NIFTY View for the Week - 21Nov2011-25Nov2011

Recap for the Week: 

The rampant Bears ripped through the Bulls & by doing so it was a one way traffic where in the the Benchmark indices closed 5.09% down.

Performance of Global Indices & Commodities in the past week:

One always tends to look for a reason that led for a fall/rise of such magnitude (At least I do - You can call it a post-mortem if you like). 

Few of the reasons that come to my mind are as follows:

1. Weak Global Cues. Fear in Global Markets that Italy might be downgraded by rating agencies.
2. Currency Depreciation (USDINR hitting 32-month lows of 51.23). High Bond yields (Due to High Inflation)
3. There was also a rumour floating around that even India's Sovereign rating may be downgraded. Not sure how of this is true, so please take this with a pinch of salt if it indeed doesn't happen. But if indeed it happens then it would be very bad for Equity (Stocks would plummet, & Bond Markets (Yields would rise leading to bond prices falling further) & even the Currency Markets (Indian Rupee will depreciate further against USD, EUR, GBP etc.) will suffer.

Some of the above points have been taken up in detail below-

• Major cause for the markets performing so badly (to outperform its peers on the downside) being our Currency, Indian Rupee (INR). Rupee hit 32-Month lows of 51.23 to the Dollar. Rupee in the past year has lost 14% of its value. As per Equity master, Rupee is the worst performing currency in Asia & 3rd worst among all the currencies of the world.

USD INR Exchange Rate - 1 Year Chart

• Whats leading this slide in the rupee? Aren't we the country that is tipped to be growing at 8%-9% over the next few years ? Aren't we the leader of the Emerging Markets Wagon - "The BRIC". Here are few major factors that is hurting the Rupee -  
• High Inflation & in turn High Interest rates - Due to this the Industry profitability is getting hurt & this is making India story not so lucrative enough for the Foreign funds to invest here. So when these funds decide to look elsewhere, there are no Dollar inflow (Selling Dollar to Buy Rupee to invest in Indian Markets). Other being when the Foreign funds start to take out money from our country (They convert their Rupee amount to Dollars - Meaning Sell Rupee to Buy Dollars).
• We are currently in a phase of No Demand (Buying Rupee to Selling Dollars) & Huge Supply (Selling Rupee to Buy Dollars) for our currency. To speak in terms of numbers from mid July'11 to mid Nov'11, Rupee has weakened from 44 levels to 51 levels (16% in just less than 4 months in a Currency markets is a huge move). 
• What this has meant is made our Imports dearer. Oil is our major imports & our Oil Import Bill has soared & come last day of Feb'2012 when the Budget would be announced for the next Fiscal (2012-2013), We all will be in for a Nasty surprise when it comes to the Fiscal Deficit for the current financial year (Apr'2011-Mar'2012). Wont be surprised if we have the Fiscal deficit at 5-5.5 % of GDP.
• Now, Can't government do anything to cut this Fiscal Deficit percentage? Yes they can.  Fiscal Deficit by definition means the Net of Expenses & Income - In simple words its the difference between what government earns to what government spends.  With our home currency (Rupee) depreciating so much, the earning of the government has gone down as less tax collection & also the expenditure (Primary Deficit) - raising money by selling bonds has gone up. The yields of 10 Year G-Sec has gone above 9%, this is not a surprise as even the 91D & 364D yields are in the range of 8.8-9%.
• Government can reduce the fiscal deficit by going through with its Divestment option (Divesting its stake in PSU's - ONGC, OIL, SAIL, NBCC FPO all are lined up to hit the markets but Equity Markets being at such low levels government is reluctant to divest in such times (Rightly so). So these divestment can happen only say the next Fiscal or if situation improves probably during the last quarter (Q4 of FY11-12). This route could have been a major route to reduce the deficit but the situation is just not right for the action. As even if Government divests it has to divest at 52 week lows (Stock prices of these entity), & it also means government would get far less money in  return.
• What others things the Government can do is to ask the Central Bank (RBI in case of India) to intervene in the Currency markets  by selling some of its (~ $ 315 Billion ) dollar reserves to buy rupee & indeed provide some support. But our currency reserves are not that high for RBI to keep doing it all the time & can turn out to be a quite riskier exercise. for now RBI is not intervening that much & is just taking a close look at the situation.
• Are there any measures you think of the Government can do in current situation?  Please share (Gyaan Baatne Se Hi Badthaa Hain - Knowledge Improves When You Share it With Others)

*BRIC is an Acronym for the Emerging nations - Brazil, Russia, India, China)

Index Highlights:

• In the last weeks post - Nifty Weekly View, it was pointed out that NIFTY is making a Descending Triangle Pattern (Bearish Pattern) & if it did break 5168 on closing basis then things could get worse & can lead to a fall. Honestly I had not expected NIFTY to breach the supports of 5168 on Weekly closing basis. But that's Markets for you - they make their own moves. Markets broke 5168 levels decisively on monday & continued its southwards journey. 

Weekly Chart:

Daily Chart:

Weekly & Daily Charts Observations:

• Target was not disclosed in previous post. Target for the pattern would be the Height of the Triangle (6338-5168=1170). That would mean 1170 points to be shaved off from 5168 levels. This would take us to NIFTY levels of 3998 to be precise. The levels look crazy at this juncture, but keep a close tab & see if indeed we will reach that levels or not. The major supports below 4700 are at 4400 & 4200. Below 4200 we are most likely to test the Golden Gap (I call it Golden Gap because it has not be revisited for close to 2.5 years now). This wont be a one way move, we may halt at any of the support levels. But remember this pattern would get invalidated if NIFTY manages to close above 5168 (Candle formation to be above) on Weekly basis.
• NIFTY for the week lost close to 400 points but closed 263 points down at 4905. On Daily charts, Friday saw a Hammer Candlestick formation (This indicates if the lows of Friday is not broken (4837.95 the low on Friday) at least for short term we can have a meaningful pull back to the levels of 5000-5025. 
• OI Data for the November Series suggests the 4700 Puts has 52.91 Lakhs of OI followed by 4800 Puts at a OI of 59.6 Lakhs & the 4900 Puts at 54.06 Lakhs. These can provide cushion for the indices on any downside as the Put writers are confident that Indices wont go below 4800 levels this expiry. On the upside 5000, 5100 & 5200 Calls have 52.6 Lakhs, 58.6 Lakhs & 71.08 Lakhs of OI. These levels would remain tough for the indices to cross on the upside.
• Indicators: 
• Daily & Weekly Stochastics are at opposite ends. On Daily charts the Stochastics is at Oversold levels & on Weekly charts the Stochastics is starting its downward journey from the Overbought levels. What does this contradicting signal mean? It would mean we can get a pull back of 2 to 3% & post that Index would resume its journey southwards.
• The Weekly MACD Line is about to go below the Signal line, this would be bearish as MACD is a lagging indicator & it would more or less confirm that the down trend wont be changing soon & there is more room for downside.
• Bottom Line:
• Only a small positive in all this move that happened is we took out the previous high of 5169 & closed at 5399 (Couple of weeks back). So by doing so we made a Higher High. Now it remains to be soon how far we can guard the 4720-4740 levels to make a Higher Low. 
• It's the Futures & Options Expiry Week. Expiry on last Thursday of the month (24th November 2011). So the next four trading days one can expect a lot of volatility in the indices. 
• Last expiry we saw the bulls were in charge & on the Expiry day the short covering led the index to eventually break a crucial resistance of 5168 & expiry happened above 5200 levels. There was no unwinding done by Short sellers on Nifty Futures. Hence the rollover was very high. But Bears managed to pull the index down in this series. For taking positions on either long or short side,  keep Friday Close & Friday Low in mind. Immediate Resistance for NIFTY in any further upmove would be the Gap-Area created on Friday Gap-Down Opening. The Gap Area is 4964-4928.

Supports & Resistances - 4661 <- 4740 <- 4838 <- 4905 -> 4960 -> 5000 -> 5050

Please spread the word on the blog & let me know your feedback on the writing. Thanks for reading.

SBI - Post Sell off Whats Next?

Brief Recap:

SBI - The Largest Public Sector Bank of India came out with it's Q2 results on wednesday. Brief results are as below.

SBI reported net profit of 28.1 billion rupees ($564 million) for its fiscal second quarter ended September 30, compared with 25.01 billion rupees a year earlier. Net interest income rose about 28 percent on the year to 104.2 billion rupees for the three months. The Net profit levels & Net Interest Income was on par with the Private sector giants like ICICI Bank & HDFC Bank.

Post the results the Stock sold off. But Why? It has done quite well on the Net Interest Income & on Net profit front. The main reason for the sell-off being its poor asset quality. The Net non-performing assets at SBI increased to 2.04 percent of Total Assets at the end of September from 1.7 percent a year earlier.

Charts:

State Bank of India - Daily Charts

State Bank of India - Weekly Charts

State Bank of India - Weekly Charts (Fibonacci Retracements)

Observations:

• SBI was downgraded by Moody's on Oct 5th 2011. Last Monday, the Moody's downgraded the Indian Banking sector as a whole from Stable to Negative Outlook.
• Daily Charts - We can see quite a few Bearish Marubozu's (Refer to Introduction to Candlesticks to learn more about the Candlestick Patterns). What is worrying for the Investors is these Marubozu candles are accompanied by high volumes. The volume on the results day was almost 2 years High & whereas the pull back Positive Candles (White Candles) relatively has very less volumes. This indicates that counter is sound  bear grip. 
• Weekly Charts - Stock is in Downtrend as can be observed from the Weekly charts (Making Lower Highs & Lower Lows). 
• Fibonacci retracement levels drawn from the lows of March'09 to highs of Nov'10, indicate the 23.8% levels (support coming around 1501). 38.2% retracement levels are at 1888 (Immediate resistance).
• Indicators: Slow Stochastic is over sold, RSI is approaching oversold levels.

Supports - 1706, 1501. Resistances - 1888, 2020, 2200.

Bottom Line: Stock continues in down trend, if previous lows of 1706 is not held on to then one can initiate a fresh short & stock can move to 1500 levels. Around 1500 it has good support coming in from both Fibonacci levels & also Horizontal supports too.
Any further upmove would get resisted strongly at 2000 & 2200 levels.

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.

Let me know how you liked this post. Spread the word about the blog. Thanks for reading.

Nifty Weekly View from 7-Nov to 11-Nov

NIFTY after making an Euphoric jump in the Diwali week, remained subdued this entire last week. The week was flush with news from Greece about the Referendum. Locally the news of Petrol price hike by OMC (Oil Marketing Companies) did not help the markets in any way to remain bullish.

Moving to charts. NIFTY Current week Closing was at 5284. Open & High was at 5360 levels & low being 5200 levels. 

NIFTY Weekly Chart

The analysis of the Weekly Charts shows us that we are heading to a crucial resistance zone which we managed to touch last week. The zone of 5400-5450 has multiple resistances.

Observations:

1. Down Trendline (Also referred to as a Line that differentiates Bull or Bear Market) - If Price indeed manages to move above it at least technically the picture becomes bullish. 

2. 50 Week Exponential Moving Average is at 5460 levels. NIFTY moved below the 50 Week EMA in May'11 & since then has unable to close above it till now.

3. 5326 is the 61.8% Fibonacci Retracement levels of the fall from 6335 to 4728.

4. 200 Day Exponential Moving Average & Simple Moving Average are also at 5407 & 5397 levels.

5. Indicators: 

• MACD - MACD Line has gone above Signal Line (Bullish). 
• Stochastics - Watchout for the previous top on Stochastics (56% levels) When NIFTY was at similar situation of getting resisted by the Down Trendline. Currently Stochastic reading is at 49%.
• RSI - Flattish & reaching the resistance of 50.
• ADX - Indicates we are in a Trading zone with Positive Bias.

Trading Strategy:

1. Go Long if NIFTY manages to sustain above 5420 levels. 

2. Go Short if NIFTY moves below the Up Trendline - The levels would come around 5275-5250.
3. Supports are at 5170-5200, 5050, 5000. Resistances are as mentioned above.

Nuggets: 

• Up Trendline is a Trendline that is drawn by connecting atleast 2 bottoms (lows). This usually acts as a Support zone as long as the price is above it. If the price moves below it the same Support line will become Resistance line.
• Down Trendline is a Trendline that is drawn by connecting atleast 2 Tops (Highs). This usually acts as a Resistance zone as long as the price is below it. If the price moves above it, the same Resistance line will become Support line.
• A Trendline should not be too steep or too horizontal. A trendline that is drawn with 45 degree slope has more chances of providing the support & resistance for longer periods.

Bottom Line: A significant move is expected only if NIFTY manages to cross either the resistance line or the support line. Charts are indicating that crossing the Resistance trendline is unlikely & hence probability of breaking the support line is higher.
Point to Note: Next week would be a truncated week with 2 holidays. So keep this in mind before initiating any positional trades
Another important thing is that every Technical Analyst is aware of this Down Trendline. So it would be interesting to know how the Smart money would go about in negotiating this area. Keep a watch.

Greece Ruffles World Markets

Last Week EU breathed a sigh of relief after announcing a rescue plan to bail-out debt stricken Greece that would write off their 50% debts. Hearing this news worldwide markets celebrated by rallying close to 7 to 8%. 

In a Dramatic turn of events today, Greece has decided that it will hold a referendum (Date not yet known) & is all set to reject the bail-out plan that was provided by European Union. This has come as a shock to especially other EU members mainly Germany & France (As Banks from these nations have large exposure to Greek Bonds). 

It is assumed that Referendum would be clearly against the Bail-out plan. A Referendum would also mean that Greece would walk out of the European Union & by doing so would be also defaulting on its bond payments.

Now why Greece people are against this Bail-out plan is pretty simple. It requires Greece to enforce strict austerity measures. In simple terms what the Government would be required to do is:

• Increase Taxes - VAT, Income Tax
• Lowering the income tax threshold that would make more people to fall under taxable category & more taxes can be recovered in return
• Reduce Salaries of Workers
• Cut pensioners pensions

So for people of Greece its a Double-edged sword & honestly any country would prefer to default than to take up the bail-out & enforce such strict measures. So its turning out to be more of a political crisis clubbed with debt crisis. 

On the other end there are banks of France, Germany, UK & US who would have to take a hit on their balance sheet if Greece indeed defaults & hence are more pained about this sudden decision.

Mr Papandreou's decision means voters will be asked to approve a €100billion (£86billion) deal that would see 50 per cent of the country’s debts written off – but also see harsh austerity measures imposed for years to come.

What would it mean to Us (Short Term Investors & Traders who trade in Indian Markets) - 

• In the extreme short term, i.e, Tomorrow we would be most likely opening Gap Down.
• Why ? - Because due to globalization we have Global Funds & Institutions investing in Indian markets  - Initial reaction to any such situation is to pull out money from Equities & put it to a Safe-haven (Safe Haven is indeed USD). Now we all know US is no doubt has got its own problems & it's debt also being so high but still USD is considered as a Safe haven by many because of various reasons.
• One thing to note here is - Markets are supreme & what would surprise us is if Markets has to go down - At Resistances/Supports we would have flurry of negative news & if it decides to move up then At Resistances/Supports we would have flurry of positive news.
• At Key resistances & supports one needs to be light in positions or trade with strict stop losses. As a trader one will make money only when his losses are less than his profits & hence a key thing would be to protect one's Capital to be able to trade another day :-). The kind of moves we are having over past few days are news driven & hence may take anyone by surprise. 
• Locally, the negative news are :
• India's fiscal deficit during April to September 2011 was 2.92 trillion rupees ($60.1 billion), or 70.8 percent of the full-year target, government data showed on Monday.
• In the same period last fiscal year, fiscal deficit was 34.9 percent of the budgeted target.
• In February, the government had forecast a fiscal deficit of 4.13 trillion rupees, or 4.6 percent of gross domestic product, for the current financial year ending in March 2012. - So clearly we would be missing this target by some margin. For next six months even a 2 Trillion Rs would mean our Fiscal Deficit would have crossed the 5.5% mark which would be bad for the Economy.
• There are chances that Petrol Prices may be hiked again as the OMC (Oil Marketing Companies - HPCL, BPCL, IOL) are all facing losses daily due to weakening of the rupee & also appreciation in Crude. Also rumours are Diesel prices may be deregulated soon.
• Technicals: Key Supports for NIFTY is at 5230-5170 zone. Below 5170 we would be moving below 50 EMA & 20 EMA zone (One should not remain Long once price dips below these levels). As was pointed out in the blog post " NIFTY Weekly View - 28-Oct-2011 " it was said that crossing the Top-Top Trendline is very unlikely. 
• Trading Strategy: Longs only above 20 & 50 EMA. Keep strict stop losses in Longs & Shorts. 
• Supports - 5230, 5170, Major support at 5000 levels. 
• Resistances - 5320, 5420

Bottom Line: One would never know how many more twists this Bail-out story would have & when would the actual climax of this story would come. 
The Political & International Pressure may well come from all countries in G-20 Meet (Starting Wednesday) & Greece may well have to budge down again under the pressures of Biggies of EU.
In Greece There is an emergency cabinet meeting is taking place on Tuesday evening to decide on the future of referendum & also there is pressure on Papandreou to resign from his post of PM. - The decision of Greece would go a long way in indicating the future move of the World markets & also the G20 meet can act as a catalyst too. So atleast in the near term it would be a news based moves :-)

All in all there are more negatives than positives in the system right now but market has got its own way to chart out the future. We as a trader should never try predict it's path but to follow it to make money. 

This is a one-off kind a post without any charts in it. Let me know how you like this post.