Nifty ... the road ahead (Part II)

Over 6500 cr sell on 17th Oct by FIIs in cash and F&O ... followed by about 3800 cr on 18th and 2700 cr on 19th October. Thats $3.25 billion in three days ! I will wait with interest to see what happens in the next two days. A inflow of $8 billion in last two weeks has taken us up 10% on the index ... wonder what will happen if just that amount of money is withdrawn in next two weeks ? And given today's sell figures, we wont have to wait two weeks for that $8 billion withdrawal to happen .... I had said on 17th evening. As you can see, the 'cheese' for the mouse was of the highest quality, with the markets jumping up on thursday morning on the back of 'strength' shown the day before ... and then the trap snapped and the mouse got caught ! From a high of 5736 on thursday, nifty fell to a low of 5102 on friday, losing 634 points, or in percentage terms, 11% from the high ! And we have just seen $3.25 billion being withdrawn by FIIs as yet !
Expect to see a gapdown on monday morning, and once nifty breaks below 5100, we would see selling pressure that can take nifty to 5025, below which, we are headed for 4875 as suggested on 17th Oct. On the flip side, if Nifty sustains above 5260, it can do a rope trick and head for 5335-5415. However, I would not venture into going long on the back of that bounce as it would most likely get sold into and we would again head lower .... and its an expiry week to boot. So stay alert, dont be 'bull-headed' and think before you act ... do not believe blindly all the sundry rumours that float every day in the markets.
Again, I am not being a bear .. just making sure that those who read the blog dont lose their shirt and a lot more as in May 06. Its easy to buy ... but a lot more difficult to restrain the urge and 'not buy' when you see prices that are 10-15% lower they were just 48 hours ago. Trust me, if we break support on monday, 4875 on nifty wouldnt be too far away ... and though I dont intend to scare the daylights out of you, do keep in mind that IF we break 4875 with volumes, we could be headed for 4750-4650 levels in quick time, and with previous top being at 4647.95, its very likely it will break, opening up the downside to 4300 on nifty. Remember, its not outside the realms of possibility as we have seen it happen less than 18 months back in May 06, India story not withstanding.

Nifty ... the road ahead

May 06 revisited ... SEBI issues draft guidelines, panic in the morning with markets hitting LC ... then, we have a change of scenario. As against May 06, this time we see a stunning recovery to pull back almost all the way, closing 2% down, give or take a few. So, have we become 'decoupled' from FIIs enough to go our own way and we are 'mature' enough as investors at large to know the right from the wrong ?
I sense we have an interesting scenario to pan out ... May 06 was just a proposal to levy tax by CBDT, which was a miserly 10% that we all pay. Oct 07 is a proposal to close all PNs based on derivatives. On a rough estimate, that means closing $ 25 billion plus worth of PNs and by extension, closing positions to the same tune from the markets. Yes, there is a window of 18 months to do that ... but knowing that the same has to be done, how many will wait for 6-12 months even once the proposal becomes a law ? What interest would those PN holders have to withdraw in an orderly manner as opposed to pulling out the money whichever way they feel like ?
FIIs sold over 6500 crs today in F&O and cash markets, which mean over $1.5 billion ... I will wait with interest to see what happens in the next two days. A inflow of $8 billion in last two weeks has taken us up 10% on the index ... wonder what will happen if just that amount of money is withdrawn in next two weeks ? And given today's sell figures, we wont have to wait two weeks for that $8 billion withdrawal to happen.
Most people would call me a bear and would point to the 'strong' recovery we had today. In my defense, all I would say is that I view this as not a recovery but as cheese for the mouse ...with the mindless euphoria that nothing can go wrong with India story blinding one to all reason. As always, I will stick my neck out and say that nifty will most likely go down to 4875 levels. Unless we see the PN draft notification being withdrawn completely ( which would leave SEBI and FM with egg on their face and with their credibility in tatters), I would put the odds on going down than up. So keep your eyes and ears wide open .... and dont go berserk on seeing 'red' as a traditional bull !

Nifty Update

Well, well, well ... with Dow falling intraday to a low of 12518, a loss of 340 points at one time, and then recovering all the way back to close in the green (averaged down later to close down marginally), could it be that this is the end of the current slide and we have indeed reached a bottom ? I would suggest not ... the current upmove of Dow should take it to a level of 12900-12950 at most, I would expect. Thereafter, unless it is able to cross the resistance of 13050-13080, expect it to slip back towards 12400 levels. Accordingly, it would be best to use whatever positive impact we see in our markets to exit longs that one might have ... and wait. Wait to see if Dow crosses and sustains above the resistance levels, in which case, we can assume that a short term bottom is in place.
And in case you need further confirmation, know that the FII net sell was 3108 cr in cash markets and 3058 cr in F&O on thursday ... it aint over yet !

Nifty Update

So, having gapped down on monday on the back of Dow's 280 point crack on friday last, where is Nifty headed from here on ? For one, FIIs sold over 2700 cr on monday in both cash and F&O. That should set the tone for further weakness to the downside. However, Dow surged today to recover the entire slide of friday last, which would give bulls the firepower to gapup ther nifty on tuesday, just as the bears did a gapdown on monday.
Question is, which of the two views are real and which one is just a decoy ? Dow's rally today was largely based on two factors ... one, an almost 5% fall in crude prices, which is probably the biggest single day decline in last 6 months. Two, an expectation that Fed will offer some solace to the markets in its policy statement on tuesday by indicating some sort of support for credit markets suffering from subprime virus.
The fall in crude is coming on the back of a strong surge in its prices in the recent short term and to lend too much credence that oil prices would keep falling from here on wouldnt be a wise outlook. It seems to be more of a profit-taking in crude after a sustained rise, than anything else. As far as Fed is concerned, it is highly unlikely in my view that we will hear it offer any sort of relief to bail out the credit market woes ... remember, Fed has been warning over and over again about subprime fallout and for it to offer a bailout package for the same now ? I mean, that would be dumb ! If it had to eventually bail out the markets, then why let it reach this stage ? wouldnt it have been prudent to do the same when the problem had just started rearing its ugly head ? Also, Fed isnt likely to cut rates either ... which I have been saying since the beginning of this year almost.
If things pan out accordingly, then we will see Dow go down again after Fedspeak ..... which will reflect in the global markets on wednesday. It would be prudent to exit longs in the gapup we see on tuesday and sit on the sidelines. Let the markets sort itself out !

MP Glychem

Buy on close above 40.50, stop 37 EOD, target 49.50 or higher

Nifty -- sucker rally ?

So, we had a CRR hike of 50 bps which wasnt what the market at large was expecting ... and that saw the markets rally a 100 points on the nifty from the low it made after CRR hike was announced ! Everyone rejoiced ... our markets are strong, even in the face of a CRR hike announced by the RBI ! Made me think ... bears getting ready to ambush the bulls ?
Lets have some facts first ... one, US markets, that started the slide on the back of subprime concerns and liquidity worries, have suddenly improved or what ? a one day close of 90 odd points after a sharp fall of 750 points from the top is the end of correction ? anyone heard of a technical rally or a dead cat bounce ?
Two, when was the last time that RBI came up with a rate hike that market wasnt expecting, or expecting even, and it rallied thereafter ??
Three, FIIs sold 8000 cr combined on friday and monday in cash and F&O ... is that figure so irrelevant that the markets will still rally upward with all that FII selling ?
It aint over till the fat lady sings (with apologies to the female readers of this blog)... and she (Dow) is on a song right now ! I will put my neck on the line and say that if Nifty breaks below 4395 with vols, then odds are in favour of us going down towards 4100 ... the only resistance we might encounter on the way would be 4350. Take a look at the hourly charts, if you may ... a monster H&S forming. There is still a chance to tighten stops and take the profits off the table ... the odds are high that Nifty wont be able to break past the recent high it made.
No matter how strong our economy may be or how bright the growth prospects it might have, the same didnt stop May 2006 or March 2007 from happening, did it ? Just as one cant argue with the force of liquidity when it pushes the prices up, one cant argue with it either when it decides to push prices down.

Nifty

So, we finally did see the anticipated 5% decline in Nifty. All the voices that have been crying hoarse about one-way ride to higher highs all the time, have suddenly gone quiet in a single day ! So, where do we go from here ? Admittedly, the 5% correction that I had anticipated wasnt expected to come in a single day, though it was expected to be a swift one. Right now, we dont seem to be done as yet. 4350 spot nifty is a crucial level and as long as we do not break that with vols, we should be rangebound between 4350-4550 for now. However, if Nifty breaks below 4350, it would weaken further and we can go as low as 4100 ... and as mentioned earlier, as long as 4100 holds, we should remain in an uptrend.

Nifty Update

Today's price action tends to confirm the view that we have a top in place in the immediate term. Stocks got sold off, inspite of TCS results and there being no real negative cues. It was Reliance that saved the blushes for Nifty, but for which we would have seen Nifty break below 4480 for sure. It time to sit on the sidelines and wait ... as the risk reward is in favour of a decline. Only specific stocks could buck the trend ... and that too, if one is quick on the draw. IT as a sector is what seems to be the one that is showing signs of upsides ... TCS, Polaris and Infy to be specific.

Nifty Update

Nifty (and sensex) finally achieved the target given on 2nd May :) With everyone talking about 4500 effortlessly now ( I remember hearing about 3900 and lower levels being given just over a month back !), its time to reviews the near term course of Nifty. I expect 4415-4435 range to provide resistance on the upside ... and the risk-reward ratio is turning in favour of a down move from here on. Nifty might scale 4500, which is just about 3% from here ... the downside being 4200-4180 if we break below the level of 4270. In the last 6 months, there hasnt been one instance when we havent seen the Nifty shave off 125-175 points during the month and I wouldnt be betting on July breaking the trend. The results season begins next week and all eyes (and ears) are in Infyspeak. Its time to take profits off the table, in case you havent done so yet. I would be prepared for a 5% dip on Nifty, give or take a few points. Once we have seen the correction, it would be time to buy again... and as long as 4100 holds, we should remain in an uptrend.

Nifty

Well, well, well ... we finally managed to break the resistance range of 4285-4295 today. Even though we closed a shade below it in the end, the last hour's action did indicate that the resistance is as good as broken. As mentioned on 2nd May, Nifty is headed for 4375 level (few believed we would reach there when I gave that call, but thats another story! ) ... so, now that we are within striking distance of that level, here's a specific call on Nifty ... if Nifty breaks 4320 and sustains above it, we are headed for 4350-4375-4393. Buy NF in that event with stops at 4285 spot .. and the break of 4285 spot has to sustain, a blip wont invalidate the call. Higher levels for Nifty would be given once 4393 is achieved. Enjoy !

Nifty changes gear

Well .. well .. well ... monday's analysis worked out perfectly and we did almost exactly as suggested ! must have been my lucky day when I wrote it ! ;) Gapping up at open, we sustained the same throughout the day, with a minor blip intraday, closing above that resistance level of 4145 in the end. In the process, NF went into premium at close, at one point almost 14 points premium intraday ! Shorts rushing to cover, no ? The trend, from here, is definitely up and we should be testing the previous top of 4245 with resistance at 4165-4195 in-between. Now, will we break the previous high and, if so, then where are we headed thereafter ? The past three trading sessions seem to indicate that we are going to cross the previous high this time and once thats taken care of, we are headed for 4375 on the Nifty (14900 on sensex) for now. Enjoy !

Bull trap or a Bear trap ??

With the April series in F&O having ended at a high that would have been difficult to predict even for the most optimist at the beginning of the series, we have had two trading days since then, both bringing in interesting possibilities. Nifty fell a whopping 95 points on the very next day after expiry, having hit a high of 4218 the day before, within striking distance of its alltime high of 4245 reached in Feb 07. With the spectre of another feburary-like scenario enfolding ( Nifty had fallen 101 points on the day after the expiry of Feb series), nervousness could be felt as we went into trade on monday morning. Even though the global markets werent gungho on friday, they werent weak enough for us to attribute the fall we saw on friday to global factors. As expected, markets opened weak on monday and traded sideways to down for the first half of the day. Then, when it looked as if the indices would breach the support levels of 4040-4030 (given the fact that global cues were flat to weak and we had two trading holidays coming up), the markets reversed and recovered the entire intraday losses to close in the green for Nifty and a loss of mere 36 odd points for the Sensex. Just as the 95 point fall was unexpected on friday, so was the 60 points intraday recovery from the lows of the day on monday.
So, what can we expect now in a truncated trading week when we open on thursday ? Was the selling we saw on friday a trap for the bears ? Or was the reversal seen on monday from the lows a trap for the bulls ? Both seem possible as of now ... what would be important is how we close this week. Previous week had a close of 4083.50 and a weekly close above that for this week could negate the possible doji formation on the weekly charts for the previous week. Closing below previous week's low of 4058 would give credence to the weakness on the charts. On the other hand, if we manage to break 4120 on the nifty intraday, we could see short-covering which could then propel us to 4145 where we can expect resistance. Sustaining above 4145 would be an indication of an upmove and a retest of previous high would be in order.
Its interesting to note, however, that the FIIs havent really been buying in NF in the last week, except on 24th April when they had a net buy of 400 cr in NF. However, the OI data as on 24th gives an idea that most of the buying was short-covering/closure of long positions and not fresh longs. Also, another interesting piece of data that comes to light is on 26th April, the day of the expiry. FII OI in NF till the day before was 866,839 contracts whereas at the end of expiry, they had a OI for NF at 623,300 contracts. Thats a whopping difference of 2.43 lac contracts ! The gross buy/sell data for that day in NF for FIIs cant justify this decrease. So, how did it go down so much ? They simply let the April contracts expire, I would say. That would logically indicate that those were short positions which, if covered, would have taken the NF even higher than it was on the expiry day, so better to let them expire. The next day when we fell 95 points on the Nifty, FIIs sold 517 cr in NF alone and their OI went up as well, indicating creation of fresh short positions. On monday, FIIs sold 808 cr in NF alone, though the OI only went up marginally, indicating most of it was closure of existing longs.
So, watch the action closely on thursday as that should give us a clue as to where we are headed in the coming week or two. Enjoy !

Da-lal Street !

The indices gapped down on the back of CRR hike announced on friday evening and never recovered from there. A carnage in the stock markets, on the back of average volumes. Second biggest fall in the history of sensex, the biggest being the one we saw in May 2006. Now, the news were bad, but not as bad as the markets made them into, I would say. Across the board indiscriminate selling ... ending in a 4.72% fall in sensex ! My views posted yesterday can be read in the light of what happened today and one can realize the import of it. Nifty breached 3660 level once again and as with earlier breach, today also was a panic/kneejerk reaction. So, sanity should return to the markets tomorrow, hopefully and we should be able to regain the 3660 level as before.
The high interest rate regime is beginning to raise red flags, as was evident from what was being said all day on various news channels by different people. What is a bigger worry is that Morgan Stanley and JP Morgan have, for the first time probably, come out with one, a GDP growth of 7.5-7% in next two years as against 9% projected by our FM & RBI and two, have advised their clients to sell India investments and shift to China and Thailand. The foreign brokerages view, to be taken with a pinch of salt always, isnt a run of the mill projection of where they see the index or what they consider fair value for the Indian markets. This, for the first time in recent years, could be a fundamental shift in their view on India, which could be a bigger problem for the RBI and the FM than inflation, in case the FIIs decide to shift even a part of their investments from India to other countries in Asia.
If the markets continue to be negative, then we have to keep the 3550-3530 level in focus, which, if broken, could activate the H&S formation on the Nifty charts ... and if that happens, its going to be ugly, with a probable target of 3060-2980 on the downside. One can now realize the importance of 3660-3550 levels ... and we hope that they dont break.

Back after an unplanned break

Not having posted on the blog for almost 3 months due to an unplanned break, I am finally back and hope to post regularly as before. Its been an eventful first three months of the year for the stock markets. The broad view posted on 1st of Jan, 2007 has been on target to a large extent, with 3660 support level holding, not withstanding the panic lows created around 3550 levels. A high of 4245 was achieved, a tad below the base target of 4300 projected. So, where do we go from here ?
Taking into account the happenings of the past three months, as long as the support levels of 3660-3550 arent violated, the medium term trend remains positive. On the upside, closing above 3905 and sustaining it would open further upsides for an attempt at the previous highs. Global cues as well as political events within have been contributing to what we have been witnessing for the past one month. Of course, the same can never be negated but their influence in the recent days has been overriding.
Q4 results for FY07 as well as guidance for FY08 is what would be an event to watch from here on, with no real surprises expected in case of the former. The latter is what would be of interest, considering the rise in crude prices, rupee appretiation, artificial price control in case of cement and steel, and rising interest rates, not in the least, with an overly aggressive Central Bank trying to control inflation by raising CRR not once or twice but thrice in a span of just over three months by 0.5% each, from a rate of 5% in Dec 06 to 6.5% by April 07 (after the recent hike announced on 30th March 07), a rise of 30% in 4 months !
Personally, I do not think raising interest rates would bring down inflation from the current 6.5% to a targetted level of 5-5.5% by itself. Inflation, in a country thats on a growth path and targetting a GDP of 9-10%, is a given and cant be wished away as its a part and parcel of that growth phase. Higher interest rates, by itself, would only hurt the large middle class on India, mostly those with home loans, whose EMI keeps increasing every few months, with them having no option but to swallow the bitter pill. The percentage increase in their EMIs has been much higher than any increase in incomes they might have seen, which would result in them cutting down expenditure to balance their budgets, leading to lower consumption per se, and hence lower demand for goods. On the other end of the spectrum, higher interest costs would lead to either the companies absorbing the same themselves and keeping the prices same, which would lead to lower profitability, including the effect of lower demand as mentioned earlier. Or, they would pass on the higher costs to the customer, which would again effect demand to a certain extent due to higher prices on one hand as well as lower demand due to reason mentioned earlier. So, where is the inflation getting cut, except to the extent that lower demand would have brought in ?
Anyways ... we would focus ourselves on the FY08 guidance as well as global cues. At least they are more understandable and have some logic !

Head and shoulders?

Week ahead

With most of the index scrips exhibiting weakness, the chances of the same continuing in the first couple of days of the coming week are more than likely. With Infosys Q3 results coming up on thursday, the bets will be placed on which side the markets will move ahead of the same. Personally, I feel the Infy results would be inline and wont beat the expectations by the margin it has been able to do in Q1 and Q2. Having said that, there is nothing wrong with inline performance as the benchmark has beenr aised higher by its Q1 and Q2 results. The markets need to consolidate before going forward and this is a good time as any for it. Expect 3905 to hold, below which 3815 is a possibility, with some downside resistance provided at 3885. Trade accordingly.

Nifty

As suggested earlier, the weakness in Nifty was evident, even with the bulls trying to cross the resistance zone, with selling coming in at higher levels. 3960 remains the level to watch, below which gap area at 3940 should provide support. Break of 3940 would bring in selling pressure with support at 3932-3918-3905. Trade accordingly.

Nifty

Though we have been rising for the past two days, the selling witnessed initially in the first half of wednesday was a cause for concern. 4046.85 is the previous high of Nifty which wasnt tested on wednesday but interestingly, Sensex high of 14035.30 was touched today with Sensex hitting 14035.67 intraday. This is too close for comfort and could be a potential double top if sensex is unable to break above that level on thursday. A close above 14037 would be the best case scenario for the bulls. As before, 3960 is the crucial support which Nifty has been holding on to all this while. Intraday, Nifty would be weak below 3995. Trade accordingly.

The Year that was ... and the road ahead !

Its been an eventful 2006, to say the least, for the Indian stock markets. Nifty closed 2005 at 2836.55, from where it rose to the highs of 3774.14 in May 2006, only to crash vertically to a low of 2595.64 by June 2006 itself ! The rise from thereon has been nothing short of amazing, what with the so-called pundits painting a doomsday scenario and predicting a 'fair value' of the Indian stock markets at 2150-2300 nifty. Well, well, well ... the stock markets have a penchant of making a joker out of everyone who professes to predict what it will do and boy, oh, boy ! did we have a bunch of jokers this year ! :-)

The lows witnessed in June were not seen again and the Nifty not only managed to recover the losses but rose to a new alltime high of 4046.85 in Dec 2006, finally ending the year 2006 at 3966.39 !

Which brings us to the question that all of us would have uppermost in our mind ... where is the Nifty headed in 2007 ?? Lets try and do some crystal-gazing ;-)

First, the downside ... my view is that the long term uptrend would remain intact as long as 3330 holds on the Nifty. The medium term trend would remain up as long as 3660 holds. And as to the short term trend, 3785 would be the level to watch out for. The short term up targets for Nifty are 4100-4125 for now and sustaining above 4100 levels would see a medium term target of 4300-4500, with an eventual target of around 4700.

It would be naive to assume that we would achieve the up targets first in one long upmove, just as it would be naive to assume that we would fall all the way down to 3330, exceptional circumstances like May 2006 not withstanding. We have seen how the brute force of money can turn things upside down, no matter how good the India story might be. The ride from here on could be choppier, with the base having shifted to higher volatility. The recent crack in Nifty three weeks ago would be a case in point, where it lost 10% of its value in a matter of three days !

Its no longer going to be a joyride, I feel ... and the faint-hearted would do well not to venture into deep waters. The India story is intact and it would remain so for the next three years at least. 2010 would be the litmus test that would decide where we go from thereon ... to either becoming a developed nation by 2020 that would be a world leader in more ways than one or to an also-ran developing country that showed a lot of promise but never really lived up to it.

As 2006 draws to an end, lets raise a toast to a brave new India .... on the road to fulfilling its potential with an eventual "Tryst with Destiny", to quote Pandit Nehru. The road to success is paved with failure, it is said ... and India has had its share of failures, no doubt. But perseverance leads to triumph, against all odds.

Let the dawn of 2007 see my India marching confidently ahead on the road to success !!



Tathastu .. Inshaallah .. Amen !