January: What does history tell us about January

Taking into consideration how the market has fared in the last 12 January months, there are certain interesting observations one can come up with.

1. The market has fallen on 7 occasions and risen on 5 occasions.3 out of the 4 occasions were in 2000, 2001 and 2002. In recent years the markets have had a negative January.

2. The markets had given a double digit negative fall in 2008 (16.1%) and and 2011 (10.2%)

3. The rises have been fairly muted while the falls have been quite severe.The max rise has been 8.6% and the max fall has been 16.1%. The average fall has been 6.4 % and the average rise has been 4.64%

4. If we take December closing of 4624, the on closing basis we have a range of 4328 and 4827.

5. If we take the sequence, the market has always followed a Fibonacci sequence before reversing. 3 positive closes, 3 negatives closes, 2 positive closes, last 4 closes have been negative so to complete the Fibonacci sequence this Jan should also be negative.

6. If January closes again on a negative note, then February will be positive.Never have markets given more than 3 negative closes in a row.

Markets update:
The markets are stuck in a range. Short below 4585 and go long above 4732. Till then it is stuck in a range.
The NHAI bond issue is very attractive considering that the interest is tax free. For those interested in equity picks, there is Lakshmi's Cherry Picks available.

Holiday Season Kicks in

The markets recovered from the early week blues to settle about 1.3 pc up and close the week with mild gains. The coming week is the expiry week and there are several reasons why the markets will close up for this week too.

1. It is the time for the year end bonuses and NAV reporting hence I do not expect any weakness i the markets. US and European markets are closed on Monday, thus giving a field day to the operators to take the markets up a bit. All in all it should be a flat to a positive week ahead.

2. Expiry should be above 4700 and closer to 4800. This is what the Open Interest data is suggesting. 4700 calls were unwound early on in the week giving an indication of the road ahead.

3. Taking Elliot waves into consideration, this could mean Wave 1 from 5400 ended at 4532. This could be an alternate count. If this is true then we are in for an up move of a couple of weeks and the markets could test 5050-5100 band again.
If we go by the original count,
wave 1 was 5400 - 4720 = 680 points
wave 2 was 4720 - 5099 = 379 points
wave 3 sub wave 1 ended at 5099-4532 = 567 points
Wave 2 should end at above 4815, 4882

Wave 3 sub wave 1 took about 9 days and the up move should end in about 6 to 7 days out of which 3 days are done with.This shows the up move to continue till about this expiry.

Now the last up move was 379 points. 4532 + 379 = 4911. Any move above this indicates that this up move will continue for longer than expected and it was wave 1 ending at 4532.

4. 4800-4810 has both the 20 EMA and 20 SMA which would act as resistance. It is also the 50 pc of retracement of fall from 5099. This makes 4815 a very significant resistance.

5. The overall trend is down and bounces could end in the range of 4900-5100. Only a break of the trend line joining all tops from 6339 which comes between 5250-5320 depending on which time frame one selects can signal a new bull line.

6. The dates for the elections in 5 states are out. Expect policy paralysis to continue till the end of Feb.

7.Anna Hazare agitation kicks in from Dec 27th and also the Lok Pal bill will get introduced in Parliament on that day. This can be a dampener for the markets.

8.Muthoot NCD has got an attractive rate of interest of 13.25 %. This is an interesting offering. On the face of it, looks pretty good. 2 years is not a long time frame and also Muthoot have very low NPAs of 0.58%. They will offer you Rs 64 rupees loan if you pledge gold worth Rs 100. This also means even if gold falls 30 pc from current levels, Muthoot is well protected.

9. Another way of playing it is that Muthoot NCD gives you a total of 27 pc absolute return in next 2 years. Instead of Muthoot, buy a gilt fund which should give you a return of 20 pc in next 1 year and then lock in that amount at say 8-9 pc which should be the FD rate in 1 year time frame. Same returns but much more safer.

Next week will be a quiet week with 4650 and 4820 the range. Play safe. Those interested in individual stock picks we have Lakshmi's Cherry Picks.

Markets Ahead

The Rate Hikes took a pause and the markets tanked in the last 2 hours to close the week -4.4 pc. Lets take a look at what lies ahead for the Indian markets.

1. The RBI as expected took a pause. There were wide spread rumors of a CRR cut. There is no basis for a CRR cut and these were just rumors spread by vested interests to take the markets down. The Gilt funds have a given an absolute return of about 4 pc in 1 month and this is an early indication of the benefits of gilt funds now that the Rate Hike cycle is coming to an end.

2. If we take a look at the Elliot waves. and C5 commencing from 5400.
C-5 -1 = 5400 - 4640 = 760 points
C-5-2 = 4640 - 5099 = 459 points which was almost equal to the golden ratio of 61.8 pc retracement.
If the second wave ended at 5099 then the targets for wave 3 are 4339, 4132 and 3869. The bare minimum target is 4339.

3. The key support areas of the retracement of the entire up move from 2250 - 6339 are 4777, 4295 and 3812. We have already seen how the area around 4777 (+/- 100 points) has given support multiple times. Now may be it is the time to test the support around 4300-4400 area.

4. The area around 4750-4800 now offers a stiff resistance and can be a shorting point.

5. We are testing the support line of the entire up move from Oct'08 and it should hold. There is a cluster of supports around the 4400-4500 area.

6. We are also heading into the holiday season and trading volumes will be thin. I expect expiry to be above the 4700 area.

7. Gold has corrected sharply and is soon heading into buy territory.

8. This is a good time to lock into high yielding fixed income and Gilt funds. The current high rates may not be available for some time to come. It is also the time to start building a portfolio of quality stocks. For those interested, we have Lakshmi's Cherry Picks.

Action Packed Week Ahead

The Next week brings in a lot of news on the domestic front. This could be the last week of real big moves before everyone gets into the holiday mood. Lets try and take a look at the action ahead.

1. Next week, we have the monthly IIP numbers, monthly inflation figures and to end the week we have the RBI policy. If we have poor IIP numbers and tame inflation figures, the RBI may pause and even in fact cut the CRR or SLR rate. Expect markets to rally if any cuts happen.

2. The European summit has come. The outcome is not as great was expected and I expect markets to react mildly positive on Monday morning and put the event behind it.

3. Technically, if 5400-4640 was wave 1 then we are in wave 2. Now here comes the tricky part.
Wave 2 A = 5100- 4640 = 460 points
Wave 2 B = 5100 - 4841 = 359 points
Wave 2 C = ?
We have corrected around 56 % of the up move. If indeed, C is pending, then we have targets of 5125 and 5300 ahead.

The invalidation point for this would be 4720.

4. December has the year end bonuses coming up and hence usually there are not many huge falls in December. Markets do have a history of peaking out in January. Let us see what happens this year.

5. The PPF limit has been enhanced to 1 lakh. One can put in the extra 30000 rupees and get a higher interest rate of 8.6 % instead of 8 %. Also, Infrastructure bonds of IDFC and L&T are in the market giving an attractive interest rate of 9 % along with tax savings of about Rs 6000.

6. The government has been paralyzed with the FDI in Retail put on hold and the Anna Hazare agitation looming ahead. Ana agitation has the potential to defeat the UPA in the next elections whenever they are held. Manmohan Singh will not last this full term till 2014. The Congress will make a change to have a fighting chance in the next elections whenever they are held. This also caps the upside to the markets.

Its time to wait and watch with 4720 and 5050 as crucial breakout points. 1 could go log with 4841 as a stop loss.

For those interested in individual stock picks, we have Lakshmi's Cherry Picks.

What does December hold for us?

The markets returned their best weekly showing in 2.5 years to close at 5050, a net gain of about 7.2 pc. Are we out of the woods?Let us try and explore.

1. This stunning rally has been on the back of Domestic liquidity. DIIs have bought about 700 crores worth of shares whereas FIIs have sold to the tune of 110 crores. FIIs have sold for about 3 days of the 6 day rally.

2. The Nifty has outperformed the broader market. The Nifty has gone about 7.2 % for the week whereas the broader CNX 500 has gone up by less than 6 %

3. The month of December has by and large been a very positive month for the equities. Since December 2002, the markets have always closed above the November close. This implies that this year if we go by history the markets should close above 4832. In all the years, the low for the month has always been below the previous month close. This implies that we should go down below 4832 at least once during the month.

4. If I try and project the average values, close should be around 5131, high at 5187 and low around 4731.

5. If we consider this up move as a retracement of the 5400-4639 fall then the next resistance to the up move comes at 5110.

6. In terms of number of sessions, the up move if it is an retracement should last for 6 to 10 sessions. 6 sessions are already over.

7. The logjam over FDI in retail will impact the markets negatively over the weekend. The next week should be either a flat or down kind of week.

For those interested in individual stocks or Gold, we have Lakshmi's Cherry Picks which are doing well.

Corrective Bounce Due

The Markets fell about 4 pc to close at 4710 for the week. This was on the back of a 5 pc fall last week. The Markets are deeply oversold in the short term and are due for a bounce.

1. The markets have been falling hitting 5400. This is the 5th wave of the C wave which started from 5944
C1 ended at 5196
C2 ended at 5740
C3 ended at 4720
C4 ended at 5400

C5-1 ended at 4640 or should end soon. If C5-1 ended at 4640, C5-2 can go uptil 4930, 5020 or 5109.

2. Historically, the area from 4539 to 4700 has a cluster of supports and will not breakdown so very easily. A bounce of 400-500 points is very much on the cards.

3. The downward sloping channel shows supports at 4430 and resistance at 5320.

4. The difference between 5 day moving averages and the 20 day moving average has moved near historic support levels. This implies a bounce is due.

5. Historically, the month of December has always been a positive month with gains above 5 pc. Hence, the next week may be the last week of the fall at least in the short term.

To summarize, buy at supports 4640 and play for a bounce in the month of December. It is also time to start building a portfolio of blue chips and for those interested, we have Lakshmi's Cherry Picks.

Chickens come Home to Roost

The markets were down about 5 % to close the week at 4906. All the gloom and doom predictions are slowly coming true. In all this bad news lies the seeds of the next bull run. Lets see what the future holds for the Indian economy.

1. Kingfisher huge debts are threatening to derail the airline industry. Kingfisher going bust or requiring a bailout as serious implications not only for the airline sector but the banking Sector. The government is talking about FDI in Aviation. This comes a bit too late. Who will invest in India's ailing airline sector and even if they do it will be at throwaway valuations.

2. The Banks are threatened by NPAs. Not only Kingfisher debts but also from the Power Sector. The biggest one to take the hit is State Bank of India. The defaults have just started and things will get much worse before they improve.

3. The Government auctions of 10 year bonds are devolving on the primary dealers. In layman terminology this means that no one is willing to buy bonds from the government at the Interest Rates being offered. The last bond auction devolved at 8.83 %. The Repo Rate is at 8.5%. This pretty much makes the case for holding rates redundant. If the most secure asset in India gives you an yield of close to 9 %, the banks will demand much more from the home loans.

4. Over the last few weeks, ICICI Bank has stepped up bombarding people's mailboxes with offers of flats at sale at much discounted rates. This is another sign that the NPAs of banks in terms of real estate sector loans are beginning to show up. As the layoffs increase and the distressed sales increase, expect the Balance Sheets of Banks to look much more horrible.

5.The mid caps are being slaughtered in the markets. The ones which have large FCCB holdings and the companies where promoters have pledged shares are the ones being hammered. The Mid-Caps are already at a level of Sensex being 10000. Pipavav Defence is an example of being circuit down at Rs 55.

6. Technically, the markets may have made their low 4838 for this settlement. Every rise can be sold into. The supports come at the 4800-4850 band after which comes 4720 and then 4500. The markets are oversold now on a delay basis and some amount of bounce can come to take the market to 5000-5050 levels.

7. Europe continues to struggle with the debt crisis. A discussion with one of my colleagues from Germany underlined the same. The issue is ow how much should Germany support the rest of Europe. The future of Euro is in question and now it becomes a question of national politics rather than just being pure economics. The next year brings elections in France and the US. Germany goes to the polls in 2013.

8. Channel support comes at around 4830.First resistance now will come at 4950. These are small trading ranges and are suitable only for traders. The direction is now very clear and it is on the way down. Not all stocks bottom at the same time and this is a rare opportunity to build a new portfolio from a clean slate.

Amidst this boom and gloom now is the time to start picking stocks which will survive the downturn and will do well with a 3-5 year perspective.We must look for companies which have less amount of debt on the books, have a market for their products and ones which will represent the new India. For those interested in stock picks we have Lakshmi's Investment Cherry Picks.

Investment Strategies in Current Environment

The business channels and pink papers have been obsessive about high inflation in the Indian economy and the consequent rise in interest rates – and well they should be. The government doesn’t seem too perturbed about the deleterious effect that high inflation causes – not just to GDP growth, but also to the wallets of common citizens.

During such times, savings and investments may be farthest from people’s minds as they struggle to make both ends meet. However, there are some comparatively less risky investment opportunities that smart investors can avail of.

Continue Reading my guest post in Subhankar's blog:
http://investmentsfordummieslikeme.blogspot.com/2011/11/business-channels-and-pink-papers-have.html

Gloom and Doom Ahead

If one goes by the headlines, there is doom and gloom ahead. Airlines are going bust, people are being laid off, bond yields have crossed 9 pc and Italy tethers on the brink of a collapse. Lets us look at things in detail and try and find a silver lining to the cloud.

1. For any medium term upside, 5390 - 5400 remains the key resistance. There are a confluence of resistances here. The previous high comes at 5399, the 200 DMA comes at 5390 as also the lines joining previous tops from 6339 comes at this value. Prudence suggests that one should not go long before 5400 is breached.

2. On the downside, fresh shorts could be taken below 5072 and 5011, the previous significant bottom. We are in some kind of consolidation move right now. This expiry is 9 trading sessions away and we wait and watch. In this series it is only the Option writers who have made money.

3. Fundamentally, Kingfisher is in trouble. The problem is not as simple as an airline going bust. It has a cascading effect. Several banks have a very high exposure to the airlines and their NPAs will go up. The Power sector also has NPAs rising and banks will be wary of lending to the power sector as well.

4. The government bonds are trading at an yield of almost 9 pc. The Repo Rate is at 8.5 pc and will raise further in the month of December. The high yields imply that government bond supply is not being absorbed by the market. In simple language, government is borrowing big time from the markets.

5. Gold is also trading in a range. The previous top needs to be taken out for investments to be made in gold. The rupee has breached the psychological Rs 50 mark. Weak rupee means the companies which import are in trouble. India is an economy which is a net importer and hence the fiscal deficit target of 4.6 % is not likely to be met.

6. With elections in the key states of UP and Punjab round the corner expect no fiscally prudent measures from the government at least till March 2012.

Now, is the time to start nibbling at stocks, systematically picking the good companies. Those interested in stocks and gold investment advice, there is Lakshmi's Cherry Picks available.

Finally, a tailpiece on Austerity in these tough times by Sanil Sonalkar.
Financial year 2011-12 has truly marked the dawn of a new era of austerity measures being adopted by countries worldwide, caught in the midst of a recession which seems to be spreading by the day. The developed world, particularly the USA & the Eurozone countries, are grappling with huge debts and failure to pay sovereign obligations is becoming a stark reality. To tide over the crisis, these countries are resorting to unprecedented austerity measures in a ferocious bid to salvage pride and credit ratings (no pun intended).

Back home, the common man is increasingly feeling the burden of high prices and household budgets have taken a hit like never before - austerity begins at home too. The government,
almost belatedly, has tried to offer some respite by increasing the interest rate on the popular savings schemes - PPF, NSC, etc, etc. This may seem too little, too late.
A judicious mix of savings and investments is the order of the day in these troubled times.

A Party at Crossroads

There comes a time in every individual's or a nation's life where they stand at crossroads. Similarly, the Congress party has come to a point where they are at a crossroad. The next 24 months will decide where the party goes, and consequently where India goes. Our stock markets will be a reflection of where India is headed to.

In 1998, Sonia Gandhi took over as the Congress President. The Congress Party was in shambles. The BJP was riding a wave of Vajpayee induced euphoria, the Congress tally was plunging and no one gave the party a chance. Under Sonia, the party was losing election after election and no one gave the Congress much of a chance. Elections in May 2004 shook the nation and also shook the stock markets when Congress with the Left Front support came to power.
Sonia's masterstroke was yet to come. She stepped out of the race for the Prime Minister when the seat of power was hers to take. In one swift move she took the wind out of the sails of all those baying for her foreign origins. Manmohan Singh, an apolitical person, world renowned economist and more importantly a person with no political power took over as PM.

UPA - 1 was all about reforms. The Right to Information bill, the NREGA and the Nuclear bill being passed. In May 2009, the Congress came back to power minus the baggage of the Left Front. With great expectations come great responsibilities. It has been downhill after that with scams breaking out, inflation pinching the pockets of the Aam Aadmi and Congress being bruised in the by-elections.

Now, the news is Rahul Gandhi will become the Congress President, the 6th member of the Nehru Gandhi family to take over the reins of India's most influential party.

We have the elections in Uttar Pradesh in early 2012. The Congress has tied up an alliance with Ajit Singh who is powerful in Western UP. The Congress may emerge as the kingmaker as there seems to be no clear winner in UP. The Samajwadi Party, BSP, BJP and the Congress seem more or less equally placed with Mayawati edging ahead at the moment.

The real test of Rahul Gandhi will come in 2014. The Congress at the present moment is badly placed and is vulnerable to a defeat.

It is a real possibility that Manmohan Singh would be replaced in early 2012 after the elections in Punjab and Uttar Pradesh are out of the way. The most likely candidates to replace him are Pranab Mukherjee and P Chidambaram. The joker in the pack is someone like Kamal Nath.

It makes very real sense to replace Manmohan Singh. The scams and inflation have taken a toll on his image. It will be almost 7.5 years of him being in power. Time to have some old wine in new bottle.

The 3 leaders mentioned above have the same characteristics of Manmohan Singh. None of them are mass based leader and can never pose a threat to the Gandhi family.

Rahul Gandhi taking over as Prime Minister is the Ace in the Congress Pack ad I do not think, they will deploy that so early in the game.

What happens if Congress does not win in 2014?

There can be 2 alternatives. A NDA coalition coming to be power led by someone like Nitesh Kumar who has the credibility for good governance or a hotch potch Third Front government riding on the crutches of the Congress Party. This would lead to a repeat of the uncertainty of 1996-1998 period where the markets went no where basically.

Sonia Gandhi has left her footprints on the sands of Indian Political history. Let us wait and watch what Rahul Gandhi does.

Now, we come to our markets. Keeping all this in mind, I do not see the markets running away anywhere in a hurry. The crystal ball will become clear only sometime in mid 2012- 2014 period.

Now is the time to pick up blue chip stocks at good valuations. Invest in companies which will do well, keep 2015 as the target in mind.
For those interested in a selection of good stocks, Lakshmi has a pretty good collection very reasonably priced. One may contact her for her Investment Cherry Picks.