All Eyes on the Budget

It was a rangebound week with markets trading in a band of 150 points. The only folks who made money this week were the option writers. Lets see what the next week brings for us.


Fundamentals:
1. The REC IPO will suck out money from the Domestic institutions.The Domestic institutions were sellers the past 2 days.

2. The FED in a surprise move increased the Discount rate by 25 points. The rate at which member banks may borrow short term funds directly from a Federal Reserve Bank. The discount rate is one of the two interest rates set by the Fed, the other being the Federal funds rate. The Fed actually controls this rate directly, but this fact does not really help in policy implementation, since banks can also find such funds elsewhere. also called discount rate.

3. This may be the start of the tightening policy in the US. The dollar strengthened and Dollar Index is at about 81. Dollar indiex is inversely proportional to the Indian Stock Market. The Index was 89 when our markets bottomed and at 74 when our markets hit the October highs. The Index has got back half the losses it made.

4. The Dollar Carry Trade would be dead. Borrowing at low interest rates i US and putting that money to work in India does ot work when the Dollar is rising.

5. The Budget is expected to get rid of some of the stimulus measures. Expect selling in the markets if the stimulus measures are curtailed.

Technicals:
1. Heavy Call Writing at 4900 ad 5000 levels. Put writing at 4700 and 4600 levels. The max OI is at 4800 strike price when both Puts and Calls are added up. This means the expiry should be around 4800 +/- 25 points.

2. The Short term Gann charts resistance at 4915 was tested this week. Next support comes at previous lows.


3. The long term Gann charts offer support at around 4740.



4. The markets breached the 20 ema on its way up but for the second time was resisted at 100 ema. Have a look at the long term charts and see the significance of 100 ema.



5. Next week, expect a range bound movement till the budget.

6. If 5310-4675 was 1 wave down, 4675-4930 is 40% retracement of that. The Wave 3 may have started or if wave 2 a was 4675-4930, b 4930-4802, c could be 5057.

If the stimulus stays, short term rally else fall continues.

Nifty 15th Feb, 2010

The market continues to remain choppy. Nifty continues to trade in a narrow range and finds support within the pink channel. This is our positive scenario until the support is violated (support exists at 4750). We continue to face stiff resistance at 4835.

IIP numbers were great (17%) -but the upmove wasn't strong enough to take out 4835 on a closing basis. Volumes continue to diminish, indicating lack luster.

Nifty will continue to remain choppy all of this week until we see a decisive break (preferably on the downside).

Taking out 4835 will only lead to our next target of 4940. This in my opinion will be a good opportunity to short the index. However, moving below 4740 will again lead to a shorting opportunity for lower targets of 4450.

What do the indicators say?

1. RSI - continues its feeble attempt to inch up along the wedge.
2. MFI - Taking support along the trendline. A break in the trendline on the downside will lead to a fall in the index.

Short Term Relief Rally on Cards

The short-term bleeding seemed to be taking a break this week. Lets see what are the factors both fundamentally and technically which will drive our markets next week.

Fundamentals:
1. IIP Data of 16.8% can lead to a gap up on Monday. The government needs positive news as the IPO of REC is lined up to open on Friday Feb 19th. 4500 crores are going to be sucked out of the market.

2. The US is shut on Monday, so no global news flow on Tuesday. In Feb, the FIIs have sold 4000 crores and DII have bought 3000 crores. Attempts to prop up the markets till government finishes its divestment for this fiscal.

3. The Greece problems are far from over. A concrete plan is yet to be seen to bail out Greece. The problem does not end with Greece. What about the other bailout packages for Portugal, Spain ad party. There are protests in Greece against the planned clamp down on spending by Greece government. Greece does not print its own currency. The Euro is taking a hit for all this. Already weak GDP growth in Germany and Italy.

4. The Chinese Banks have again raised the lending rates, this was what started off the current slide a month back.

Fundamentals look a bit shaky right now globally. We still depend on the foreign funds. Time to be careful.

Technically:

1. We ended the slide at 4675, a good 644 points from the top. The 200 EMA was not tested at 4654. 1 interesting thing I read today was that the first wave down usually does not break the 200 EMA. Some where from the 200 EMA, a relief rally originates. The Rally of Hope.

2. Thursday's rise was on very low volumes and more so on lack of FII selling than anything else.

3. The 20 EMA, 50 EMA and 100 EMA are at 4908, 4990, 4920. During bear runs, 100 ema is seldom violated on the upside and if violated, then for a very short time.

4. The retracement levels of the fall from 5310-4675 are at 4826, 4921, 4997 and 5072.

5. The Gann short term resistance comes at around 4900. If you see the long term Gann charts, then the pink dividing line has been violated for the first time since March.



6. The PSAR has given a buy signal. The NMA if the markets close above 4832 on Monday will give buy signals. Normally once these indicators give a buy signal, the market remains up for a few days at least.






7. The fall has taken 23 sessions. The up move should last at least 5-6 sessions. 3 sessions are already done with.If we consider the last down move from 4950, it took about 4-5 sessions. The current up move is already 3 sessions old. It should take out 4950 within the next 2 sessions, to imply its a fresh up move.

To summarize, 4900 - 5000 levels are strewn with resistances and one needs to be watchful after these levels.

Nifty 8th Feb 2010

Nifty - A relief rally this week..?

This week we may see a brief rally upto 4800 / 4850 / 4900 / 4950 (trade in the pink channel). We may see upmoves within this channel upto levels mentioned above.

Trend can reverse if the pink channel is broken -ve on a closing basis.

The overall trend remains bearish until 5185 is taken out and Nifty trades above this level for over 3 days.

10 day RSI is trading within a wedge. We may see RSI move to 45 / 50 over the next couple of days. Money Flow index has broken the channel is now facing resistance at 20.

Our ultimate target on Nifty remains at 3800. However, if 4400 holds we may see the begining of a new upmove.

Sell on Rallies

The Markets had a roller coaster ride last week. It has now become a sell on rallies kind of market. There are several reasons for this. Lets try and go through them. We will try and have a fundamental and technical look at the reasons.

1. The FIIs have been relentlessly selling. One of the reasons for the rise from march'09 was the FII money pumped in. The month of Feb already, they have sold Rs 2500 crores and for this year, almost 9500 crores from Jan'10.

2. The DIIs have propped up the market with purchases of Rs 13,500 crores. How long can they prop the market up?

3. The NTPC issue was a disaster. It got a subscription of 12000 crores against shares on offer worth 9000 crores. 4500 crores were pumped in by LIC and SBI. The government still has mega issues this financial year like REC, Sutlej Nigam which will suck the out the buying power of LIC.

4. The Dollar Index is above 80. The Dollar Carry Trade is unwinding. The easy money is gone.

5. PIGS are getting slaughtered.The problems of Portugal, Greece, Spain and Ireland are undermining the Euro. The sovereign debts of these countries can potentially tear apart the European Union. If the Euro falls, the USD is the only alternative now.

6. The Dollar strengthening makes the Emerging Markets as an unattractive investment class. The FIIs have to sell more shares to get the same amount of dollars back.

7. The Silver lining is India is better positioned to handle all this than rest of the world.

Technicals:
1. The 200 EMA at 4654 is likely to be tested this time. Bulls live above this average, the bears thrive below it. The attached chart is interesting. In bull markets, the markets take support on this level and rally. The behavior of the index at 4650 is key.



2. The 20 EMA and 50 EMA negative crossover has happened.In the bull market, this never happens.



3. The Gann supports are at 4650 taken at major turning point in March'09.



4.Short term Gann Resistance comes at 4850 which could be a shorting level.



5. The Index broke the Trendline support of lows from August which gave us support when the low of 4766. This offers first resistance at 4775 approx now. Next resistance comes at at the upper end of the downward channel at 4850.



6.4850 is also the 61.8% Fibonacci retracement from 4951-4692. In the short term, bulls live above 4850 and bears live below 4850.

7. If the entire fall is complete from 5310-4692. Retracement levels come to 4837, 4928, 5006,5073.

Nifty

Nifty looking week. Targets 4650 / 4550

Markets: Is a top in place or can we still hit new highs?

It was a turbulent and truncated week which saw a brutal sell-off. By Friday afternoon, the carnage had abated. The question is going ahead is it buy on dips or sell on rallies? Let attempt to see the both scenarios. I think 2 scenarios are clearly possible now and we are at the inflection point:

Bullish Case:
1. As shown in the image the trend line draw joining lows from August have held.

2. The government is having huge PSU divestment in Feb. They will hold up the markets provided global cues are supportive. DII bought 7500 crores from Jan 21st. If FII selling stops the markets will go up.

3. The global markets are also oversold and due for a bounce.



4. If we take rally after the budget from 3918, we can see 4 clear waves:

a. Wave 1 - 3918 to 5181 (1263 points)

b. Wave 2 - 5181 to 4539 (642 points) approx 50% correction

c. Wave 3 - 4539 - 5310 (771 points) Wave 3 is 61% of wave 1.

d. Wave 4 - 5310 - 4766 (544 points) approx 70% correction

e. Wave 5 will unfold 4766 - ???

Now wave 3 cannot be the shortest of waved 1,3,5. So max would be around 750 points which takes us to around 5500 on Nifty. Now wave 3 was 61% of wave 1 and if wave 5 is 61% of wave 3, then 5236 would be the target.

5236-5500 (Sensex 17500 - 18500).

Wave 1 took 3 months and wave 3 took about 2 months to unfold. Wave 2 and 4 took about 3 weeks to correct.

This could mean wave 5 may take upto 1 month, the traditional pre-budget rally.

5. The 1 month rally could well also fall in line with previous history of mega IPOs sucking out liquidity and then the markets tanking.

Now the bear case:

1. FII sold 11000 crores of shares in last 10 days. Market and DII cannot absorb such selling on sustained basis.

2. The trend line joining the lows from July upmove is decisively broken on both daily and weekly basis. This could mean the up move is over.



3. We are just on a corrective upmove of the fall from 5310 to 4766. Retracement levels come to 4973, 5038 and 5100. 4940-4980 is key resistance level for the market. I would buy only above these levels.

4. Tony Caldero talks of a top in US Market. His Elliot count on the S&P has worked very well.
http://caldaroew.spaces.live.com/

5. The PIGS are in danger of a collapse. Portugal, Spain, Greece and Ireland are identified as potential sovereign debt defaults. If this default does happen, Lehman would look like a picnic.

6. Risk aversion would return, emerging markets would tank and the US Dollar would strengthen. This would be a vicious cycle. The Dollar Carry Trade would unwind further leading to FII selling.

To sum up, 2010 looks to be a time of caution.

Markets: What to expect now?

The last 2 days of the week were pretty bruising and we had a good amount of fall. The fall leads us to question , is the move just corrective or we are beginnig a fresh round of fall.

Points to consider:
1. FIIs have sold 3300 crores in last 3 days and DII have bought 2500 crores. Obviously attempts to hold up the markets.

2. The rally which began from 4944 to 5310 lasted from 21/12 to 06/01.9 days for up move and the down move has taken 12 days. This is a positive for the markets.

3. The trend line joining the lows from July as attached provided support on a weekly basis. This comes to 4972 for the next week. Also, we got support at 100 EMA.

4. The 5 week low EMA has been broken twice since March and once we crossed that previous 2 times we went much higher. This comes to 5051 for the next week. A close above that is positive for the markets.

5. The resistances would come now at 5051, 5110, 5179.

6. The US Markets fell on news of Obama trying to regulate the big banks. This dragged the world markets down. Lets see how this pans out because Obama is in a tight spot now with election losses. regulating big banks always appeals to public sentiment.

Strategy is simple, go long with hedges only if closes above 5051. Also, watch if 4944 breaks and closes below 4972 on weekly basis.

Next week is RBI policy on Jan 29th and NTPC opens its fresh offering on 3rd Feb. Expect supportive noises from the RBI, provided the world markets help.

I would continue to keep adding Gold to my portfolio.

What do the Markets hold for us?

The New Year has begun well. The foreign institutions have poured in 3500 crores and the domestic institutions have poured in 4500 crores. On days when FIIs are major sellers, the domestic funds step in a big way. Do you know why?
The Government is offloading almost 20000 crores of shares in the next few weeks before the budget. This includes the NTPC divestment which will net almost 9000 crores. Its in the government's interest to keep the market propped up. If no major upheaval occurs then the government will ensure that there are no sharp falls.
The Indices have stopped moving now, and its the mid caps and the small caps which are jumping now.
Its time to keep track off all the junk in the portfolio and get rid of them. The supports for the markets come at 5192 and 5100. 5080-5100 is a very strong support for the markets and it is unlikely that these will broken. After that the supports come in at 4960 range.
Now, is a good time to add Gold as the prices have stabilized.Crude oil is shooting upto 80 dollars a barrel. Usually one ounce of gold is equal to between 10-20 barrels of oil. When oil rises, gold will also rise.
The below link is very informative.
http://www.incrediblecharts.com/economy/gold_oil_ratio.php

The mid caps are running away and some good mid caps could be Shri Renuka Sugar above Rs 242, Bharat Bijlee at current prices.

The markets could come down early next week to test their supports ad that may be a good time to add a few stocks for short tem trading.

What Mr Bajaj Needs?

Last week, we say what Mr Bajaj wanted to live a happy and contented life. Now, this week lets look at what he really needs. Often what you want and what you need to be successful are completely different. If we are able to crack Mr Bajaj's wants and needs we can be successful stock pickers.
India is a country which is woefully inadequate in terms of infrastructure. We takes ages to build good roads, flyovers and sea-links. India needs a lot of new roads and highways. The Golden Quadrilateral was just a start. As Kamal Nath, our Roads Ministers puts it, 20 kms to be added every day. L&T, Gammon, GMR Infra all build roads.
India needs new airports and the existing ones need to be upgraded. The GVK group handles the Mumbai airport and are well on their way in taking a major stake in the Bangalore airport. GMR Infra has Delhi and the Hyderabad airport. The airports have a unique business model as explained in 1 of my older posts.
Next we come to the ports.The Mundhra port has a very unique business model of Container terminals. Maruti uses this port for most of its exports.
India is a power deficient country. The companies which are the power equipment manufacturing companies like BHEL, Siemens and L&T are my favorite companies. The Power generators like Reliance Power, Adani Power all have 1 problem. When by 2012-2013, the supply demand mismatch is sorted out, the power they sell will not have that big margins.
Power and Infrastructure are the sectors to watch out for.
HCC is into construction, nuclear power and they are building a city of their own called Lavasa. Lavasa is what excites me the most about HCC.
If India wants to keep clocking higher GDP growth rates, its infrastructure has to be in place. Already the high base effect will kick in. The low lying fruits of GDP growth will be soon taken away.
What I look i a company is that it has to be in a right sector and the right management. Always in any sector the best and the worst company does well. (The worst does well while the going is good ad then tanks).
Any portfolio covering India has to have Larsen, HCC, (GMR infra or GVK power).
Ideal portfolio will cover Mr Bajaj's wants and his needs. Over the next few months, lets try to get into Mr Bajaj's mind and see what he wants.