NIFTY & BANK NIFTY - Pole & Flag

After a stupendous 'disbelief' rally in NIFTY & BANK NIFTY, it is consolidating in a bullish pattern that can be termed as Pole and Flag pattern. Read more about the pattern here.

Swift movement can happen on break of the falling trend channel. As this is a continuation pattern probability of breaking on the upside is high compared to breaking on the downside. But nothing has to be assumed & should follow the price closely for directions.

ICICI BANK - Inverted Head & Shoulders

Posting after a hiatus of more than a year. Delving straight into the post. ICICI Bank is appearing to be completing an Inverted Head & Shoulders pattern. Read more about the pattern here.

Theoritical targets for ICICI BANK based on the pattern would be Breakout Level + Height of the Head = 1240 + 460 = 1700.

It may seem too late in the day for this bullish pattern view & there might be a touch of skepticism whether the stock can go to such high levels. 

The pattern would get activated only on close above 1240. 1240 is a significant level as there are close to 3 tops around that level if you observe closely in the chart.

India or Euro Zone that's under more Trouble?

World markets have hit their 3-4 month lows on fear of impending Greece default/ Greece moving away from EURO. The result has been Currencies weakening against USD & JPY. Dollar Index at almost yearly highs.

We (India) are no different the Index has correctly around 14% from the year to date high. The reasons are varied in nature. 

Policy Paralysis, High Inflation, Low Growth, Current Account Deficit, Currency Weakening. 

Lets for a while shift focus to the Currencies. Although its not appropriate to compare USDINR to EURUSD (As the former is not a free-float currency). 

USDINR & USDEUR - 1 Year Charts

Assuming that all the problem is just with the Euro Zone & India is free from any problem of our own would be living in denial. Currency is the Indicator of Good Health of the Economy. The chart tells us that EUR has weakened 10.81% against the USD in the past 1 year however our Rupee is down 19.91% against the Greenback in the same period.

This clearly shows the flight for safety by investors (FII's pulling out money & don't seem to be interested to come back until the Policy actions are taken & key bills are passed in the Parliament. The recent Tax fiasco to tax any M&A that has an Indian asset involved has not gone well with the FIIs too. 

Dollar Index: If you want to know what is a Dollar Index. Please read it here.

Dollar Index is nearing its December Highs of 81.51 & a breach of it can strengthen it further & taken it to 84 levels & subsequently to 87. Chart clearly indicating that money is moving towards Greenback even the precious metals are being dumped for the Greenback!

Bottom Line: The government has been disappointing in passing any key reforms that would accelerate the growth. Even the Crude crashing has not helped us to reduce the deregulated Petrol Prices (Because the reduction in Crude price is offset by Rupee depreciating against the dollar). So still we end up paying the same amount for our imports even though crude has corrected.

It's an excellent time to pocket in ETF's of NIFTY & BANKNIFTY slowly in a SIP way for long term. Of course the trade on the long side does give good Risk to Reward Ratio at around 4840-4880 levels as lot of Index stocks are nearing crucial support area.  But as some genius has said Sell May & Go Away  - Its better to wait out May & Enter in June as you never know the news that may come out in May :-).

NIFTY - Geometry at Work

It's been a while since i blogged but the movements in NIFTY today inspired me to write a quick post. Not that I had expected the exact same movements but was quietly confident of the direction based on the charts. Whats amazing is the way the Geometries are at play in the Markets just that we sometimes get swayed or biased with noise (read noise as news). Anyone still wondering what the news is - can read it here.

Lets quickly dive to the charts.

NIFTY on Weekly Time Frame

NIFTY took 13 months to break out of the Descending Triangle (Nov'10 to Dec'11). Once it did it faced resistance at the Rising trendline of the previous bull run (From Mar'09). Today the NIFTY touched the Descending Trendline support & has bounced significantly indicating that 4988 is critical level. Also the 61.8% retracement level for NIFTY (From the rise of 4530 to 5630 comes around 4950 & 50% retracement levels are 5080. A closing above 5080 today is a good sign so now on weekly charts once we move above 5250 (Refer to the next chart) we are well on our way to 5700 levels again.

NIFTY on Daily Time Frame

NIFTY is again in a sort of Descending Triangle of its own after its breakout in early Jan'12. Today after making a low of 4988, NIFTY has given a close above 5100 levels & is tad below the 200 Day Simple Moving Average. (200 Simple Moving Average is 5114.97 & NIFTY closing is 5114.15).

As the geometries suggest (encircled in the charts) the next move would be towards 5250 & a breakout would lead the indices higher to 5500 levels & to 5700 in next few months (Probably a quarter).

Let me know what you think of this post.

Markets in 2012

2012 - Make or Break Year for Indian Economy

Recap 2011: 2011 has ended & it would be remembered in India for mainly these - Corruption, High Inflation, Depreciating Rupee.

To elaborate on the above 3 main points - Corruption cases against key ministers put Government on a back foot which meant that key reforms or the bills were tough to be passed. Government attempted to bring in FDI but was strongly opposed. There were no significant orders for Power or Infrastructure companies. Credit growth slowed. Policy paralysis meant that FII's started losing confidence in India's Growth Story - They started pulling money out of the markets - This lead to Currency Depreciation - Indian Rupee depreciation also made matters worse for FII's, as DEFTY (Benchmark Index NIFTY in Dollar Terms) is down by more than 35% compared to NIFTY that is down by 25%. 

On the other end the Central Bank (RBI - Reserve Bank of India) was busy tackling inflation. It made it very clear that bringing down Inflation is their first priority (Even at the cost of Growth getting affected). What followed this hawkish stance was a series of 7 hikes in interest rates in 2011 (2010 had seen series of 6 hikes). This meant that Growth had to take toll. the recent October month IIP data (Index of Industrial Production) saw a degrowth to the tune of 1.9% (Chief destructor in the Index was Capital Goods sector that saw a degrowth of 25% - Partly because of very high base figure & major part due to lack of any industrial activity).

Where do we stand as of now:

• Inflation is coming under control & by March'12 it would be around 7%. Food Inflation is around 6 years low (Partly because of higher base of last year).
• Central Bank has indicated that the focus now is on bringing Growth back in the economy after Inflation is coming under control. It expressed a Dovish stance wrt to Interest rates & the cut in rates may come some time in Q4 FY12E or Q1FY13E.
• Higher interest rates has taken a toll on Rate Sensitive sectors & this has meant lower Gross profit for these companies resulting in lesser tax payments - Leading to lesser Revenue collection by Government.
• Policy Paralysis also has meant Currency Depreciation - In turn has taken toll on lot of Companies'
• For government its been a really tough year as the revenues are down & GDP is under pressure (Q2's GDP was sub 7% first seen since June'09). Due to non-conducive environment to divest their stake its turning to the route to raise more debts - This means more pressure on the Long Term Yield. Government as per recently announced schedule is expected to raise roughly 1.5 Lakh crores in Treasury Bills in the current quarter. Government's move to raise such huge money in the last quarter is an indication of how cash crunch the government is & how bad the Fiscal & Current Account Defict Numbers can be for the current financial year. Estimates suggest that Fiscal Deficit can be as high as 5.5-6% of GDP & Current Account Deficit to the tune of 3.5% to 4% of GDP.
• In a way 2012 can well be a make or break year for Indian Economy at least in terms of attracting foreign capital. Currently India has least weightage among BRIC nations in Portfolios managed by Foreign fund managers. Corruption & Policy Paralysis are the main reasons for them to keep low weightage. India has taken first step towards attracting foreign capital by allowing Qualified Foreign Investors (QFI) to invest in Indian stocks directly. Their investments would be limited to 10% to Paid up capital of the company. Also no single QFI can hold more than 5% of Paid up capital in any Company.
• Its been 10 years since the term BRIC (Brazil, Russia, India, China) was coined by Goldman Sachs Chief Jim O'Neill. Indonesia is doing good in terms of Policy reforms and that might attract capital going forward. So the writing is on the walls in terms of FIIs flow. I in BRIC may remain but India may well be replaced by Indonesia if policy paralysis continues!

NIFTY Monthly Chart

Long term excellent buying Opportunity in NIFTY would be around 4300-4200 all the way to 4000-3800 levels (If we manage to get there). Best thing to do would be start investing part of capital from 4400 level on wards during every declines. This is easier said than done as Mind would say to wait it out to buy at the extreme bottom. By now one should know its extremely difficult to catch a top or a bottom. So buying around the bottom (+5%) should be a feasible approach. So one should make up his/her mind with the levels & buy quality stocks around those levels in a disciplined manner.

Bottom Line: I am sticking my neck out to say that the range for the year in NIFTY in 

Good Case Range Would be 4200-5700. Bad Case Range would be 3800-5400.

Themes for 2012

• Bullion: Sell Gold, Buy Silver.
• Currency: The new floor for USDINR may well be 50 & range can be 50-55 for the entire year.
• Bonds & Equities: Buy Dynamic Bond Mutual Funds & Good Quality Equity Diversified/Multi Cap Funds. Balanced Funds would give good returns with Interest rates set to fall & in later half equities expected to fair well.
• Second Half of 2012 (July-Dec) to be better than the first half of 2012 (Jan-Jun).

Wishing you all a Healthy, Wealthy & a Prosperous 2012