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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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

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