Markets: Time for a bounceback?

In a truncated week of trading, the markets fell about 2 pc to end at 5574 which is below its previous low of 5583. Is it a time for a bounce? Let us try and explore what the markets have to say.

Last week, I had mentioned of 3 probabilities:

I would give the 3 probabilities, following % chances of coming true:

1. Wave C-4 continuing till 5450 - 5525 (40 pc)

2. Wave C5-2 in progress till 5625 (40 pc)

3. Major wave down till 4000. (20 pc)


Probability 2 is now firmly ruled out. So, now either the market bounces from slightly lower levels or continues falling.


The reason I feel we are in for a bounce are:


1. The FIIs bought almost 900 crores last week. The DIIs sold marginally. This means there is no selling pressure.


2. The sentiment has not been damaged. There were good auto sales with Maruti and Hero Honda posting record sales on Dhanteras.



3. The markets have technically closed just the week 5 week low ema and generally do not spend much time below this level inn bull markets. The next week could well be the make or break week for the markets.

4. The gap from 5435 to 5528 has acted as a major support and should act as support once more.

5. Technically we are in wave 4 correction of major wave C.

4 A was 5815 - 5583
   B was 5583 - 5777
   C is ongoing and either wave C-a is coming to an end or the entire 4 - C is ending. Either ways a bounce of at least 100 points is on the cards.

People can go long with a stop loss of 5525 for the short term traders. I still believe we are in for a year end rally to 6000-6200.

Three Possibilities for the Markets

Obama has been re-elected, 1 major event out of the way and also the Q2 results have been declared and done and dusted. The markets were down by about 0.2 pc (Nifty) last week and now 3 distinct possibilities exist.

The markets made a significant top at 5815 and has been correcting since then.
5815 - 5583
5583 - 5777
5777-5677

The above has been the flight path of the index.

This path tells us that there are 3 distinct possibilities.

1. The market is still correcting the rise from 5216-5815 and we are in the last leg down in which case we have a target from 5450-5525.

2. The market completed the correction at 5583 and the final C-5 poised to take us to 6000-6200 has commenced and we are in the corrective second wave of such an advance.

3. The market has already topped out at 5815 and we begin the long slide towards 3700-4000 before the next bull run.

So, what are the points of negation of these probabilities.

Below 5623, option 2 is ruled out that we are correcting the rise from 5583-5777.

Above 5750, option 1 is ruled out.

Below 5350, option 3 comes into the picture.

So, how does one play the situation now.

The safest option is buying on dips. Some quantity to be bought between 5625 and 5675. Add to this between 5450 and 5550.

Alternately, one can wait for 5750 to be breached by which time the prices would have risen.

I would give the 3 probabilities, following % chances of coming true:

1. Wave C-4 continuing till 5450 - 5525 (40 pc)

2. Wave C5-2 in progress till 5625 (40 pc)

3. Major wave down till 4000. (20 pc)

My assumptions are based on the parameters that euphoria is yet to be seen in the markets signalling a major top.

The problems of the world are still not yet solved. We are not yet done with the bear market started in Jan 2008.

Wish everyone a Happy and Safe Diwali.

Some signs of Green Shoots

Over the past week, some data coming out has been encouraging. Auto Sales are on the rise again, retail chains are logging in good festive sales, so are we out of the woods yet?

The period from 2008 to 2015 was predicted to be a great period of strife for the world economy, a period of hardship and suffering which was only rivaled by the Great Depression.
The Great Depression began in 1929 with a stock market crash, the same as in early 2008. People lost jobs, banks closed, great institutions faced extinction and it was a time of great economic hardship.
Similarly, the period from 2008 onwards is a troubled time in the global economy. There are periodic bright patches of sunshine amidst the gloom.
The Auto sales have risen in October, there are long waiting lists for several models of cars. Retail sales have gone up but at the same time the hiring is at its lowest. Companies are doing all sorts of ridiculous cost cutting.
It will take time to get rid of all the problems facing the world economy, but I strongly feel by 2014, the global economy would have entered into a new growth phase. The Indian elections also would be out of the way by that time.
Between now and 2014, there should be 1 major dip in the indices which would be the last opportunity to stock up on good quality equities.
We are more than halfway through the tough economic period and the light at the end of the tunnel appears to be closer.
Coming back to the markets,

1. The range bound trading continues. We are still stuck in that trading range, though we did have a breakdown below 5630. One could go long only on a break of 5726 and if the market sustains above it.
I do not foresee any major downside except maybe about a couple of 100 points. 5450 - 5526 should be able to provide good support.

2. The US Elections will provide further direction to the markets on Wednesday. If there is a clear cut winner, the markets should rally.

3. The Results season is over and the markets will look now to Global Events. If Romney wins, there may be a short term blip as he is opposed to the loose monetary policy. If that happens then, gold prices should correct now.

Tight Range Continues

The Markets had another flat week losing about 0.4 pc. The market continues to grind in the range from 5640-5730. Only once this range breaks we can expect a substantial move on either side.

1. The next trigger is the RBI policy on Tuesday 30th October. I expect a CRR cut of 25 basis points.Anything more and the markets will rally.

2. The Results season is all but over and a few results have been stand out like M&M, ITC and Larsen. This again goes to show that the quality of management does make a big difference.

3. I have posted the long term Elliot chart in my previous post and expect the market to head higher for the rest of this year after a minor dip in between.

4. The key levels to watch would be 5633, 5603 and 5527. Around 5500 would be a very good buying opportunity.

5. The Cabinet reshuffle has happened and it is not a big deal. It is just that more people from the Congress have got a chance to enjoy the fruits of being a Minister. They have tried placating AP and West bengal, a move which is unlikely to reap any great dividends.

The bottom line is wait for the tight trading range to break either at 5730 or at 5633. A break on either side would give a move of at least 100 points. 5830 therefore becomes a place to book some profits and 5500-5530 becomes a place to add some of the blue chip stocks.

We got a very good response for the Picks launched by me and Lakshmi. It is now time to close the subscriptions. Thanks to all those who subscribed. It was a great learning experience for me too and I have become a better investor in the process.

Long Term Elliot Chart

I have tried to map the move from Jan 2008 till date in terms of Elliot waves. The chart is self-explanatory.

Markets ready for a breather

The Markets gained 0.1 pc for the week and formed a Doji on the charts. A Doji is usually formed when the markets are indecisive. The markets are continuing the correction started from 5815. Let us see how deep the correction can go.

1. In Elliot terms, we are in the third leg of the upmove started from Dec'11.

A was 4532 - 5629
B was 5629 - 4770
C is 4770 - 4829 and ongoing

C can have targets of 5867, 6174 and 6544.

C is sub-divided into,

Wave 1 4770-5348
Wave 2 - 5348 - 5032
Wave 3 (i) 5032 - 5448
             (ii) 5448 - 5216
             (iii) 5216 - 5815
             (iv) 5815 - 5637 and ongoing

I expect the correction to halt at 5586, 5515 or 5444.

2. RIL results came and were disappointing. I have put up a detailed analysis at the below link:
http://investmentsfordummieslikeme.blogspot.in/2012/10/is-it-good-time-to-enter-ril-post.html

3. The global markets are correcting and I expect our markets to continue to correct. October months are notorious for lack of movement.
We are -0.3 pc for the month so far and I expect a dip till this expiry and then a pullback to finish the month marginally in the red. The coming week is a truncated week with a holiday on Wednesday and expiry on Thursday.

4. TCS and HCL Tech results were good and they again reiterated the fact that Infosys is falling back. TCS had greater client addition as well. In terms of profit margins also, Infosys is falling behind TCS. Once upon a time, Infosys used to claim much superior profit margins.

5. The Corporate results season is on in full swing. There have been a few standout performances like ITC and TCS. Some like RIL have disappointed.

In a nutshell, this is a buy on dips markets till there is no global trigger. Use every dip to accumulate good stocks.

Mild Correction to Continue

The markets were down 1.2 pc for the week and the market was range-bound for most part of the week. Let us try and find out what the market direction will be for the current week and in the medium term.

1. The markets had a target of 5674, 5586, 5515 and 5450. Of these 5674 was achieved before the markets bounced back from the support area.
2. The liquidity flow is keeping the markets at higher level. A consolidation and a mild correction is essential before the markets start the next leg up.
3. The bye-elections results over the weekend where Congress lost in their stronghold in Uttarakhand and the President's son just scraping through in West Bengal means that the tide may be further turning against the Congress.
4. The Government may try to push through more reforms before opting for elections at the earliest in September 2013. This would again depend on next year's budget and the monsoons in the next year.
5. The stocks with stronger fundamentals are rallying. The Q2 results have started trickling and Infosys disappointed again. Infosys need not be an indication of the IT Stock results because in the past couple of quarters we have observed that other IT companies come up with better results.
6.The broader trend of the market remains up and targets of 5944 - 6200 remain on the horizon by Diwali.

I will post the Broader Elliot picture over the course of the week. As Octobers are usually quiet periods especially when we have had strong Septembers, the markets have played true to formand have declined just 0.5 pc in the first half of the month.
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Buying Opportunity beckons shortly

The markets have had a wonderful run up in the past few weeks. This has been mainly due to a confluence of 2 factors. Government making positive reform announcements and abundance of liquidity thanks to the measures announced by the US Fed. Let us look at how we can profit from these 2 factors.

1. As we saw in last week's study, if we have a very positive September, then the Octobers are usually flat or with a limited upside. For this expiry, I see the top at 5800-5850 and a base at 5350-5400. We have tested the upper side and now it is time to test lower side of the range.

2. The last up move has been from 5216 to 5815 which is almost 600 points. A retracement to this can lead us to 5728 (already done), 5674, 5586, 5516, 5445, 5357 and 5336. Below 5336, this bull market would be over. Since, we are in a strong up trend I do not expect the markets to fall beyond 5516-5586.

3. We are in the last frenzied up move of this rally which started from December 20th 2011. We had 3 legs from Dec'11. First was 4532 - 5629, second was 5629-4770 and 3rd is ongoing from 4770-5815. 1st leg consumed about 2 months, second consumed about 5.5 months. The 3rd leg has been ongoing for about 2 months now. I expect it to go on for 3.5 months. (Time for Up move = Time for Down move)

4. Fundamentally, the rupee has strengthened to Rs 51.8, thus cutting down on the import bill and also reducing the fiscal deficit.

5. The FII inflows continue unabated. The next 1.5 months will be a great opportunity for the traders to trade in and out of the markets. It also is a time for long term investors who can buy, book part profits, reduce their cost of acquisition and wait it out enjoying the dividends.

6. The US elections in November further strengthen the case for markets remaining bouyant. Obama was routed in the debate but came up with a good jobs number. Hpw accurate or true are the numbers is a matter of speculation. This type of newsflow will add fuel to the fire of keeping the markets up.

7. The Government will try to push in the disinvestment while the markets are buoyant. For this very reason, expect positive newsflow from the Government till the model code of conduct kicks in for the polls in Himachal Pradesh and Gujarat. BJP retaining these 2 states will state the stage for the markets to correct.

To sum up, the positives for the market are the liquidity, reforms announcement from the Governments.

The negatives are Spain crisis looming large, the domestic and US election results. The negatives are still further down the road and it is time to enjoy the good times while they last.

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October beckons

September is done and dusted. At the beginning of September our analysis had said, "Keeping a buffer of couple of percent, we can go long in the 5150-5200 band. 8 times out of 11 year, one would have made money with this strategy."
We did make money and now let us see how we can play the October series in the market.
September ended with a gain of 8.5 %. In the past 12 years, we had 4 years of gains in excess of 8 pc in September. These years were 2005, 2007, 2009 and 2010. Let us see how Octobers panned out in these years.
 Years of large gains in September usually result in declines in October. Only in 2007 at the peak of the bull market, there was an exception.

Also, in October generally the markets are subdued and may give small gains.

Looking at all this the upside is capped for the markets in October. At the upper end of the range we have 5800-5850 and at the lower end of the range 5300-5350.

Technicals:
As per Elliot we are in 3 rd wave of the C leg starting from 4770. This leg may have ended or is on the verge of ending around 5750.
C1 was 4770 - 5348 (578 points)
C2 was 5348 - 5032 (313 points)
C3 was 5032 - 5735 and ongoing (703 points)

I expect C4 to end between 5300-5400 and consume a major portion of October 2012. This will present a very good buying opportunity for the final surge to take place.

I expect the medium termmarket movement as follows:

5700/5800 - 5300/5400 - 5900-6200 to peak sometime between end of November and the year end.

The global markets will remain up at least till the US Presidential elections are out of the way in November 2012.

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Markets continue to Rally on positive news flow

The Markets gained another 2 pc to end the week at new 52 week highs. The markets put behind them all the political uncertainty and the mid caps have joined the party. Let us look at the political, fundamental and technical factors at play.
Political factors:

1. The Government for all the talk of mid-term polls should last out the full term. The mathematics are simple. The half way mark is 272 seats and the government has 254 seats. A shortfall of 18 seats. BSP has 21 MPs and Mulayam 20 MPs. Mayawati cannot afford mid-term polls just yet as anti-incumbency is yet to set in UP.Typically, it takes a minimum of 2 years for anti-incumbency to set in. Mulayam will not withdraw support as he knows Mayawati will step in. He is trying to make the most of a bad deal.

2. The Government knows the only chance for it to counter the corruption allegations is to move down the reform road. Typically, the benefits of any reforms enacted take about 18-24 months to show up. This is the last wave of reforms before the government gets ready for polls. 2012 is the last window of reforms.

3. 2013 will mark a wave of populist measures with an eye on the elections. I expect the markets to rally till Diwali at least on the wave of reforms.

4. The Congress in its history has never failed to complete its full term in office. This was even at the time of the Narasimha Rao led minority government from 1991 - 1996.

Fundamentals:

1. The Ratings downgarde has been most likely avoided by the slew of the reform measures announced. This means lower borrowing costs for Indian companies in the foreign markets.

2. The monsoon has a shortfall of only 5 % and there is no drought like situation in the country.This will help keep inflatio in check.

3. Chidambaram as FM means the flow of pro-market news will cotinue for some time to come. The government needs to meet its divestment targets and hence the rally will be kept moving. The FII flows have also gone up dramatically.

4. QE -3 means that liquidity flows will continue. With India announcing reforms, a percentage of this money will flow into India.

5. The stronger rupee means lower Petrol prices and also the subsidy burden gets slashed. Rupee has already gained about 4 rupees from its low of 57.32. Next targets are 52.5, 51. Also, when rupee strengthens the FIIs who have invested gain.

Technicals:
1. We are in wave C of the rally started from 4532.

A was 4532 - 5629 = 1098 points
B was 5629 - 4770 =  859 points
C can have targets of  5868, 6175 or 6546.

C wave is sub-divided into
C1 from 4770 - 5348 = 578 points
C2 5348 - 5032 =  316 points
C3 5032 - 5720 and ongoing = 688 points

C3 can be extended and can go on to 5771 or 5967.

Post C3 we should have a correction of about 300-400 points before the final surge leading up to Diwali.

I expect a top around the November-December time frame.

Strategy:
Buy on dips at levels closer to 5400.Above 5700, start booking profits. The markets could top out anywhere from 5868 - 5944 to the previous highs.