Is the upmove over?

It was an action packed F&O expiry and a one way journey down. There are several interesting observations to be made which may suggest the entire rally from March 09 bottoms may be over.

1. The trend line joining the lows from March is broken decisively on weekly and daily basis.

2. The FIIs and DIIs were net net on the sidelines for the month of October. Both were almost net zero in terms of money pumped.
http://www.bseindia.com/mktlive/market_summ/categorywise_turnover.asp The BSE link from where I got the data.
This means that DII turned neutral to negative since August and now the FIIs have joined the same view. This makes November very critical.

3. Even though the market has corrected 7-8% from the tops, many stocks have lost much more, indicating a brutal market wide sell-off.

4. On the basis of 5 week Ema which comes to 4903, we have decisively broken it for the first time since March'09. This is the second weekly close below 5 week ema.

5. The 50 day ema was broken without much ado around 4850. The next support comes around 4600 odd levels.

6. The heartening thing to note was that both FII and DII were net buyers on Friday to the tune of 500 odd crores each. In spite of this the markets fell. Maybe a bear trap for shorters.

7. The Dow closed down 250 points on Monday nut it has also reached the oversold levels and a bounce is expected.

8. The RSI(14) is at 31. This is at lowest levels since March and in the oversold levels. A bounce ca be expected any month. Till 50 EMA is decisively taken out, I would use rallies to short.

9. The RBI credit policy with a hike of 100 basis points is a good step. RBI is ahead of the curve. Better pain now, that a bubble being created.

10. The US GDP growth of 3.5% is largely due to the cash for clunkers scheme and fiscal injections.

Conclusion: Those who have booked out, enjoy the fall and be ready to buy at lower levels. The rises can be used to get out. Those who have missed out the fall as a shorting opportunity, the first fall is always difficult to catch. I would wait for a confirmation of a second weekly close below 4900.

Critical Week Ahead

The markets hit a high of 5182 on the nifty before closing the week at 4997. This was a very interesting week, and the week that follows will tell us whether the entire rally which started from March is over or just a small dip. There were several differences this week over the previous 7 months.

First, the FIIs were huge sellers on last 3 days. They pulled out almost 1500 crores whereas DIIs pulled out 80 crores. I went back and checked. The DIIs have bee net sellers over August, Sept and Oct. In July they were marginal buyers.
This means the entire rally from July, post budget has been on FII flows. This week FII liquidation could be because of Galleon and Lehman forced liquidation or something else. If it was only a forced liquidation, then we should be ok.

Second, Nifty closed at 4997. The 5 week EMA was at 5000, and it has closed below it. This is only the second time in 7 months it has done so.Hence, for the bull run to continue we should close above 5000 next week. All the max open interest is at 5000 strike price for Oct expiry. So we should be somewhere around this by Thursday with a negative bias as there are more calls than puts written at 5000.

Thirdly, we have closed below 20 EMA from which we have taken support many times. 50 EMA comes at 4853 which becomes a key level to watch. Closing below this level for 3-4 sessions, then all bets are off.

UK recession continues. Longest recession since they started keeping records. In US, the corporate results were better than expected. The main thing is profits have increased but not the sales to the same extent. The increased profits come on the back of cost cutting measures. But you can cut costs only to an extent.

Lets see if the entire upmove from March is over and we begin the next leg of downmove or the uptrend is intact.

Over the longer term, I am bullish on sugar, gold and Telecom (Bharti).

Liquidity Keeps Markets afloat

Lets look at some of the stats for the month of September:

1. Nifty has been 6.34% up as compared to 31st august

2. FIIs have pumped in 10,854 crores in September and DIIs have put in 518 crores in September.

3.For the year from Jan'09, FIIs have put 16300 crores and DIIs have put 23535 crores.

The above Stats say a lot. Out of a total of about 40000 crores pumped in 9 months,11300 crores have come in September which amounts to roughly about 26 pc of inflows yet the market moves up only 300 points as compared to 2400 points from the bottom.

So now in spite of so much buying the market is not moving means someone is selling. The Smart Money is moving out of the Markets.

The FIIs display a herd mentality.Now, if this FII flow were to disappear then there would a stampede towards the exit doors.

The cheap dollar and low interest rates in the US are fueling this fascination for emerging markets. FIIs tend to churn the money around.

China down 18 pc from its peak value, Hong Kong about 4 pc and the Indian markets 1.58 % from the peak.

India story is looking good domestically, the only thing which can spoil the party is global triggers.

The Best option is to keep a trailing stop loss for positions at the 50 EMA which comes at 4658.

Markets Tomorrow - Key Levels

I would be putting in key levels for the next trading day for those interested. In case, you find them useful, please let me know so that I would keep posting them here.

5 EMA, 20 EMA and 50 EMA are key support levels. The Bollinger band tops are key resistance levels

BBtop 15, 20 5039, 5000

5DEMA - 4984

5 EMA - 4928

3 EMA - 4956

7 EMA - 4902

10 EMA - 4866

20 EMA -4777

50 EMA -4601

STochs - Buy

MACD - Buy