NIFTY View for the Week - 14Nov2011-18Nov2011

Highlights for the Week: 

• Last week was a Truncated week (On Thursday the Bulls would have thanked Gurunanak Dev Saheb as when the whole world markets were bleeding more than 3%, Indian Indices were closed. 
• SGX NIFTY in that panic made a low of 5035 & recovered sharply to close above 5100. The reason for the panic was that Italian Sovereign yields had gone above 7% (This would mean if Italy wants to raise further debt, it has to pay the same yield to the investors). Focus now has shifted to Italy & has moved out of Greece. Italian Prime Minister Silvio Berlusconi resigned just a few hours ago & Austerity plan was approved by its senate yesterday. 
• So at least for the short term Italy & Greece issue have been taken care off by the ECB. (Greece is taken care off like giving an Artificial Support to a dying patient & Italy has been taken care by strict Austerity measures (mainly to cut budgetary expenses) )
• Domestically would like to bring to your attention the following 2 things that are very negative for the Economy as a whole.
• Firstly, the IIP Numbers for the month of September'2011 came in at 1.8% (Meaning the growth percentage of various Industrial production output is just 1.8%). For month of August'2011 it was 3.6% (Revised from 4%). Basic goods grew at 4.5% (Mainly led by Electricity), Consumer goods grew at 3.5%, Poor IIP numbers is indicating how growth is sluggish in majority of industries & these would inturn affect the GDP of the year.

IIP Plunges to Two Year Low

• Secondly, its the auction of the T-Bills. RBI every week does the auctioning of the 91 Day Treasury Bills. In alternative weeks it does auctioning of 182 Day & 364 Day Treasury Bills. The 182 Day Treasury Bills of Government of India last week went at a yield of 8.95%. Now what does this yield indicate? The Yield indicates how expensive or cheap the credit in the market is. As T-Bills are issued by Government of India, it is sovereign in nature & hence it carries least risk. The rates are also higher than the 10 Year GOI Bond (Yields are around 8.85-8.90%). Less than 1 Year Paper is costlier than 10 years paper (Indicating How expensive the shorter end of the Yield curve is). Such Invertedness (Yield of Shorter term maturity greater than Longer term maturity is seen during the times of Economic Contractions). Yields of the 91 Day T-Bills have doubled since March'2010.

Index Highlights:

• Coming to our Index, As was pointed in this Weekly View, Bulls were not even able to take NIFTY up close to the Strong resistance zone of Descending Trendline which was said to be very difficult to be broken on the upside & hence it was a week with negative returns. 
• NIFTY opened the week at 5292 made a high at 5318 (This High was lower than the Last week's High (5326) ), On Friday it made a low of 5142 & closed at a critical level of 5168.85. 
• By moving below 5270 levels the NIFTY broke the Ascending Trendline (which it was holding it for past 5 weeks). 
• Wednesday we had SBI delivering its Q2 numbers that took down the shares by close to 7% & highest volumes were seen in the counter in nearly 2 years. Reason for the fall was being the High NPA levels (Non-Performing Assets & Poor asset quality).

Weekly Chart:

Observations:

1. On weekly chart, if NIFTY stays above 5168 levels on closing basis & doesn't cross 5400 on the upside then its forming a Descending Triangle - A Bearish Pattern (Dotted - Pink Horizontal Line & Pink Descending Line). 3/4th of the times the Triangles are Continuation Pattern (Continuation meaning when the price moves out of the triangle range, it would be in the direction of its previous trend). So currently in NIFTY's case it would mean there are high chances of a breakdown than a breakout. 
2. Pattern is still in formation so the APEX of the triangle (Meeting point of the Horizontal & Diagonal Line would happen in coming 2-4 weeks). The pattern would get invalidated if we close below 5168 on weekly basis or if we close above 5399 on Weekly basis in next 2 to 3 weeks). Once the Descending Triangle break happens would update on the Target.
3. Indicators: 
• RSI is hovering around 47 & has become flat. Stochastics is still in buy mode. 5 Week SMA & 20 Week SMA are around 5190-5200 levels. So if price moves above these levels they can provide good support for the week. 
• There are many occasions that the Daily & Weekly Charts show different indications (Especially the Indicators). In such situation always the Larger Time Frame's Indication would prevail). For E.g:- Currently the Daily Stochastics is in Sell Mode, But Weekly is in Buy Mode. Hence I've based my views on the Weekly Chart only & not on the Daily one. 

Trading Strategy:

• Index would open up by around 20-30 points tomorrow. Keep a close watch at 5200 levels. Go long around 5200 with Stop Loss of 5160 & keep trailing.
• If Index falls below 5160, then Short below 5160 levels keeping 5200 as Stop Loss.
• Supports for the week - 5168, 5085, 4950.
• Resistances for the week - 5221, 5326, 5400

Market Nuggets:

Articles by Nouriel Roubini, Jim Rogers are indeed scary - But Markets Are Supreme. They find strength to Climb the Wall of Worries when there is lot of Pessimism or to Slide the Wall of Hope when there is extreme Optimism. Investor or a trader should not be biased & should have a open mind to see the change & adapt to that change as quickly as possible to have a better pay-off.
What would happen if Greece indeed Defaults - A Parallel drawn to Argentina - Greece Bankruptcy


Updates to the Blog: The OI Tracker for NIFTY is now available. This can be a handy tool  for a trader to check the Open Interest built up at various strikes. Keep looking at that space would add more Indices & some index stocks too to the list.

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