Expect Action after the expiry

The Markets absorbed all the positives and the negatives for the last week to close a mere 0.1 pc up Let us try and chalk the road ahead for the markets.

1. A major overhang of Greece is out of the way at least for the time being for a couple of months. This does away with a big negative factor holding back the markets.
2. The RBI policy came and went with no change. The fact that the markets did not tank on no cuts bodes well for our markets.
3.Crude oil has continued around the 90 dollars a barrel mark. This bodes well for the country i terms of import prices. I expect the Petrol prices to be cut by another 2 rupees by this week.
4. The monsoons now represent a key trigger for the markets in either direction. While the monsoon has been delayed it has not been a complete washout either. There still remains hope.

Technical factors:

1. I would put the markets in a Technical bull run on a sustained close above 5227. The markets can from here do 3 things:

a. Re-test 4770.
b. Do a corrective to this up move till about 4900-4950.
c. Continue up to 5270-5350 before doing a correction.

So what does one do in this case?
4900-4950 are safe buying zones with limited downside risks. For those interested in indivdiual stock picks, I have Lakshmi and my picks

One should focus on Dividend yield stocks as they offer a margin of safety from the downsides.

Make or Break Week Ahead

Very rarely in recent times have so many events been stacked up together. The early part of the week will decide if the markets will continue their ascent to 5600 odd levels or there will be a dip to 4800 levels and below. Let us try and dissect each event and find out the implications of each.

Fundamentally:
1. The Greece election results should be out by Monday.Why are these results so important? The reason is that the party coming to power will decide whether to stay in the Euro zone or not. If the Greeks decide to exit the euro it may lead to the unraveling of the Euro. There are various parties in the fray both pro and anti austerity. If the radical Syriza comes to power than the markets may tank.

2. The RBI mid quarter review is set for Monday. The markets have factored in a 25 basis points cut. Anything more and the markets may rally. If there is no cut than the markets fill fall especially the Banking stocks.

3. The US Fed meets on Tuesday and Wednesday. There are expectations of a third round of Quantitative easing or fiscal stimulus. If no announcements come, the markets will fall globally.

4. The election of the President of India has seen the announcement of the UPA nominee as Pranab Mukherjee. The next question is who will replace him as the Finance Minister. If the PM keeps the portfolio with himself, then the markets will view it favorably.

The Crude oil prices remaining below 100 dollars a barrel are a great relief to the government. If the trend continues, then the probability of stocks going up greatly goes up.

Technically:
The question is has the Leg C upwards commenced. Leg A was 4532-5629, B was 5629 to 4770. The moot point is correction over?
1 view could be that the last down leg remains to re-test 4770 before the up move. The second option could be that leg C has commenced up. This would be confirmed above 5150 and 5227.
As I see it, any correction between 4900-4950 is a good chance to add up stocks.

Many stocks are going to be ex-dividend in the next few weeks and give an opportunity to load up on. For those interested in stocks, we have the stock picks from Lakshmi and myself.

Will the bounce continue?

The markets had the best week, this calendar year and bounced 4.7 pc to close almost at the high point of the week at 5068. Can the bounce continue? Let us look at few technical and fundamental reasons which can impact the markets.

Technicals:
1. The 50 DMA is at 5090 and 200 DMA is at 5066. These are the immediate 2 resistances for the markets to scale.
2. If we consider the fall from 5342 as 1 leg, then the 50 pc retracement is 5056 and 51.8 pc retracement is at 5123. Also, for the entire fall from 5628, the 38 pc retracement comes at 5098.
3. The markets are touching the upper end of the Bollinger Bands showing immediate overbought positions.

From the above Technicals, we can note that fresh buys can be considered only on a closing above 5125. If we consider downsides from here as a corrective, then the targets can be 4964, 4927 and 4889. One can consider long positions at 4964 and 4927 with a stop loss of 4889.

Fundamentals:
1. The Crude prices further stabilized at around 100 dollars a barrel. If this sustains then the petrol prices can be further reduced. In fact, the price before the hike of Rs 70 was the correct price for the Petrol.
2. Growth has faltered making a rate cut more likely in the next meeting of the RBI in June.
3. Spanish banks have received a bailout thus preempting a Spanish economic crisis for the moment. All eyes are on Greece with next Sunday's crucial elections.


If parties supporting a move to stay within the Euro win the Greece elections, expect the rally to continue. I expect the week to be a quiet week in anticipation of the results and also domestically waiting for the progress of the monsoons and the RBI policy meet decision.

Taking Elliot into consideration, I feel there are 2 possibilities:
1. Of the XYZ move from 4532 in December, we have started the last leg up with targets of 5650-5850.
2. Y leg down is still continuing, and we are Y-c-b. That is a corrective up move before a last fall to around 4650-4750 levels.

So, what can one do? Restrict buying levels around 4900-4950 and invest in good dividend yield stocks.

The reason, I say so because in any case I feel a test of 4900-4950 is due before a fresh up move.

Key Triggers to Watch out for

The markets tanked on Friday, dragging the markets down 1.6 pc for the week.Let us have a look at a few of the triggers which could influence the markets in the coming weeks.

Positives:
1. Crude oil prices tanked on a global slowdown. Brent crude was trading at 98 dollars to a barrel down from the peak of 125 dollars in March. These should ease the Government subsidy burden.
2. The Petrol price hike means the Government finally wants to take some action on the Reform front. If more such reforms come through, then expect a rally.
3. The FIIs are not pulling out big time. There are sporadic bouts of selling which are getting absorbed by the markets.
4. Many stocks are trading higher than they were when last time the markets tested 4800 odd levels. Reliance is a major drag on the markets.

Negatives:
1. The Global investment climate is getting worse. World markets are tanking and we cannot be immune to a global slowdown.
2. The GDP growth has come down to a 10 year low of 5.3% for the last quarter of FY 2012. There will be downgrades if the situation persists.
3. Government needs to take steps to sort out the Telecom mess. Fresh auctions, reserve price for the auction all need to be sorted.

Key Events:
1. The Greece elections on June 17 and whether they remain i the Euro will be key trigger for the markets. That will decide whether we test 4300 or 5600.
2. Spanish default looms large. How this event is handled will decide the course of action.

Course of Action:
Many stocks are trading at a dividend yield of 5 %. The dividends are due in about a month's time. 1 way of looking at it is over next 13 months, one will receive about 10 pc returns as dividends only givnig a fair margin of safety. I would like to buy such stocks identified by me and Lakshmi.

Buying at 4750-4800 levels which are strong areas of support, these dividend yield stocks gives a very good margin of safety.

Target 5100 beckons

The first 3 days of trading have shown a net gain of about 30 points. Interestingly, I find my mid caps picks also moving up. 4922 remains a key support and I find it being tested. Technically, if the down move is still on, then we are Y -B corrective up move which should target 5050-5100. Post this, I see another re-test of 4800-4900 before the move up to 5650-5900.
4750 and 5100 remain the boundary areas beyond which further falls or rises can be speculated upon. June 17th when Greece votes we will see decisive moves. My sense is Greece will stay i EU and we will see a relief rally.

Petrol price hike raises hopes

The Government bit the bullet and raised the Petrol prices by Rs 7.5 raising expectations that further reforms will take place in this small window of opportunity. The markets responded by closing 0.6 pc higher after several weeks of losses.
1. The Government raised Petrol prices but the real losses come from the sale of Diesel where there is under recovery of almost Rs 14. Only when these prices are raised or taxes increased on Diesel vehicles and extra tax amount paid to OMCs (Oil Marketing Companies) will the real losses be stemmed.

2. The Facebook IPO disaster will ensure that there are no more mega IPOs in the global markets in the near future.

3. The Indian markets now will be affected by the global cues only after the Greece elections on June 17th. Expect the markets to edge up till then. If Greece stays in the Eurozone, expect a rally in the global markets.

4. Domestically, also the key results are out of the way and the Parliament is shut. Only, some initiatives on reforms by the Government can lead the markets to rise.

5. Technically if one goes by the Elliot, we are till in the corrective way B to the up move from 4532. We are in the last leg of correction. B can be sub divided in w-x-y. w was from 5629 to 5136, x was from 5136 to 5342 and y -a from 5342 - 4789. y-b is on going and the a final fall up to 4750-4800.

6. Any fall below 4750 is a matter of concern and would place the entire up move in doubt.

Strategy remains to buy on dips below 5000 with a stop loss of 4750. One should look at good quality, high dividend yield stocks.
For those interested in individual stocks, we have the picks by me and Lakshmi.

The Government at least started taking tough decisions. For me, I still feel a Petrol car is a better bet with all the discounts available. In a  Diesel car, you save about Rs 3.75 per km. So, if your break even point will be around 33000 kilometers. For this your annual running should be more than 11000 kilometers or roughly 900-1000 km per month.

Mid Week Update

The Government has just hiked Petrol prices by Rs 7.5. The markets should take this as a sign of Government keen on reforms.
The key question of price hike of LPG and Diesel remain unanswered.
Technically, the market is at support levels and if it holds 4800 then we should bounce from here. The difference from the lows of last week is that several stocks are holding up and not falling down along with the Nifty which could be an indication of base formation for the moment.
4750 remains the key level. Any move below it would indicate retreat back into bear market territory.

Markets: What next?

The markets closed 0.8 pc down to maintain the down trend from 5630.We are at a critical juncture right now and there are broadly 3 possibilities which can occur now. Let us try and examine them and see how we can leverage these for our benefit.

1. The markets bounce from here or around 4750. We then continue the 3rd and final leg of the up move from 4532. The reason 4750 is critical is that it is the 80 pc retracement of the up move from 4532 to 5629. We may go back and from a double top around 5629 or continue upwards at 5750-5800 region.

2. Second possibility is that we bounce from here and form a retracement to the down move from 5629 or 5342. In this case, we may bounce anywhere between 5100 and 5300.

3. The third possibility is that we continue to fall further and test the December 2011 lows. This would been that the downfall has begun giving us targets of 4300 and 3800.

So what does one do now?
One could buy a few stocks for trading and reduce the cost price by booking profits firstly at 5100-5200 levels and then at higher levels. If the markets fall, one could always average out at lower levels. For this strategy to be successful, one will have to focus on good quality dividend yield stocks.

For those interested in individual stock picks, Lakshmi and myself have identified a few stocks.

The Parliament session ends on May 22nd 2012. If the Government does not hike fuel prices within the next fortnight, it will never be able to do so. The Parliament is not in session for the next 2 months neither are any State level elections scheduled. This is the last chance for the government to usher in reforms.

The Greece crisis will play out only after June 17th when fresh elections are held. Greece may very well move out of the Euro.

Either ways, as I see it the next few weeks will usher in a few weeks of relief rally. The markets are testing the RSI level of around 28 around which historically there has been a bounce.Only in crisis like scenarios do the markets fall further.

The P/E of Nifty is now 16.85. The markets typically bounce from a P/E of 14-16 except in a crash like scenario where we may go down to 10-12 range. 14-16 means at current valuations Nifty should bounce from 4650 levels which is the fair valuation.

Where do we stack up now?

We hit a low of 4796 this morning. 4750 is the 80 % retracement of previous rise below which we will hit new lows. 4750-4800 is also the trend line support joining all lows from Oct'08.Below 4750, we are headed to fresh lows.
We should take support and one can buy quality high dividend stocks now.

Negative news drags the markets down

The market have lost another 3.1 pc to end the week at 4928. The markets are at critical levels. So, what do investors do at such junctures?

1. The markets continued their downward movement on a variety of factors including Euro problems, policy paralysis by the government. The Government again postponed the FDI in insurance.
2. The Corporate Results continued to be a mix bag. One should focus on stocks which have low debt, are in sectors in which there is no Government policy confusion and give a steady dividend yield.
3. The markets broke through 4950 which was the 61.8 pc retracement level of the previous rise. The next critical level to watch is 4750. The markets may take support there and rise or if that is broken then we can test 4300, 3900 or even 3600.
4. The saving grace had been the falling crude oil prices though a weaker rupee has partially offset that. The Government shows no inclination of hiking fuel prices and the oil marketing companies continue to weaken.
5. For risk averse investors, the FD rates have started falling and this could be one of the last few chances to lock in at lower rates.
5. Another safer strategy is to focus on companies which give Dividend yields of around 5 %. Dividends are tax free in the hands of investors and yield about 7 pc if one were to consider the tax saved.
6. The markets are at a cross roads.

The reasons why the current fall is just a correction is that markets have corrected about 61.8 pc of the rise but taken more 1.5 times it has taken to rise. Usually, the falls take much time than the time it has taken to rise. Secondly there has been no major selling by the FIIs. They have stopped pumping in the dollars but have not made any major withdrawals.

Equities over the longer term always yield more than the FDs. For those who can afford to wait, the best option is to now continue thier SIPs and cash out when the markets hit their peaks. Also, bear markets typically last 12-15 months where as the bull markets go on much longer. The last 2 bear markets were from Jan'08 to Mar'09 (14 months) and Nov'10 to Dec'11 (13 months).

If we take this as a bear market from feb'12, then 3 months or almost 1/4th of the bear market is almost behind us.

So, the focus now should be high quality dividend yield stocks.