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

Monthly Charts of Indices - 01-Dec-2011

NIFTY & BANK NIFTY - Moving Down the Cliff in a controlled way

Today the November month ended.  Where are we headed in terms of NIFTY & BANK NIFTY on the monthly charts. Well this adjacent Traffic Signal should indicate roughly which way we are heading.

Although we have done with most of the drive down the cliff. The final round of driving down the cliff may be couple of months ago.

NIFTY:

Observations:

• NIFTY has had a red candle for the month of November. 
• NIFTY is moving in a Descending Trend Channel (Marked as DTC-2 on the charts) of ~800 points. Currently its at the lower end of the range. 
• NIFTY has completed 13 months since the Top of 6339 (Nov'2010). NIFTY hit a new 52-week low of 4639 on November'2011. Around 4550-4650 there are multiple Tops & Bottoms on the Monthly charts.
• The Rising Trendline (Marked as 1 in the Chart) is currently at 4450 levels. On any further downfall this trendline can provide good support. On Breach of this the next support comes in at 4200-4300 zone (Zone of multiple tops & bottoms).
• NIFTY in it's previous downmove from Jan'08 to Mar'09 (Marked as DTC-1 on the charts) spent roughly 13 months in the channel before breaking out of the channel on the upside.
• When in a downtrend, the volumes on the Negative closing month are higher than the Positive closing month.
• Indicator: RSI too is making lower highs & lower lows & is below the signal line. Once the RSI line (Green) moves above its Signal Line (Red) things would become bullish. Till then this slow & grinding down move seems to continue for few more months.

How would the Coming Month (December'2011)  Be?

December by far has been the best performing month in the last 20 years. Out of past 20 years on only 3 occasions we have had negative closing in the month of december. So if one goes by history we should have a Green Candlestick for the month of the December.

BANK NIFTY

The annotated Chart is self-explanatory. Watch the 8200-8300 levels closely. A close below this level would open up the area for a target for 7200 for Bears.

Bottom Line:

Keep in mind the Channel values. (For NIFTY to break the lower end of the channel, there has to be panic in the world markets - Similar to "A Lehman Point" ). Till then it can be a grinding & a slow bear market.  Its not as fierce as the previous down move which was swift in both the fall & rise.

Levels to Watch on the NIFTY - Closing Below 4675 (Bearish)

Levels to Watch on the BANK NIFTY - Closing Below 8300 (Bearish)

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Dollar Index - 25-Nov-2011

In my previous post on Dollar Index - "What is Dollar Index ?" we got to know what is a Dollar Index & how it would impact the Indian Markets. In the current post would give an update on how is Dollar Index placed & how it can move further.

Charts:

Weekly Chart

• In the weekly charts, Dollar Index is approaching a crucial resistance after it broke a descending trendline on the upside.
• Multiple resistances are seen around the levels of 79.84 to 81 levels.  
• If 79.84 levels are crossed on closing basis then DXY has more strength to reach the 80.50-81, 81.50 levels where it would face strict resistance. If Dollar Index manages to close above 81 then it can head to 83 levels swiftly.
• Indicators: RSI, MACD, Slow Stochastics are all showing strength & indicating bullishness.
• Dow Jones Industrial Average (DJIA) the benchmark index of Equity in US closed below an important support level of 11300. This indicates weakness, the target now on the downside is 10500, 9900. Looking at this, it would be more likely that Dollar Index would breach its resistance & march ahead to 83 levels if not more. 

Euro Zone Trouble:

• Germany - Bond auction for 10 year Government security had just enough takers (Demand was lowest in this year at 1.1). It was auctioned at 1.8%.
• Italy - Yields of 6 Months T-Bills came in at 6.5% compared to 3.35% in end of October. (Highest in the Euro Era). 2 year Zero Coupon Bonds were auctioned at 7.814% compared to 4.628% in end of October. So its becoming costlier for Italy to service its debt. Although the average Maturity of debt is at comfortable level of 7 years. But such high yields can put pressure on the nation. - Taking cues from the auction, the yields on 2 year Government bonds of Italy rose to an all time high of above 8%.
• Portugal - Credit rating Agency "Fitch" downgraded the credit rating of Portugal to "Junk Status" - Main reasons cited are fiscal imbalances, high indebtedness in all sectors and gloomy economic outlook. GDP is expected to contract to 3% by 2013.

Bottom Line: What this means to Indian Equities is - More trouble. If such gloomy picture continues in EZ then it would increase the demand for USD & that would mean more selling of Indian Equities. 
Just remember the basics here - If Dollar Strengthens it would be bad for Indian Equities.

NIFTY View for the Week - 28Nov2011-2Dec2011

NIFTY for the week was down 4.1% & it's a sigh that it doesn't feature in the list of Worst performers for the Week. For two straight weeks we have had global sell-off & major benchmark indices of the world have closed in the red.

Charts:

Hourly Charts 

On Hourly charts, NIFTY is in a consolidation mode after it came out of Downward Trend-Channel. For the short term as long as its above the trend channel it can continue to consolidate for few more days. Immediate resistance would be 4766. 

Daily Charts 

NIFTY did not have a follow up buying after the Hammer Candlestick Pattern on last friday. This led to another round of sell-off. In this sell-off previous bottom of 4728 got broken & we made a new low of 4639 & again revisited that level on Thursday.  How am I sure it's a bottom - Because of the Candle Stick structure. Both the days (Wednesday & Thursday we have had Long Shadows & managed to pullback and close above 4700 on both the days). So for the short term have a double bottom in place till we do not breach the 4700 on closing basis.

Weekly Charts

 NIFTY has had 3 major sell-offs from last November. Each sell-off has been of close to 5-6 weeks. In Each sell-off NIFTY has shaved off close to 1000 points from the start of the sell-off. The current sell-off is 4 weeks old & totally we have lost roughly 650 points. So if previous sell-offs are any indication then the current sell-off may pause around 16%(+or- 2%).

Sell-Off 1: 6181 to 5177 (16.23%)

Sell-Off 2: 5700 to 4720 (17.19%)

Sell-Off 3: 5350 to 4639 (13.28%) - Ongoing

Indicators: MACD - MACD line is about to cross the Signal line & the MACD Histogram has gone below 0 this week. Both these indicate bearishness.

Slow Stochastics - Heading southwards & no indication for any recovery soon. Even in previous instances when Slow Stochastics has started it southward journey it has managed to touch the oversold levels before resuming to move up.

Hot Stocks:

• Retail Sector - After Government's nod on allowing FDI in Retail sector, 100% FDI is allowed in Single brand retail & 51% FDI is allowed in Multi-brand retail, all retail sector stocks were hot & raised anywhere between 5-15%. Stocks were Pantaloon Retail, Shoppers Stop, Trent etc. & even the debt ridden stocks like Vishal Retail, Koutons too had a good run.
• Aviation Sector - There are strong indication that after Retail Sector, FDI may be allowed in Aviation Sector too. Keep a watch on this sector for some swift moves in the stocks. Friday Jet Airways was up 9% on expectations that Government may allow them to buy fuels directly from outside (this would mean they need not pay Sales Tax)
• Bharti Airtel - Bharti Telecom, the majority stakeholder in Bharti Airtel, has purchased a total of  14.93 lakh shares of the company for Rs. 54.51 crore, through open market transactions. Prior to the acquisition, the promoter group held a 45.55% in the company, now it stands at 45.58%. The promoter group firm acquired the shares on November 23 and November 24, 2011. Company buying shares at this turbulent times shows the confidence it has on its  future performance. Keep a close watch & the stock can outperform its peers in next few quarters & also one more trigger for this stock is, from December it would be included in the MSCI World Index. This would mean buying of shares of Bharti Airtel would be done by passive funds (that mimic these indices)
• JP Associates would be removed from BSE SENSEX (wef from 9-Jan-2012) & would be replaced by GAIL. Selling pressure would be seen in JP Associates in next few days. 

Major Events in the Forthcoming Week:

India:

• 30-Nov-2011 - Q2 GDP Numbers. Expectations from the Economists are sub 7% levels. For Q1 the numbers stood at 7.7% Last time we saw sub 7% levels on GDP growth rate was during Jun'09. So this would be the lowest levels since 30 months.
• 01-Dec-2011 - Export & Import Data, PMI Manufacturing Data.
• 01-Dec-2011 - Weekly Food & Fuel Inflation Data(For week ending 19-Nov-2011).

Global:

• 02-Dec-2011 - US Unemployment Data for the Month of November'2011.

Bottom Line:

In 2 weeks NIFTY has lost 8.5% making it one of the worst performing markets. NIFTY made a new low this week after breaching important support levels of 4728. 

All indicator indicate bearishness. For the short term if NIFTY manages to cross above 4765, it can attempt to reach 4854, 4930. However if manages to close below 4700, it can move swiftly to 4639 levels & sustaining below it can take it to multiple support levels of 4540. Closing below 4500 can lead NIFTY swiftly to 4400 levels.

NIFTY Supports & Resistances - 4420 <- 4540 <- 4639 <- 4710 -> 4766 -> 4854 -> 4920

(I apologise for quoting that GDP numbers were expected on Nov 25th (In my previous post)

NIFTY Mid Week Update 24-Nov-2011

NIFTY finally managed today to break the Descending Trend channel that it had got into on 09-Nov-2011. In this carnage NIFTY has managed to lose 739 points (From highs of 5400 to lows of 4639. For the Short Term,  Reference points for Swing High would be 5400 & Swing Low would be 4639.

Today was also F&O Expiry for November series. NIFTY made a dramatic short covering rally in the last hour of trade to pull back from the lows of 4639 to close at 4756.

NIFTY Hourly Chart:

Few Observations:

1. Tomorrow's closing would be very important for the bulls. If they manage to stay above the trend channel & close above today's close that can be a good confirmation for next week's relief rally. But if we do not have a strong close tomorrow then Bears can take control. Morrow being Friday, bears would want to lighten up their positions before the weekend & review the situation after a meaningful pull back.

2. If this relief rally indeed comes, How far can it go? The levels have been marked on the charts with the help of Fibonacci Retracements. One can atleast expect pull back to notch up at least to the levels of 38.2% - 50% of the entire fall from the swing highs to lows. So roughly this rally can at maximum extend to 4950-5050 levels. In better than expected global markets & USDINR falling few more cents we can extend this rally to 5100 levels. But these are too far fetched targets. Immediate target for bulls would be to have a strong closing tomorrow.
3. If NIFTY manages to breach 4639 on the downside intraday (Or closes below 4700) then there can be a sudden fall that can take index down to 4550 levels and further down. 
4. What can halt the Bulls march tomorrow? GDP numbers for Q2 are expected to come out tomorrow. GDP numbers would act as a catalyst for NIFTY's direction tomorrow. Expectations from the Economists are sub 7% levels. For Q1 the numbers stood at 7.7% (Don't be surprised if this number is revised on the lower side tomorrow) . Last time we saw sub 7% levels on GDP was during Jun'09. So this would be the lowest levels since 30 months. 

5. On the other hand Sensex & USDINR have got into a kind of a race with Indian Ace Cricketer - Sachin Tendulkar. At the low of the Day Sensex was at 15480 & Sachin's test runs stands at 15153. USDINR is at 52.26 while Sachin's Test Average is around 56.

Big Question is who will catch who first? ;-) 

Going by the charts of markets, Sensex would catch Sachin sometime in near future. USDINR & Sachin's Average wont be meeting anytime unless there is capitulation in World markets.
Talking of Strange coincidences - Here is one - Harvinder Singh a youth who had slapped former Telecom Minister Sukh Ram few days ago, did it again by slapping Sharad Powar & immediately after this the Markets pulled back close to 120 points till the close. Although i do not endorse violent means to achieve the goals. But its time some of the corrupt politicians get such medicines. 
First it was Sukh Ram, Next it was Sharad Powar, Who is next - Loud Mouth of Congress?

Supports & Resistances - 4639 <- 4705 <- 4756 -> 4813 -> 4922 -> 5009
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