Relief Rally - How far will it go?

The Markets bounced back to close the week up at 3.1 pc over the previous close. The Government came up with Reforms at the end of the week in the Oil and Gas space to give further leg up to the markets.

1. India's Current Account Deficit (CAD) or the difference in Dollars between our Imports and Exports came down to 3.6 pc for the January to March period leading to the rally on Thursday.

2. On Thursday, evening the Government doubled the Gas Price to 8.4 USD from April 2014.This will give more incentive to invest in Oil Exploration leading to less imports.

3. On Friday evening, the Goverment hiked the Petrol prices. Thus, 3 set of good news from the Stock Market perspective came from the Government.

4. Gold prices continued to tank and it is a safe bet to stay away from Gold for some more months to come.

5. Technically, a pullback was due with the targets of 5819, 5897 and 5975. Above 6000, this rally could mean something more.

6. The previous falling leg from 5864 has also been nearly retraced in much faster time.

7. The FIIs on Friday finally made stock purchases after selling for several weeks. Sustained buying from the FIIs will lead to fresh rallies.

8. The Strategy remains to part book profits at 5900-6000 levels if bought at lower levels and see if the Idex sustains above 6000.

Till the index closes above 6000 for 2-3 sessions, this will remain just a pull back rally and nothing more.

Expiry Week looming ahead

The markets fell another 2.4 pc thanks to comments by the Fed Chairman. Let us try and see what the next week and next few months have in store for us.

1. The markets right now are poised around the critical support area of 5600. There is an iteresting study done by Sanjay Raghuvanshi, who has calculated that markets rarely have an expiry which is + or - 300 points then previous expiry. Last expiry was 6124 which also means that this expiry can be around 5800.

2. 5400-5600 has several key trend line supports as shown in the charts below. Falling below 5350 - 5400 will terminate the entire rally from 4532 in the month of December 2011.

 The Trend line support from the March 2009 lows comes to around 5350 - 5400

 The market is presently at the trend line support from last June rally

 The Trend line from the Dec'11 bottom is also pretty close by.

RSI is showing a positive divergence.

3. Saurabh had asked me about Debt Funds investing in Government Securities. The 10 year bond yield has rise to 7.44 pc from 7.14 pc low on the back of rupee weakness. I would say it is a chance to add more than exiting as the Equity Markets will bottom out only with Interest Rates falling down.

4. The Goverment has come up with a few set of reforms om Friday. I expect them to anounce more reforms in  the coming week which may help the markets rally.

5. Gold can be avoided as I have maintained that a steep fall will not be retraced so easily. I see a bottom for Gold around 1000 USD mark. The Rupee weakening has partly offset the fall in the Gold prices in Dollar terms.

The Market still remains a buy on dips market.

All eyes on the Central Banks

The markets declined by another 1.2 pc. They staged a very smart rally on Friday to cover quite a few losses. This current week is going to be a news driven week.The markets would be news driven with a knee jerk reaction either ways depending on the news flow.

1. The RBI Policy is on Monday and there cut be a rate cut of 25 basis points and a CRR cut of another 25 basis points. Last couple of times, markets have reacted negatively to the RBI policy and this time, it may just be a positive surprise. The way the markets rallied on Friday might be a hint of things to come.

2. The Second big event is further clues on the withdrawal of the Quantitative Easing program of the Fed of US. Any further statements on liquidity vanishing may lead to correction.

3. The Monsoons have well and truly set in. This can lead the markets to rise.

4. We have seen a 3 wave decline from 6229. Wave A from 6229 - 5937 = 292 points, Wave B 5937 - 6134 = 203 points, Wave C from 6134 - 5683 = 451 points. Wave C was 1.55 times of Wave A.

5. If the above calculations are correct, then we could have begun a fresh up move. The markets gapped down to 5729 and gapped up to 5739. This leaves an unfilled island of 10 points and this would be the stop loss for all longs. The immediate resistances come in at 5860 - 58880 range and after that at 5950.

6. If we look at my previous analysis, I had mentioned we could easily go down to 5662. We have reached 5683.

7. One of the disturbing features was the mild selling by the FIIs. If that continues, then the rally may be short lived.

In a nutshell, all longs should have stop loss of 5728. The Buy on Dips continues.

Monsoons and RBI Policy next triggers for the markets

The Nifty lost 1.8 pc to close at 5881. The markets have completed 3 weeks since hitting the top of 6229. If this is just a small correction it should get completed in the next week. Let us look at the next triggers for the markets.

Fundamentals:

1. The Monsoons have set in well. Thus, 1 major negative trigger is out of the way.Any signs of a delay in monsoons would have led to the markets falling.

2. A good monsoon also sets the earliest timeline of elections as November 2013. The Govermet would like the money from the good harvests to be in people's pockets before voting.

3. Good monsoons can lead to lower inflation and lower rates by the RBI. The RBI policy on June 17th is 1 key trigger in the short term.

4. The corporate Results will start around 10th of July as also the Parliament will be in season post 15th of July. Till then there are no major triggers in terms of policy for the Government.

5. FII flows continue to flow in to India. The markets will continue to rally as long as liquidity is there.

Technicals:

1. 5850 is a very key level. It is a confluence of many supports and +- 20 points from here the markets can rally.

2. If 5850 is breached convincingly, then expect a drop of another points before the next support.

The Strategy remains to buy on All Dips.

Correction should Continue

Last week on Friday, the markets retraced the gains of the entire week to finish the week flat. Let us try and explore what the markets have in store for us.

Fundamentals:

1. The Monsoons have arrived on  time and the prognosis is for good monsoons. This should bode well for the markets.

2. The GDP figures have come as expected and are behind us. For all the talk by RBI, the interest Rates should soften.

3. The Hike in Diesel and Petrol prices should underline the Givernment commitment on fiscal stability.

4. The crude oil prices continue to weaken and Brent crude continues to hover around 100 dollars a barrel, which is aother positive for the markets.

5. The only negative factor is the weak Indian rupee. A weak Indian Rupee will wash away the gains made by crude oil falling.

Technicals:

1. Supports are at 5936, 5850 and 5750. I expect 5850 to be tested.

2. If this is a 3 legged correction, then A was 6229 - 5937 =  292 points

B was 5937 - 6134 = 197 points

Now C can extend to 180, 292 or 472 points.

This gives us targets of 5937, 5842 or 5662.

Only below 5627 would this rally be over.

Also, this correction should get over by next week.

So, in a nutshell, it would be a good idea to add stocks on every decline because I believe this rally has legs to ride on.