Markets: Technically Ahead

Last week, the markets gave indications of being week as per the Technical Analysis. True to form the Markets took a dip on Monday and then bounced back smartly. This week, the pattern formed is exactly reverse its showing an up move. So do we have a top on Monday.Lets look at a few charts.

1. There is an upward channeled move going on with top around 5720-5750 and bottom around 5340-5360. Breakout on either side could give moves of up to 400 points minimum. This can also be called a Bearish Flag. It is a Continuation Pattern and happens during down moves. Lets watch the channel.So if 5750 breaks we may move to 6150 else if 5350 goes down to 4900.

2. If we connect the tops from 6339 to 6177, resistance comes at 5900 right now.

3. I am almost sure a 5 wave down move got over at 5177. So wave 1 was 6339 to 5177. ow we are in Wave 2 correcting the entire down move and targets could be 5629 (done), 5758 or 5895.

If the above assumption is true, then April can have a range between 5350 to 5850 before we commence a sharp down move of about at least 1200-1300 points targeting Nifty 4500 by June end.

Fundamentals:
Well nothing has changed. Crude is boiling, Interest rates are rising and so is Inflation. 1 good buy on NSE is L&T Debentures which have 8 years left to maturity with Coupon Rate of 10.24 pc paid twice a year. Bonds are trading at Rs 1025 on NSE. You can lock in 10 pc Interest Rates for 8.5 years. No FD is offering that and liquidity is you can sell on NSE and get the principal back in 2 days.

Markets: Technically Ahead

The Markets took a sudden dip on Friday. Will they break out of the 5300-5600 range. It has been totally range bound for the past few weeks since the budget. I studied a few technical indicators and all of them seem to showing the markets headed lower.

1. The NMA Indicator is a pretty reliable indicator. The Daily is in Sell Mode and the Weekly well as never given a buy signal from the previous sell signal.

2. The 5 days moving average minus the 20 days moving average has been pretty reliable. It has give the Sell sign by going on a reducing trend.

3. The trend line indicates support around 5320 levels.

4. The Bollinger Band gives us support at 5300.

5. The Daily Stochs and MACD are in sell mode. MACD has just moved into negative territory. A move into negative area usually gives a substantial negative movement.

6. I have made some Elliot labeling. As per labeling, if wave 5 began at 5608 we are headed to 5000 on the Nifty or 16635.

To sum up the Technicals, I would watch 5300-5320 area closely. A close below 5308 would open up downsides to 5000.

Using Earnings Yield (E/P) to time the investments

We know the basic ratio of P/E. I have taken the inverse of it also known as Earning Yield and compared it with the G-Sec Yield. Below is the guest post I have done for Subhankar.
Continue Reading at:
http://investmentsfordummieslikeme.blogspot.com/2011/03/using-earnings-yield-ep-to-time-your.html

Key Pointers for the Week Ahead

The Markets lost 1.7 % over the week to close at 5445. The current week is crucial due to the RBI policy Meeting on the 17th of March as well Advance Tax figures due to be out. Lets examine what can drive the Markets this week.

1. the Advance tax figures for various companies will be out by the 16th. Expect them to be sluggish due to higher input costs over the past quarter.

2. The RBI Policy review on the 17th March should hike rates by another 25 basis points. Anything more ad the markets will react.

3. The Oil companies continue losing money due to under-recoveries. Petrol under-recovery is about Rs 4 and Diesel about Rs 11. Expect another round of petrol price hike. Diesel price hike can be ruled out due to upcoming elections.

4. Japan has suffered heavy losses in the earthquake. This may lead to debt raising by the Japanese government for re-building efforts. The Sovereign Debt crisis of the EU countries can raise its head again anytime.

5. We have spent about 30 trading sessions below the 200 DMA thereby almost confirming the start of a new bear market. Since Mar'09, we had gone under 200 DMA just once in May'10 and that too for 7 trading sessions.

6. The market is presently in a no trade zone. Decisive breakouts only above 5608 and below 5309, the post budget lows.

7. For the month of March, the FIIs have bought 11 crores and DIIs have bought 200 crores. This has resulted the markets moving up by bout 2 pc. We could see the quarter end window dressing of the Mutual Funds book, so expect the listless trading to continue unless something majorly negative comes up.

As we look at it there no major positive triggers to take the markets up from here and no major negative triggers right leading to a crash like situation. Decisive moves will be seen after Thursday and also as more evidence of damage to Japan gets uncovered.

Key Week for the Market

The Markets are based at a key turning point. The budget has come and gone. It was a nothing budget treated as a positive budget by the markets grasping at straws.Gold hit new highs, crude boiled over and the DMK Ministers pulled out of the cabinet.

1. The DMK pulled out of the government and will give issue based support. What this means in plain terms is that this is a lame duck government. They have outside support from Samajwadi and Mayawati which will keep them afloat for now. The ability of government to push through reforms gets limited now and this will be a trigger for the FIIs to lighten up on India.

2. Brent crude at 116 dollars. Under-recoveries on Petrol at Rs 4 and Diesel at Rs 11. The economy is going to start hurting. In 4 months, Petrol has moved up from Rs 48 to Rs 63. Inflation will continue and high interest rates will hurt the economy.

3. Gold has given a breakout on charts. It hit a fresh all time high of 1441 dollars and closed on Friday at 1432 dollars. 1432 dollars was the previous all time intra day high. Closing above previous intra day high on weekly basis is a very bullish close. Next target would be 1500 dollars.

4. 15 barrels of oil = 1 ounce of gold. So, if oil continues at 120 dollars a barrel, gold should move to 1800 dollars an ounce in next 3 months.

5. The Death cross has happened. This is for both the Moving Averages and Exponential Moving Averages. This is when the 50 EMA crosses the 200 EMA on the downside or 50 MA crosses the 200 MA on the downside. This is a very significant downside crossover signaling start of a bear market. The markets may not collapse overnight but a long term bear market starts. Looks at the crossovers they have been clean and this is the first time since Mar 09 we have got this crossover.

6. Libya seems to be i for a prolonged stalemate. This is bad news for crude oil as prices will continue to be at highs.

To sum up, we have bad news on political front, India imports 70 pc of crude oil which is at highs. We have bad news both on the domestic as well as foreign fronts. Charts had signalled a decline long back and this is just news catching up with the charts.

Budget Week

Tomorrow is the big budget and for traders best is to stay out till the event is done and dusted.
The high crude oil prices do not leave too many options for Pranab Mukherjee. Expect a hike in excise duties, hike in Service Tax to 12 pc from the 10 pc. He would increase the exemption limit on Income Tax from 1.6 Lakhs to 2 lakhs given that the polls are round the corner.
The chart for the week is of the difference between 5 EMA and 20 EMA it has give a sell signal and I expect the low of 5177 to be breached. If 5096 is breached then the previous low of 4786 is the next target.
Please do not buy any options as post Budget the volatility comes down drastically and only option writers make any money.
The FIIs have pulled out early 7300 crores in Feb and about 16000 crores from Jan 1st. The domestic institutions have bought 10000 crores worth of shares. The high crude prices and inflation mean stay out of the markets.

Budget: Whats in store?

The Union Budget is round the corner. Its the usually stuff, where the TV channels will go crazy over analyzing the statements of the Finance Minister. I did a statistical analysis of the budgets since 2001 and markets. I have also tried factoring in what could influence Pranab Babu as he goes about making the Union Budget.

1. There are elections in 5 States including Tamil Nadu, West Bengal, Kerala, Assam and Puducherry. Expect a populist budget with tax breaks for the middle class and no harsh measures.

2. ONGC may be a beneficiary of some form of largesse from the government in the form of subsidy burden being eased, or the royalty issue being settled with Cairn. The way Oil Prices are going up and unrest in Middle East, ONGC and Cairn look like best buys in current market.

3. Gold is holding steady at 1393 dollars. This is just 30 dollars from from its all time high. Good time to accumulate.

4. Last 11 years, Markets have rallied 4 times post budget and fallen 6 times. This is assuming all budgets happened on 28th Feb. I remember in 2009 and 2004, they happened in June.

5. March has historically been a negative month or a month with small gains. Advance tax payments and the budget expectations not being met are some of the usual things.

6. February usually has been a lackluster month in terms of percentage change. This year has been no different.

7. I did a check on the Bollinger Bands and they touched the upper end and coming down now. This means we are headed to 5223 or lower.

The strategy remains simple. Stay light on equities. Keep adding Gold and Debt Funds.

Planning for Retirement

I had done a guest post for Subhankar.
Do you remember what you did with your first pay/payment cheque? (Haven’t received your first cheque yet? What are you doing on this page!) Did you blow it up having a good time with friends and family? Why not? You don’t remain young forever. There is a long and bright future ahead of you – and plenty of time to save and invest. Right?

Nishit doesn’t think so. He started planning for his retirement as soon as he received his first pay cheque. He wanted to use the leverage of compounding over his entire working life. In this month’s guest post, he explains why.
Continue Reading at:
http://investmentsfordummieslikeme.blogspot.com/2011/02/planning-for-hassle-free-retirement.html

Technicals for the Week Ahead

The markets have been in a free fall over the past few weeks and a lot of portfolios have taken a beating. The entire rise from 5350-6339 has been retraced and we are having some serious corrections. Lets look at some technical parameters.

1. The entire up move from 4786 - 6339 has been retraced almost 76 pc. This means that eventually 4786 is likely to be broken, as very rarely do markets retrace 76 % and then bounce to take out the previous highs. For me, the validation would be breach of 5100.

2. The 5 month low ema comes in at 5416 and the 5 week low ema comes in at 5429, expect this zone to provide some serious resistances. The 5 month low ema has been very rarely breached and this could be an indication that we are in for tough times ahead.

3. The trend line resistance for this leg of fall comes in at 5450-5470 over the next week. Breach of this trend line could open further upsides.

4. The Bollinger Bands indicate that a bounce has taken place above the lower band.This means the third wave of the fall could have culminated on Friday.

5. This fall has had 3 waves till now.
Wave 1 from 6178 - 5624 = 554 points
Wave 2 from 5624 - 5802 = 178 points
Wave 3 from 5802 - 5178 = 624 points
Wave 4 is ongoing.
The invalidation point for this is 5624.

6. The 5-day high ema has never been breached on a closing basis in this fall. This comes to 5363 for Monday.

7. The difference between 5 ema and 20 ema is now 223 and has reached an oversold level which indicates a bounce coming. The bounce has already started.

Monday will see some kind of bounce thanks to the Egypt crisis being resolved. It could be an opportunity to take profits off the table for positions created at lower levels. The region 5410-5470 has a multiple of resistances coming.

Real Estate Investing in India

I had a detailed chat with a very dear friend of mine just now and we had a very animated discussion on Real Estate investing in India. I feel Real Estate investing ranks very low in the asset class of investments and one should limit oneself to investing in the place one stays and maybe another home only when investments are done in other asset classes.

The various Asset classes one could invest in are:
1. Equity
2. Debt
3. Gold
4. Real Estate

The advantage of Equity, Gold and Debt investments are that one can liquidate the holdings in maximum 1 week and one is free to move around with the cash.
Real Estate when the prices fall, there are simply no buyers, lot of legal paperwork to be done, lot of chances of getting duped and one cannot have cash when one wants it.
There would be several people arguing with me saying that prices have multiplied 4-5 times in last 20 years or so. The same is with Gold or Equity. This morning I was discussing with an elder that in 1975, her salary was Rs 380 only. That time 10 gms gold cost 200 rupees.So 1 month salary bought her 20 gms of gold roughly. That means here salary was actually Rs 40000 in today's currency.

One more problem with Real estate is that the assets decay. There is maintenance required for the building. The property may get encroached. One has to make several trips to see if the home is good shape.

All these reasons have convinced me that real estate is the last investment option for me, after I have exhausted all other avenues. Gold,Equity, Debt I can sit i my comfortable computer chair and transact in peace whether ever having to make rounds of The Collector's office, Builder's office or the site itself.

A second vacation home would be an option only if one is willing to make those trips and have someone clean up the place regularly.

1 more option is that asset is given out on rent and I get a rent yield of about 6 - 7 pc post tax returns. This also mainly commercial real estate would give me that not a residential complex. The amount of black money component also is a 1 more thing which would put off salaried folks.