Jai

India short term technicals

 Indian Market/Stocks, Premium Content  9 Responses »
Oct 132011
 

The bearish signals that came through on Wednesday were rendered void yesterday by the strong up-move yesterday. This is exactly why we never pre-empt the market. It has always paid well to wait for the breach for the previous days low (or the previous days high in a bullish case). If you did notice, Wipro was relatively weak in yesterday's strong price action for the IT stocks.

The focus now shifts to the critical 5170 on the Nifty. As long the market stays below that level, the next leg being a sharp to the downside remains.  Watch out for the USDINR cross rates. The level of 48.3 is an important and a reversal around that could mark an important turning point.

Whenever I have doubts whether we are in a bull market or bear market, I always revert to my prop indicator of the indian economy. It still says we have not reversed and quite a distance from it. (See Nov post on the reliability of this indicator)

India barometer

We still see short-term positives in HUL, Bharti and Syndicate - if market provides the right environment we will try position ourselves long here for some quick gains.

 Posted by at 2:42 am

India short-term technicals

 Indian Market/Stocks, Premium Content  5 Responses »
Oct 122011
 

Nifty(4974.35): Yesterday's price action on the Nifty was a mildly bearish set up. The index got repelled from it's 50 day SMA and closed near the lower third of the range.

Nifty - Daily Chart

So what I had projected on Oct 3rd is still a possible count as long the Nifty stays below 5170. The volume footprint tells us that if Nifty drops below 4950-40 zone the likelihood of Nifty dropping to 4855 is a strong possibility. Given that we have Infosys results today, be ready for a quick drop if Nifty breaches this level.

Talking about Infosys, the CNX IT Index saw a much more significant bearish price action.

CNX IT - Daily Charts

The pattern formed on the daily charts was a bearish engulfing candle at the end of potential wave 4 end and the beginning of a wave 5. You would I recall from my CNBC interviews that I'm expecting CNX IT to drop to about 4800.

So how do I convert these to actionable strategy:

Nifty: If Nifty drops below 4940, I would sell with stop above the first hour highs or a 35 point stop whichever is further for a 1-3 day price objective of 4855. If it drops right below this level out of the gate - I would buy Minifty 4600 Oct puts between 25-28 with a stop of 15 for a price objective of 70-75. Do Nothing unless Nifty breaks 4940.

CNX IT: The weakest amongst the IT stocks to me is Wipro. I would sell Wipro short and use 363 as stop at a daily closing level and look for 280 in the next 6-8 weeks and 320-15 as price objectives for the short-term (1-4 weeks). Again do nothing unless yesterday low is broken.

PS: All levels correspond to cash/spot price unless stated otherwise.

 Posted by at 3:00 am

Nifty – Quick post

 Indian Market/Stocks  72 Responses »
Oct 032011
 

Just a quick chart check.

Nifty - Daily chart

If the sub-divisions marked are correct, we should see 4750-20 get breached soon, may be as early as this week. For medium to long-term please check the September and August post.

No silver lining for silver

 Commodities  96 Responses »
Sep 162011
 

Silver saw a steep drop from $50 to $32 in the month of May and the rise post that has been in a corrective fashion.

Silver - rising wedge

The above chart of silver shows a rising wedge pattern with a typical throw-over to the upside. Yesterday's close was well below the bottom of the rising wedge and this should usher in a sharp down move for the industrial metal probably before the end of this month. Looking at the chart from an Elliott wave perspective, silver is probably in its powerful 3rd wave or C wave which has the characteristics of wave 3. At $26.7 the first leg of the decline from 50 would be equal to the move from 44.27 (and hence A=C), the August peak, which seems like the minimum drop that is likely for silver. Also the $26 zone is the previous 4th for Silver.

Naturally, some of us would be thinking, "what happens to gold now?"

Gold Daily Chart - Potential for a double top

Here too, it is obvious that Gold is running into troubled waters. A fake print above 1913 high, momentum disagreeing with the new high in price are all tell-tale signs of exhaustion. A close below 1763 or an intraday drop below 1705 would complete a double top for gold and should draw prices at the very least to 1480.

Given the fact that the Dollar Index too had a breakout to the upside just a few days ago,  you might want to pay considerable attention to these signals in the precious metals space.

Nifty, INR and Dollar Index

 Indian Market/Stocks, US Markets  37 Responses »
Sep 122011
 

Some of you have requested my short term view on Nifty and here goes.

Nifty Daily Charts

The upward correction that started from 4720 saw some serious selling pressure on Friday. It is possible that this correction may have ended as per the red scenario and a new low may be coming. Alternately, the upward correction may have a little more juice before another new low for the year comes through(orange scenario). So if anyone decides to go short, they need to do be ready with money management strategy around the 4900 zone of Nifty.

While we are here let us also look at the INR charts.

INR daily charts

The pace and steepness of the USD's appreciation against the rupee has all the signs of an impulsive move. You might want to go back and refer to our Aug 26th post on the INR for the bigger picture.

As some of you would have noticed from the comments section, I consider the breakout in the dollar index a significant contributor to the global bear case.

Dollar Index - Daily Charts

After building a base for 3 months, the dollar index has broken out of a range. This is likely to accentuate the risk aversion across various asset classes.

Given the strength in the dollar index and weakness in rupee - I will not be surprised if a new low comes through in the month of September for equity markets.

PS: Ill be on Bloomberg-UTV today at 8:30 IST.

Indian Rupee set to weaken; long term could get ugly

 Currency, Indian Market/Stocks  63 Responses »
Aug 262011
 

The Indian currency realised its triple bottom potential at the 43.85 level as the currency moved past 46 against the USD yesterday. The chart below shows the one year daily price movements of the currency and the bottoms are marked by the red oval. The price objective of the triple bottom pattern works out to a little over 48. Given that the stock markets are oversold and a bounce may come through for Indian stocks, INR could see a short-term pull back.

Indian Rupee - Triple bottom

If the currency pair ends today above 46.1 today (a weekly closing), it would be closing above its weekly "cloud" for the first time since August 2009. This would be another bearish sign for the Rupee (I recall turning bullish on the Rupee in April 2009.)

Indian Rupee - Weekly Ichimoku charts

In 2008, when INR closed above the "cloud", the Rupee weakness lasted several months until it peaked at the level of 52.18.

If we look at the movements of the INR from an Elliott wave perspective - it does look like USD/INR is in it's early stages of its powerful wave 3. The triple bottom low of 43.85 is just a shade over the 62% fibonacci retracement level of the move from the 2008 lows to the March 2009 high. This is a very common wave relationship.

Now comes the staggering bit - if my wave labelling is correct, the potential for the Rupee over the next several months, works out to at least a little over 57 and a typical wave 3 relationship would take the rupee to a level of 65!!!!

So there it is, another asset class that is closely related to the Indian stock market's price movements, reiterating the bearish case for India.

A bailout by any other name is a bailout

 US Markets  4 Responses »
Aug 252011
 

Buffett picks a stake in Bank of America

The BAC management takes a voluntary call from Mr Buffett and agrees to pay 6% on 5 billion for 10years or 300 million a year because they have LOADS and LOADS of capital to spare. YES, I BELIEVE IT, that must be the reason.

 Posted by at 3:26 pm

What next after 4800 Nifty?

 Indian Market/Stocks  31 Responses »
Aug 222011
 

Followers of this blog would know that I had been stubbornly insisting that the level of 4800-4700 on the Nifty has to come through before we could even talk about upside potential for the Indian markets. Having reached those levels on Friday, what next for the Indian markets?

In my June 14th post, we discussed the bullish and bearish possibilities for the NSE Nifty and had mentioned that the path shown for the bearish case was the bare minimum outcome. So if the bare minimum was 4800 Nifty, how much more can the Nifty head down? Now for the record, I was probably the only one who spoke about India having entered a bear market and the 2009 lows of Nifty being at risk as early as January 2011 and some of my friends in the media tell me the worst  they have heard so far is 4200 Nifty ( you might want to read here, here and here).

So what is the basis for 2009 lows? It is the BIG PICTURE on the Nifty.

Nifty - Monthly Charts

The chart above shows the monthly movements of Nifty since 1995. Let me keep this simple without labouring too much into technical jargon. The charts are telling us that the Indian markets are probably still correcting the steep rise from 2003 to 2008 and the potential to revisit the lows of 2009 is still out there. Now slightly technical - Elliott Wave guidelines states that Waves 2 and 4 tends to alternate and since Wave 2 Circle was a zig-zag, the potential for wave 4 Circle to be a flat corrections is quite distinct.

Of course there are other possibilities (like Wave 4 circle ending up as a triangle) but given that we have highlighted in our August 4th post that the global markets are in a bear market, I see this as the preferred path. Of course, we will be flexible and listen to Mr Market if we see signs pointing in the other direction. We can expect the best from the markets but one has be prepared for the worst. So, do not be too early build a portfolio looking at the sharp fall in price.  Remember, that market bottom formation is NOT an EVENT, it is a process. Even if this view turns out to be wrong, we will end up buying the market say 2-4% higher than the big low registered. That I think is a fantastic insurance, given that the other scenario presents a market drop way way below current levels.

And for heaven sakes - do not think about QE3 coming in and changing the direction of the markets. Here is a little peek into what happened after QE2:

QE2 was announced on Nov 3rd, within days three of the indices from BRIC countries peaked (India, China and Brazil) and so did the Hang Seng Index, Singapore STI and Colombia Index. Within in a month of QE2 many frontier markets peaked. So, we are better off keeping track of the trend rather than the noise of news.

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