Market continues to trade in a very tight range

The markets closed 0.4 pc higher for the week, continuing to grind up. The markets are moving up very slowly led by the front line stocks, Unless there is broader participation, the up move looks a bit difficult to sustain. Let us try and examine the technical and fundamental factors.

Technicals:
1.We are in leg C upwards which started from 4770. C1 was 4770-5348, C2 was 5348-5032. The picture is very clear up to this point.
C3 began at 5032. This up move has extended up till 5448. A rise of 416 points without any meaningful correction.
C1 was 578 points, and hence it is unlikely that this is entire C-3 C-3 has traversed a distance 416 points so far. This could mean this C3 - 1 which is about to end. In this case, we would have a retracement extending up till 5191 and 5240. In worst case it may go down to 5115.

This up move has been slow and grinding. The leg A saw many mid caps move up when we moved from 4532 to 5629.

The rally of the mid caps is still to come which may imply 2 things. This rally has legs to go much higher till 5800-6000 or this is just distribution which is going on.

Whichever way one looks at, it doesn't make much sense buying stocks so close to resistance levels around 5400 levels.

The Strategy should be to buy on dips close  to 5200.

Fundamentals:
1. The monsoons are looking up. Punjab and Haryana which was rainfall deficient has also received heavy rains. Punjab, the farming is irrigation based so the rainfall will help the Rabi crop. The monsoon deficit has reduced to 14 pc overall and looks the worst is behind us.

2. The policy paralysis continues and has been factored in.

3. The Parliament is in session till September 8th and I expect no fuel price hikes till then.

The Strategy is Buy on Dips and stay out of the markets till the dips come.

Nifty fails to clear the Resistance Area

The Markets gained another 1 pc to close the week at 5366. The markets have now posted 3 weeks of gains. Let us see what next for the markets.

Positives:
1. The FIIs have continued to buy in the markets. They have bought on each and every trading day of the month. They have bought about 6500 crores in addition to the 10000 crores of stocks which they have bought in the month of July.

2. The Mutual Fund related reforms announced by SEBI, the IPO norms all will added to the positive sentiment.

3. The new Finance Minister is one who understands the Capital Markets and I expect the positive sound bytes to continue.

4. The Monsoons are staging a late recovery. This will add on to the positive sentiment.

Negatives:
1. There is 1 big negative. The Crude oil prices have risen to 113 dollars to a barrel. With a weak rupee and government unwilling to raise Diesel prices, it means that the fiscal deficit will continue to rise.

Technicals:
We are in leg 3 of the C wave which started from 4770 with targets in the range of 5700 to 5900.

Leg C 1 was 4770- 5348 = 578 points
C 2 was 5348 - 5032 = 316 points
C 3 - 1 is 5032 - 5398 and ongoing.

I expect a dip to 5150-5200 levels, buying at these levels can lead to very good short term profits.

I also expect the markets to continue to remain positive at least till Diwali this year.

Will a poor Monsoon affect your portfolio?

This year, monsoon rains have been conspicuous by their absence. While
a few parts of the country have received excess rainfall, that has
been the exception than the rule. Drought-like conditions are
prevailing in many parts. In other parts, rainfall has been scanty to
mediocre.

By all accounts, rainfall will be below average this year. What will
be the effect of a poor monsoon on your investment portfolio? In this
month’s guest post on Subhankar's blog, I look at a few sectors that may get
negatively affected by a poor monsoon and a few that may not do too
badly.

------------------------------

----------------------------------------------------------------------------------------------------

The monsoon this year is likely to be deficient. Which sectors and
stocks will feel the impact? This is a burning question in the minds
of investors. Let us try and analyse the impact of a poor monsoon.

Read more at:

http://tinyurl.com/mobugobu

Market tests the Resistances and retreats

The Markets gained around 2 pc overall for the week. They tested the resistances of 5378 and retreated back. These are very key levels for the markets.

1. In the last rally in Feb-March, the markets hovered in the rage between 5300-5400 before breaking out. I expect the same to happen this time.

2. Looking at the wave counts we are in the C leg of rally from 4532. Just to recap, C1 was 4770 - 5348.

C2 was 5348 - 5032

C3-1 was 5032 - 5378 = 346 points

We should now in C3-2 wave which should test 5246, 5205 or 5164. Only below 5100 would did this entire rally be terminated.

The rally of C3 would be decisive as usually the 3rd wave would be the most powerful. This wave has targets of 5610 and if 5629 is broken then 5766.

What should be the strategy?

Buy on all dips, preferably closer to 5200 with part booking around 5600.

The monsoons have picked up and the drought is not going to be as bad as was previously expected. Surprisingly, the markets have performed well in the years where there has been poor monsoons in the last one decade,

At current market levels, the PSU banks are a dark horse. Some of them are available of a dividend yield of around 6 %. Even if their bad loans increase, they will still be able to pay out dividend which was paid in the previous years. This is because dividend payout has been 25-30 pc of entire profits and the government expects the dividend income from the PSU banks.

The Sugar sector and the PSU banks are amongst my favorite themes currently.

Markets at critical resistances

The Markets gained over 2.3 % to close at 5215. The markets are now heading into a cluster of resistances which will determine if the up move continues or we are going back into a trading zone. Let us try and examine each of these factors.

Technicals:

1. The Market is in the Leg C of the corrective up move started at 4532 in Dec'11.
C1 was 4770- 5348
C2 had 3 legs A, B and C
A was 5348 - 5169
B was 5169 - 5257
C was 5257 - 5032
C3 commenced from 5032 and we are near the end of the wave C3 -1.

This is one wave count.

Another could be C2 - A 5348 - 5032, B from 5032 - max 5284 and C to re-test 4950 - 5032.

How does one really play this?

5300 is the outer limit beyond which we will test 5450-5630. Buy either above 5300 or in the area 4950-5100.

The week should start on a bright note with the global markets hitting the highs.

Fundamentals:
1. The Monsoons continue to be weak which should help the sugar sector.

2. P Chidambaram has taken  over as the new FM and its time makes a move on the policy front. Else we are likely to remain in a sideways market.

Bottom line: Buy above 5300 and also below 5100. In between enjoy the rains. For those interested in individual stocks, we have the Cherry Picks by Lakshmi and myself.

Poor Monsoons and no Reform Announcements drag the markets down

The Markets were down about 2 pc for the week. Lack of news on the reform front as well as poor monsoons dragged the markets down. Let us see if there are any silver linings for the markets.

Fundamentals:
1. No progress in Monsoons means higher food prices. This would mean higher interest rates and would in turn imply no rate cuts in the near time. The RBI policy is on Tuesday and any surprise announcement can lead to a short term spike in the markets.

2. It is high time that there is news on the reform front else the markets are not going anywhere in a hurry.

3. The Corporate Results have been more or less in line. As I mentioned in the previous posts, they do not have much impact on the markets anyway as the markets look 6 months ahead and they are factored in.

4. The Sugar stocks have come down and I still feel this is the best sector to be in with a time horizon of 6 months to 1 year. The dip has given a good buying opportunity.

Technicals:

Last week, I had said:

C started at 4770. There are 2 possibilities here.
a. C1 4770 - 5190
    C2 5190 - 5041
    C3 -1 5041 - 5348
    C3 - 2 5348 - ???? can be 5231, 5195 or 5159 or max 5102.

b. C1 is 4770 - 5348 and C2 is currently ongoing with targets of 5127, 5059 and 4990.

We are well on track to meet the prognosis and a move down to 4990 which will be a buying opportunity. I see the markets oscillating in the range of 5000-5200 for the entire month of August.

Buy nearer to 5000 and also add the same stocks on a close above 5200. This would help you get the best price in.

Sriram Transport issue as mentioned in my previous post is a great opportunity to get locked in a higher rate of interest.

For those interested in individual picks, we have the Cherry Picks from me and Lakshmi.

10 things to know about the Sriram Transport NCD Issue

Sriram Transport Non-Convertible Debenture Issue opens tomorrow. Let us examine the Pros and Cons of Investing in this issue.

1. Sriram Transport NCD is for 2 tenures 36 months and 60 months. For 36 months, for Retail investors they are offering 11.15 % interest and for 60 months it is 11.4 %.

2. They also have a cumulative option for the above 2 tenures.

3. Retail investors are those who will invest within the 5 lakh limit.

4. The issue has been rated AA by Crisil.

5. The subscription is on first come first served basis. Hence those interested in subscribing, please do so tomorrow itself.

6. The issue closes on

7. There is no TDS Limits on De-matted NCDs.

8. Issue closes on 10th August 2012.

9. For detailed explanation on NCDs, please refer my last post on Sriram Transport issue about 1 year back.

10. One can redeem the NCDs as they are listed on the NSE and one gets the sale proceeds on 3rd day after selling.

I would suggest one has limited exposure to this issue. Such high yield, medium risk instruments increase the amount of Interest earned on one's fixed income portfolio.

Awaiting Fresh Triggers

The markets corrected about 0.4 pc last week. A Delayed markets and a lack of clear direction from the Government weighed heavy on sentiments. Let us try and explore what could be the factors influencing the markets.
Technicals:
1. We are in the Leg C of the corrective up move. This has targets ranging from 5700 to 5900.

C started at 4770. There are 2 possibilities here.
a. C1 4770 - 5190
    C2 5190 - 5041
    C3 -1 5041 - 5348
    C3 - 2 5348 - ???? can be 5231, 5195 or 5159 or max 5102.

b. C1 is 4770 - 5348 and C2 is currently ongoing with targets of 5127, 5059 and 4990.

Technically, wait for the breach of 5100 to commence fresh buying.5100 is a strong support area.

Fundamentals:
1. Poor monsoons are already driving up food grain prices. The chances of a rate cut are diminished. Sugar stocks are expected to do well. The bumper harvest of previous years will help India in tiding over this drought.
2. The markets will not move up till there are further steps on the economic reform front. The Presidential elections are out of the way. It is now time for the Government to deliver.
3. Worries on the European front are resurfacing. One needs to keep a look out for the developments in Spain.

The Sriram Transport NCD is due soon opening on July 26th 2012. I will post a detailed review on the 25th of July.

For those interested in stock picks, I have Lakshmi and mine Cherry Picks.

FIIs lead the way

The Markets have been consolidating for the past few days. They closed 1.7 pc down for the week but I expect them to break out of the range soon. Let us explore why this can be a reality.

Fundamentals:

1. The FIIs have been buying heavily in July. They have bought equity worth 6500 crores so far. This has eased the selling pressure on the stocks.
2. The global commodity prices have remain subdued. Crude has settled around the 100 dollars a barrel mark. India which imports almost 80 pc of its crude, is the major beneficiary of this.
3. Global negative events, especially in Europe are taking a breather.
4. Post the Presidential election on June 19th, there are expectations of major reforms. FDI in Retail, GAAR norms easing and the Vodafone tax case are a few of the reforms expected.
5. The progress of Monsoons is another key factor in determining the direction of the monsoons. Monsoon activity has revived over the past couple of weeks.

Technicals:
1. As per Elliot, the market is in the 3rd Corrective upmove from 4532. A was 4532 - 5629. B was 5629 - 4770.
2. The Leg C has completed the first 2 legs. C1 was 4770-5190  = 420 points, C2 was 5190-5141 = 149 points.
Leg C3 has completed the 1st wave from 5041 - 5349 = 308 points. 2nd wave will have targets 5231, 5195, 5158.

It is a buy on dips markets. For those interested in stockpicks which have done pretty well, we have the Cherry Picks.

Consolidation after the Up Move

The markets gained 0.7 pc for the week and what was more important was that the markets are consolidating their position before commencing the new up move.The next few week should very bullish for the markets and let us investigate the levels which the markets can reach during this period.

1. On the reforms front, there seems to be a silver lining with the PM showing positive intent. A final decision on the Vodafone tax front case will lead to a rally in the markets.

2. Oil is holding on at lower levels and this is a big positive for the markets like our markets.

3. Technically, we can map this rise as Leg C.
Leg C -1 was from 4770-5190 = 420 points
C-2 was 5190-5042 = 148 points
C-3 ongoing with targets of 5462 or 5721 points.

4. The Sugar sector looks extremely positive. Brazil has seen heavy rainfall which has lead to decrease in sugar output and India is witnessing scanty rainfall. Sugar sector seems to be looking good for next few months.

5. The Q1 results will be out from this week. Usually the results are factored in the prices and unless we see very good or very bad results, the results are usually discounted in the market prices.

6. Considering the rally so far, the indices may take a breather early next week before peaking out for

As I see the interest rates coming down, this will be last chance to lock in high interest rates. I can still several banks giving high interest rates on 3-5 year maturity. Profits from the equities can be locked in these FDs. The Gilt funds which I have been recommending for long have given fantastic returns in the past 2 months. The 10 year bond yield has come down  to almost 8.1 % from the near 9 pc levels.

For those interested in Equity picks, I have Lakshmi and my picks. We are sweetening our Cherry Picks with some sugar picks.