Markets Next Week: FIIs press the Sell button

It was another week of losses for the Indian Stocks with the Nifty losing -3.2% for the Week. It was a Week characterized with Heavy FII withdrawals.

1.The FII withdrew about 5245 crores for the week and also were Sellers for the Entire Week. The DIIs bought about 2302 crores. For the year, the FII tally is now in the negative with a net sell figure of about 1600 crores. On Dec 31st 2009, the Market was at 5200 and today at 4931, a loss of 270 points.

2.There are few reasons for this FII sellout. First is the Dollar Index shooting up, leading to the hot money pullout. Typically these hedge funds borrow in dollars with an Interest Rate of say about 1 pc and leverage it about 10 times. Now if 1 Dollar = 44 rupees moves to 1 Dollar = 47 rupees, the markets have to rise about 10 pc for them just to recoup their capital.
3.The Strength in the Dollar Index and the fall in the markets have hastened this pullout. Another fact is the is the ULIP mess which has led to lower inflows into domestic funds.
4.The positives for the Market are the 3G Auction bonanza and also the lower crude prices. If global markets go down, then Indian markets will also follow. But these savings form the base for the next rally. When the markets recover worldwide, the Indian stocks would go up faster.
5.The Markets breached 200 DMA now at 4993 and which would act as a resistance. The markets rarely break a resistance and support at the first attempt and there would more re-tests of the 200 EMA now at 4898 levels.
6.The Weekly Bollinger Bands are rarely broken on either side and when violated, the markets simply collapse. The support comes in at 4776 for the next week.

7.The markets took support exactly at the downward channel. For the next week, support comes in at 4780-4820 band and resistance at 5050-5090. I expect a relief rally to these levels


8.The market breached the support line from July and it now becomes a resistance around 5020

9.The Weekly RSI is on a downward spiral. The markets could fall till it tests the support line.


10.This is the Expiry week and expect sharp moves the either side.The Max OI is around 5000 strike. Expiry should be between 4950-5050.
11. It took about 38 sessions for the markets to rise from 4675 to 5400 and the fall has consumed about 32 sessions. One of the theories is faster retracement theory to see if the direction has reversed. By this logic, the markets should breach 4675 by next Monday, if this is the beginning of a deeper correction.
Its time to start making the shopping lists ready.

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.