October beckons

September is done and dusted. At the beginning of September our analysis had said, "Keeping a buffer of couple of percent, we can go long in the 5150-5200 band. 8 times out of 11 year, one would have made money with this strategy."
We did make money and now let us see how we can play the October series in the market.
September ended with a gain of 8.5 %. In the past 12 years, we had 4 years of gains in excess of 8 pc in September. These years were 2005, 2007, 2009 and 2010. Let us see how Octobers panned out in these years.
 Years of large gains in September usually result in declines in October. Only in 2007 at the peak of the bull market, there was an exception.

Also, in October generally the markets are subdued and may give small gains.

Looking at all this the upside is capped for the markets in October. At the upper end of the range we have 5800-5850 and at the lower end of the range 5300-5350.

Technicals:
As per Elliot we are in 3 rd wave of the C leg starting from 4770. This leg may have ended or is on the verge of ending around 5750.
C1 was 4770 - 5348 (578 points)
C2 was 5348 - 5032 (313 points)
C3 was 5032 - 5735 and ongoing (703 points)

I expect C4 to end between 5300-5400 and consume a major portion of October 2012. This will present a very good buying opportunity for the final surge to take place.

I expect the medium termmarket movement as follows:

5700/5800 - 5300/5400 - 5900-6200 to peak sometime between end of November and the year end.

The global markets will remain up at least till the US Presidential elections are out of the way in November 2012.

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Markets continue to Rally on positive news flow

The Markets gained another 2 pc to end the week at new 52 week highs. The markets put behind them all the political uncertainty and the mid caps have joined the party. Let us look at the political, fundamental and technical factors at play.
Political factors:

1. The Government for all the talk of mid-term polls should last out the full term. The mathematics are simple. The half way mark is 272 seats and the government has 254 seats. A shortfall of 18 seats. BSP has 21 MPs and Mulayam 20 MPs. Mayawati cannot afford mid-term polls just yet as anti-incumbency is yet to set in UP.Typically, it takes a minimum of 2 years for anti-incumbency to set in. Mulayam will not withdraw support as he knows Mayawati will step in. He is trying to make the most of a bad deal.

2. The Government knows the only chance for it to counter the corruption allegations is to move down the reform road. Typically, the benefits of any reforms enacted take about 18-24 months to show up. This is the last wave of reforms before the government gets ready for polls. 2012 is the last window of reforms.

3. 2013 will mark a wave of populist measures with an eye on the elections. I expect the markets to rally till Diwali at least on the wave of reforms.

4. The Congress in its history has never failed to complete its full term in office. This was even at the time of the Narasimha Rao led minority government from 1991 - 1996.

Fundamentals:

1. The Ratings downgarde has been most likely avoided by the slew of the reform measures announced. This means lower borrowing costs for Indian companies in the foreign markets.

2. The monsoon has a shortfall of only 5 % and there is no drought like situation in the country.This will help keep inflatio in check.

3. Chidambaram as FM means the flow of pro-market news will cotinue for some time to come. The government needs to meet its divestment targets and hence the rally will be kept moving. The FII flows have also gone up dramatically.

4. QE -3 means that liquidity flows will continue. With India announcing reforms, a percentage of this money will flow into India.

5. The stronger rupee means lower Petrol prices and also the subsidy burden gets slashed. Rupee has already gained about 4 rupees from its low of 57.32. Next targets are 52.5, 51. Also, when rupee strengthens the FIIs who have invested gain.

Technicals:
1. We are in wave C of the rally started from 4532.

A was 4532 - 5629 = 1098 points
B was 5629 - 4770 =  859 points
C can have targets of  5868, 6175 or 6546.

C wave is sub-divided into
C1 from 4770 - 5348 = 578 points
C2 5348 - 5032 =  316 points
C3 5032 - 5720 and ongoing = 688 points

C3 can be extended and can go on to 5771 or 5967.

Post C3 we should have a correction of about 300-400 points before the final surge leading up to Diwali.

I expect a top around the November-December time frame.

Strategy:
Buy on dips at levels closer to 5400.Above 5700, start booking profits. The markets could top out anywhere from 5868 - 5944 to the previous highs.

FDI in Retail and in Aviation

I had written a guest post for Subhankar where I had tried to examine the pros and cons for FDI in Retail and in Aviation.
The post can be accessed at the below link:
http://investmentsfordummieslikeme.blogspot.in/2012/09/about-fdi-in-aviation-and-multi-brand.html

Markets give a breakout

The markets rallied about 4.1 pc on a surfeit of good news. Let us check where the markets are headed next. There was good news globally as well as locally.

Fundamentals:
1. The hike in Diesel prices was long welcome.More than cutting under-recoveries by about Rs 5 per liter, this will discourage the sell of Diesel cars. The break even point for Diesel cars will now be around 50000 kilometers. This will increasingly influence people to buy Petrol cars which will mean that there will be no under-recoveries as Petrol is DE-regulated.

2. The cap of 6 cylinders per family every year is another welcome step as a cylinder costing about Rs 750 was subsidized to cost about Rs 350 only. Anyone using more than 6 cylinders does not need a subsidy in any case.

3. FDI in aviation and retail is more than welcome. Airlines need capital to remove competitive. Even in Retail, it is all about consumers getting the best price. The prices which we get stuff at malls and big outlets are much superior to the Kirana outlets. Ultimately, the Kirana stores will have to match the prices to survive. The opposition to FDI comes from the trader community which has vested interests.

4. The QE-3 announced by US means that liquidity will continue to gush in for few more quarters. All asset classes will gain. Be it gold, equities.

5. If Gold closes above 1800 USD, then it has given a bullish breakout and I will buy on all dips.

Technicals:

1. The Leg 3 of C commenced from 5032. It has currently traversed about 371 points.

C3 -1 was 5032 - 5448
C3-2 was 5448-5216
C3-3 was 5216 and ongoing (5587)

The target for C3 should be minimum 5631. After a small correction of about 200-250 points we should hit new highs.

The target now is buy on all dips. It would be prudent to book profits around the previous high of 5629 and re-enter at slightly lower levels. For fresh investments, one should wait for dips to enter.

Markets head higher

The markets were up for the week by almost 2 pc. The gains mostly on Friday thanks to the ECB allowing unlimited bond buying. Let us explore if the markets can go up higher.

Technicals:

1. The 3rd wave up of the C leg seems to have commenced. Typically, the 3rd wave is the most powerful and begins with a gap up. We had a huge gap up on Friday.

C1 4770 - 5348 = 578 points
C2 5348 - 5032 = 316 points
C3-1 5032 - 5448= 416 points
C3-2 5448 - 5215 = 233 points
C3-3 should exceed 416 points which gives us a minimum target of 5631 which is the previous top also.

If the above wave count is correct then 5215 will remain the bottom for at least 3 months to come, that is till Diwali.

Fundamentals:
1. The large caps have moved first. Next week, I expect the mid-caps to rally.

2. The monsoon worries are behind us. There is o chance of a drought now and the deficient monsoons are down to 10 pc.

3. Shriram City Union is coming up with NCDs and one can invest small amounts in this. The rate of Interest offered is very attractive.

The market is now a buy on dips market. Every dip can be utilized to go long with a stop loss of 5215. Above 5400, the next logical target for the market is 5631.

Gold:
Gold will be in a fresh bull run after it crosses 1810 USD. Till those levels, I would be cautious on buying gold. Gold is currently trading at 1735 USD.
If one buys gold at the current moment and if this is only a corrective up move, then 1 can get stuck. The Gold prices in India have risen thanks mainly to a very weak rupee. Globally, the previous high for gold was 1910 USD.

The September Effect

I did an analysis of how the markets behaves in September for the past 11 years and the results are pretty startling.

1. In the early  past of this millennium in 2000 and 2001, the markets tanked very heavily.

2. The market has given very positive returns in 6 of the years.

3. Overall, 5 negative and 6 positive Septembers. Also, 1 has been very marginal negative year.

What can one conclude?

5258 was the August closing. Keeping a buffer of couple of percent, we can go long in the 5150-5200 band. 8 times out of 11 year, one would have made money with this strategy.

Support seen around the 5200 levels

The markets had a pretty dismal week. They closed down 2.4 pc for the week. What was more worrying that individual stocks took a bigger battering than the index. The index fall of 2.4 pc does not represent the true picture.Let us examine the technicals and the fundamentals governing the markets.

Technicals:
We are in leg C of the corrective up move.

C-3-1 was 5032 - 5448 = 416 points

C-3-2 can be retraced till 5289 (already done), 5240 or 5191. In the worst case we may see a dip till 5150.

We are currently testing the support line from the bottom made at 4770. This support line will act as a level from which the markets may bounce back.

We can say that the current down move is over only after a close above 5400.

Fundamentals:
The good rains in the month of August mean that the Monsoons are no more an issue.

The Parliament logjam over the coal issue will continue for the next week. After September 8th, if there is a Diesel price hike and reforms take place, then the markets should rally.

The proposed changes over postponing GAAR changes all hint to a positive change from the Finance Ministry.

The strategy now should be of wait and watch. Buy only on dips around 5150-5200 levels and buy high dividend yield stocks which provide one with a margin of safety.

In the early part of next week, I will do a feature on how September has been for the markets in the past 10 years.

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.

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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