NIFTY Outlook 05Dec2011-09Dec2011

Bulls made a dramatic comeback in this week with NIFTY clocking gains of over 7%.


1. NIFTY Compared to other Markets

• NIFTY was the second best performing market index among the Emerging markets. There were no surprises with the Q2 GDP Numbers which came as per estimates at 6.9%. Food Inflation at 8% was a pleasant surprise (4 month low).
• The main reason for such mad move across the global markets has to be attributed to the coordinated actions taken up by the central banks (To provide cheaper Dollar Funding) of major nations to enhance their capacity to provide  liquidity support to the Global Financial System. There were rumors that a major European bank was at a brink of default & hence such action had to be taken quickly by Central Banks. 
• With such liquidity infusion Dollar is made freely available & hence Dollar Index corrected 1.3%, (I was expecting Dollar Index to move past 80, but this coordinated action has made Dollar Index form a Double top intermediate term), this is good news for Equity Markets. 

2. NIFTY Charts

2.1 Weekly Charts

After breaking down from the Descending Triangle Pattern couple of weeks back. NIFTY managed a smart rally. NIFTY so far has closed only couple of times below 200 Week EMA. Every time its bouncing off this level the relief rally has been good.

Indicators - Weekly RSI is approaching crucial resistance zone of 50-52, Slow Stochastics is still in Sell Mode (Moving southwards), MACD & Signal Line are on top of each other (No clear sign of further rally).

2.2 Daily Charts 

NIFTY in the week created an Up Gap (Gap area of 4852-4917 [65 Points]). This gap area should provide good support going forward. Resistance would be faced first at 100 EMA of 5121 levels. 200 EMA is at 5260 levels. On Hourly Charts too (Chart not attached) the indicators are in overbought regions so a pull back to 4970-5000 levels cant be ruled out.

Indicators - MACD Line crossed above Signal Line (Bullish), MACD Line still below zero (Bearish), Slow Stochastics still in buy mode (Bullish).

3. Derivatives

3.1 Options Data - OI

Highest Concentration of the Puts for December Series is at 4700 Strike that has 80 Lakhs in Open Interest (A Strong Support).
Highest Concentration of the Calls for December Series is at 5100 Strike that has 50 Lakhs in Open Interest (Minor Resistance Zone). If Index manages to stay above 5150 for few days then the short covering can take NIFTY to 5200-5250 levels swiftly.
In The Money Call Options Strike saw shedding of OI & In The Money Put Options saw addition of OI - Indicating the strong undercurrent to move up.

4. Sector Wise Trend

Interest Rate Sensitives Metals & Banks rallied. Consumer Durables is looking weak & every upmove its being sold into. So be careful before entering into CD sector stocks.

5. Events & News Makers 

• Events
• 08-Dec-2011 - Weekly Inflation numbers are due on 08th December 2011
• 08-Dec-2011 - European Central Bank Meet - Expectations that Rates may be cut by 25bps to 1%.
• 09-Dec-2011 - EU Summit - Further course of action probable Fiscal Union formation announcement.
• News Makers -
• FDI is the buzzword these days. After stiff resistance from UPA allies & opposition on allowing FDI in retail, Cash crunch Government is all set to allow FDI of upto 74% in Cable Industry. Beneficiaries in the sector can be Dish TV, Hathway Cables etc - They were all up on friday.
• Sector to Watch Out for - Power Sector. Power Sector stocks like PFC, PTC, REC are all looking strong on charts.
• Rumour Mill - 
• China's PMI saw economic contraction by dipping below the 50 mark.  Chinese central bank was quick in response by reducing the reserve ratio for banks With Inflation cooling off in China, the focus of the central bank their has shifted to Growth from Inflation. 
• Punters are expecting that RBI would follow China in cutting CRR (Cash Reserve Ratio) in its Mid Quarter Policy review on Dec 16th 2011 or earlier to it. 
• The main reason the bankers feel is the advanced tax has to be paid by companies from Dec 15th, so there would be liquidity crunch as these corporates would withdraw money from Banks to the tune of 15K Crores. Chances of  rate cut is very likely as this week we saw the Food inflation cooling off to 8% (Four Month Low). So before going ahead with the cut in Repo & Reverse Repo. RBI may well cut the CRR (Cash Reserve Ratio - Amount of money Banks needs to keep aside as Cash & its equivalents). Street is expecting a rate cut of atleast 25bps. CRR is unchanged at 6% from May 2010. 

7. Bottom Line

• NIFTY is expected to trade sideways with a slight positive bias (if there are no nasty surprises from Euro Zone). The action may switch to Interest Rate sensitives with a expectation of Rate/Reserve ratio cuts from RBI.
• Expect volatility during the latter half of the week.
• NIFTY's last calendar year low is 4675. This calendar year low so far is 4639. So it'll be a double bottom formation on the yearly charts if NIFTY doesn't move below 4639 in the remainder of the days in the year.

NIFTY Supports & Resistances - 4813 <- 4852 <- 4922 <- 5009 <- 5050 -> 5096 -> 5120 -> 5169 -> 5230