Indian Market/Stocks » Cash The Chaos

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.

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.

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.

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.

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.

Nifty’s dark cloud cover

Indian Market/Stocks 18 Responses »

Jul 112011

On Friday, India's benchmark Nifty saw some brisk selling and markets finished near the lows of the day. The selling pressure reversed 75% of the previous session's gain and thereby producing the technical pattern known as "Dark Cloud Cover" (DCC) on the daily charts.

Nifty - Daily Chart

Questions that come up: (1) was Thursday's thrust above the medium trendline connecting through November_January highs a fake-out? (2) Is it going to beget further selling; (3) How does one position - buy the dip or sell the rip?

I wish the answers were plain and simple. The Nifty is in the midst of a very complex correction. There are various ways to interpret the movement that has come off the June low of 5195. What is however clear, whether one is bullish or bearish is that, that a decline is under way and only the amplitude is in question. At 5735, wave v was equal to wave i (see chart for labelling), which is a normal ending relationship. So the high at 5740 was just 5 points over the ideal scenario. If the current decline continues beyond 5480-70 zone, the odds that the high at 5740 was a head-fake would increase. As long as Nifty holds this zone of 5480-70, I see this corrective rise having potential to make an attempt at more push higher which may end slightly above 5750 or fail at 5750.

If I were a nimble trader with 1-3 day time frame, I would trade banks and cap goods from the negative side. I were a conservative trader, I would stay very light until Nifty drops to 5480 or breaches 5750.

Capital Goods stocks starting their next leg down?

Indian Market/Stocks 30 Responses »

Jul 052011

The chart below is the Elliot Wave structure of the BSE Capital goods sector:

BSE Cap Goods - Daily Chart with EW Count

The capital goods sector looks set for a sharp decline - potentially embarking on its 3rd sub-division of its 5th wave, which usually tends to be a powerful leg. The sector is also reacting from its 38.2% fibonacci retracement level of its decline from November to May. We would all recall that along with Banks this was a market leader on the way down from Nifty 6338 peak made last year. If my interpretation of the wave structure is right, we should see this index decline to about 12000 from its current level of 13842. The sector leader LT is reacting lower from its 50% Fibonacci retracement level and BHEL too, one of the weakest in this space, is about to establish a downward trendline. Look out below?

Nifty breaches a weekly trend line

Indian Market/Stocks 21 Responses »

Jun 212011

In yesterday's market action, India's Nifty breached an important trendline in a convincing fashion. All the corrections since Nov 2009 stopped right at this trend-line (see chart below) and kept the up trend intact.

Nifty breaches a 20 month trend-line

The weight behind this breach was ONGC, which also happened to complete a Head and Shoulders top on its weekly chart.

ONGC completes a head and shoulder pattern

Though Nifty is yet to break the February low of 5177, considering the fresh weakness in top four Nifty stocks (ONGC, Reliance, TCS, Infy), it looks like it would just be a matter of days before this level is violated. Relief rallies if any, are likely to come under pressure between 5400-5485.

NSE Nifty : The bullish and the bearish possibilities

Indian Market/Stocks 18 Responses »

Jun 142011

The Nifty has been in the range of 5600 to 5400 for the sixth week and has kept everyone guessing as to which way the range would resolve. As a good trader, one needs constantly play devil's advocate to your own views. So, here are the charts that present both the bullish and the bearish views.

If you are a bull:

Nifty - Daily Charts - as the bulls would like to read

The above Elliot wave count assumes that the November high was only a portion of a larger bull run and further gains are yet to follow. The violet wave 1 ended at the November highs and the subsequent decline into the January lows of 5177 completed the corrective wave violet 2 (which sub divided as a zig-zag red ABC). This would mean that the move to the May high was wave 1 green (impulsive) and is part of the powerful wave 3 violet which is likely to reach levels way beyond the all time highs.

Line in sand - If Nifty dips below 5320 it would weaken the bullish case though only a breach of 5177 would completely negate this option.

What's in favour? - Despite the global and regional weakness, India has been holding up well in the last few days.

What's against? - Reliance and ONGC ,the two heavy weights, are showing weakness. A big negative pattern is under construction in ONGC. The assumed wave count to the May highs is a truncation - which normally does not help the case. The blue dotted trend-line shown is also likely to place a lid on the upward move.

If you are a bear:

Nifty - Daily Chart - as the bears would like to read

The bearish case has multiple options and I have taken the least bearish option. If we assume the November high was the end of violet wave 1, the decline into the January lows was only part of a larger correction Violet A, that sub-divided into red ABC. The rise into May high is assumed as corrective in nature, Violet B (which again sub-divided as blue ABC). The ongoing move from the May high is part of the Violet C wave decline which is expected to sub divide in to 5 waves. Of this 5 waves we have probably completed the first wave of the decline (blue 1 of Purple C) and we are the beginning of a powerful wave 3 (blue 3 of purple C) that would take market below 5000 (black arrows) or the corrective wave 2 is yet to complete(blue dotted path) before the powerful blue 3 of purple C takes Nifty well below 5000.

Line in sand - A move above 5650 would weaken the bearish case though only a breach of 5944 would force us to suspend the bearish bets.

What's in favour? - Exactly what is against the bullish case favours this - ONGC and Reliance. Also, the Dollar Index seems set for a powerful move that is likely to unleash a destructive move on most risk assets across the globe.

What is against? - Nifty has not managed to consolidate on the advantage of taking out the March lows and move briskly below the January lows.

PS: If you would like to know which side i'm leaning - i've been on the bearish side since November and I continue to do so.