NIFTY Outlook for the Week 19Dec-23Dec 2011

Finally a close below 4700!

1. Week gone by at a Glance

• Bears went on rampage during the penultimate hour of trade on Friday, what followed was a swift Basket Selling across counters & Index fell from the Highs of 4800 on Friday to the lows of 4629. However last half an hour saw swift buying (Probably by DII's) that took the index above 4650.
• NIFTY has closed first time below 4700 in 25 months & is at 2-Year Lows.

1.1 Events Highlights

• RBI kept the key rates unchanged. Repo Rates at 8.5%, Reverse Repo Rates at 7.5% & Cash Reserve Ratio at 6%. Much awaited CRR cut was not required as RBI is actively conducting OMO (Open Market Operations) as and when there is liquidity crunch. More importantly RBI indicated that the focus has shifted towards revival of growth as more or less Inflation is coming under control. To add to this RBI stated that further rate hikes may not be warranted but there is uncertainty on when the rate cycle would reverse. Bottom line to take from this is Interest Rates have peaked out & Stance has shifted to revival of Growth from Stemming of Inflation. Actual cut of Interest rates may take place sometime in Q4'FY12E.
• Index of Industrial Production also known as IIP were dismal to say the least. October Month's India's Industrial Production numbers came in at -5.1% with capital goods sector leading the degrowth -25% YoY (Yes no typos here). This is the first time since June'09 we saw a degrowth in IIP.

1.2 Currency Depreciation

At the helm of things the currency depreciation is the single most worrisome factor for the Indian economy right now. Indian Economy is not able to take advantage of Fall in  Commodity prices due to Rupee depreciation. The chart beside shows that Indian rupee is the worst performing currency against the US Dollar in Asia year to date.

1.3 Index Highlights & Sectoral Performance

One of those weeks where all Equity Indices of the world & commodities corrected significantly. Even Precious metals like Gold, Silver were down. Bears were rampant in all the Asset Classes :-) . All Sectors were down except for FMCG.

2. NIFTY Charts

2.1 Weekly Charts

On Weekly Charts, The bearishness continues the only Positive being the Slow Stochastic is still not making new lows whereas the Index is making lows. So a bounce can be expected. 

2.2 Fibonacci Timewise Analysis

The below is a Long Term Weekly Chart of NIFTY from 2006. There are multiple times when the index has spent around 4650-4700 levels. For the short term a meaningful pull back to at least 4824-4850 cant be ruled out if 4550-4590 is protected by the Bulls on closing basis. 

As pointed out in Charts,

Monthwise - Dec'11 is the 13th month from the Top that was made in Nov'10. As per Fibonacci Time series theory used in markets the Tops/Bottoms made during the fibonacci period would most probably remain intact till the next such Fibonacci Numbered period. This would imply the next Fibonacci month would be 21 i.e July'12. So by applying this theory, the bottom made during this month should hold good till July'2012. 

Weekwise - We are well past the 55th Week, so next is 89th Week from the Top, which falls in July'12. So in all probability July'12 can well see the culmination of the Bear Market!. What would it mean in near term is - The Bottom formed in December'2011 should in all probability remain an Intermediate Bottom till at least July'2012. At this juncture it is very unlikely that December'11 bottom not being able to break. All analysts are bearish & everyone coming up with the view that Index may head to 4400-4200 & some even speaking of 3600 levels. This reminds of 2008 Bear Market - Where everyone was calling for Sensex to fall to 6000 when Sensex was hovering around 8,000-10,000. What index did later is there to see for everyone. Emphasis here is One can't catch a top or a bottom. So from current levels one can slowly start nibbling in into quality beaten down stocks or even buy good mutual funds & keep adding it on the way down.

(Please take this Fibonacci Time Series Analysis with a pinch of Salt as am still learning this).

2.3 Daily Charts

NIFTY had briefly come out of the Lower Top Lower Bottom Formation. But after making a Lower Top of 5099 on 07-Dec-2011 its on its way to make a lower bottom indicating Downtrend in the near term. 

2.4 Hourly Charts

On Hourly charts too NIFTY is making Lower Highs & Lower Lows. Only Positive is Hourly RSI is showing Positive Divergence.

2.5 Volume Profile Charts

3. Derivatives

3.1 Options Data - OI

Highest Concentration of Puts is at 4700 Strike with a OI of 70 Lakhs (Previous Week was at 82 Lakhs). 4500 Strike is next with a OI of 63 Lakhs.

Highest Concentration of Calls is at 5100 Strike with a OI of 78 Lakhs (Previous Week was at the same level). 5000 Strike is next with 66 Lakhs in OI.

Total Calls OI in the Near Month is 5.92 Crores. Total Puts OI in the Near Month is 5.27 Crores.

Put Call Ratio has fallen below 1 indicating aggressive call writing done.

4. Events

22-Dec-2011 : India's Weekly Food Inflation Numbers for the week ending 10-Dec-2011.

22-Dec-2011 : US & UK Q3 GDP Numbers.

5. Bottom Line

• The trend in Weekly, Daily, Hourly timeframe continues to be down. Indicators are oversold & RSI, MACD & Slow Stochastics is exhibiting Positive divergence in Hourly & Daily  time frames. 
• Any pullback rally can face serious resistance at 4760-4806-4824 levels. Strong support comes in at 4590. 
• Please keep in mind that markets are forward looking by 1-2 quarters always. So if Index is making new 2 year lows now would mean that the FY'12 Annual results & Q1 FY'13 earnings growth may well be significantly lower.for majority of companies.

Market Wisdom: In a Strong Downtrend "Supports are broken Mercilessly" & in Strong Uptrend "Resistances are taken out with utter disdain".