the markets close convincingly above 8500 then we may see new highs coming in the region between 9300-9500.

6. The FIIs have started buying again in a small manner. If the FIIs start buying, then we would see new highs coming.

7. Also, the last fall took about about 15 sessions from 8489 and we have taken about 10 sessions to rise to a high of about 8423. If the markets take out 8500 within the next week, then we are on track for new highs.

8. The monsoon session starts on July 21st and is expected to be a very stormy session. Whatever rise has to come has to come before it starts. This is another indicator to know whether we are good to go for new highs.

Sunday, June 21, 2015

Greece still holds the Key

The markets rallied sharply by about 3 pc this week for the Nifty to close at 8224. This rise had certain strange characteristics. Let us see what these are and what could be the future probable path of the Nifty.

1. The monsoons worries were swept aside and in fact we have received 11 pc surplus rain till about 18th June. A few more weeks of this rain and the monsoon worries will get swept aside.

2. The Greek drama continues and it looks like the drama will be played out till last possible minute. There is a EU Heads summit on Monday where we would get further clues on the market action.

3. All rises in the Indian Markets have always been traditionally on the back of FII flows. This almost 300 point rally has been on the back of FII outflows. FIIs have sold for the past 12-13 sessions consecutively with buying maybe for a couple of sessions in between. On the back of outflows of Rs 1900 crores for May, June has seen about 5500 crores outflows so far.

The markets closed at 8181 on April 30th. So, the markets now at 8224 have absorbed 7400 crores or almost 1.2 billion USD outflows.

4. The monsoon session of the Parliament is only after July 20th and the results also will start flowing in only after 12th July. So next for the next 3 weeks there are no major triggers for the markets except the Greek drama.

5. Technically, 8350 becomes a very critical level both from retracement levels perspective as well as trend line levels.

A weekly close above 8350 would signal the end of ongoing correction. The markets may oscillate in the 8100-8400 range for few more weeks before see a clear move on the either side of the range.

Sunday, June 14, 2015

Greece worries hit Global Markets

The markets closed another 1.6 pc down. This correction which started in the first week of March has now gone on for more than 3 months. How much further will the correction go? Let us try and examine the reasons for the correction and how far can it take us down.

1. This is 1 of the first sizeable corrections since August 2013 when the markets hit a bottom of 5118. It could also be the correction from 5933 which the markets hit in Februrary 2014. In either case, if we look at the time component, we are correcting rises of 19 months or 13 months. The correction should last at least 5 months if look at time wise correction. Since we are in a bull market, correction can be shorter time wise but at least 3-4 months.

2. This means that the markets can remain sideways to downward for another couple of months.

3. We have almost hit the target of 7908 and the next key supports come in at 7800 and 7500. We may very well go down to 7500 but before that some kind of a bounce may happen.

4. The Greeks have to make a payment before the end of June. Talks are ongoing between the Greek government and the lenders. If the talks fail, Greece may exit the Euro. This would have a cascading effect on the global economy and the world markets similar to the Lehman effect. I doubt things will come to such a pass, but the shadow boxing is enough to keep the markets down.

5. The monsoons have arrived and are normal for the first 10-12 days of June. These are early days yet and only July will reveal what kind of rains we have received.

6. The FIIs have continued their selling and sold about 4500 crores so far in June to go with their selling of 4500 crores in the month of May.

If we look at the key events driving the markets, monsoons and Greece are the two key drivers. The Greece story may get sorted out either last next week or the week after. The monsoons effect to be clear will take sometime more, maybe 1 more month. This matches in with the 4-5 months time taken for the correction.

Strategy remains simple, buy on dips good quality stocks. The Private banks especially have come to very attractive levels.

Sunday, June 7, 2015

Markets await the Monsoon Trigger

The Markets, it seems did make a short term top in the first 3 days of the month and the RBI cut rates by 25 basis points. What next for the markets?

1. The RBI did what was expected and the Met Department downgraded the monsoons from 93 % normal to 88 % normal leading to the markets tanking.

2. The Monsoons have hit Kerala on June 5th and the Private forecaster Skymet still talks about a normal monsoon. The uncertainty over the monsoons means that the markets are not likely to immediately take off from current levels.

3. Last week, I had spoken of 2 scenarios either straight up or first a correction to 7600-7800 levls and then a move up. The possibility of a correction first seems more likely now.

4. The FIIs have sold about 1250 crores in the first week of June and the DIIs have bought double that quantity.

5. Apart from the monsoons there are no major triggers in the month of June. Crude oil prices have eased up a bit after the OPEC meeting.

6. The Bank FD Rates are clearly on the down move. A FD which was fetching about 9.7 pc about 18 months has come doen to 9 pc and is mostly likely to move down to 8.5 pc.

7. The markets have corrected from 8467 to 8057 and a short term rally to 8250-8300 levels is easily on the cards.

The Greece drama has been postponed till the end of the month and the markets will continue to be range bound till then. Best approach is to keep adding good quality stocks many of whom will be ex dividend in the next 2 months thus giving immediate tax free returns.