Is the upmove over?

It was an action packed F&O expiry and a one way journey down. There are several interesting observations to be made which may suggest the entire rally from March 09 bottoms may be over.

1. The trend line joining the lows from March is broken decisively on weekly and daily basis.

2. The FIIs and DIIs were net net on the sidelines for the month of October. Both were almost net zero in terms of money pumped.
http://www.bseindia.com/mktlive/market_summ/categorywise_turnover.asp The BSE link from where I got the data.
This means that DII turned neutral to negative since August and now the FIIs have joined the same view. This makes November very critical.

3. Even though the market has corrected 7-8% from the tops, many stocks have lost much more, indicating a brutal market wide sell-off.

4. On the basis of 5 week Ema which comes to 4903, we have decisively broken it for the first time since March'09. This is the second weekly close below 5 week ema.

5. The 50 day ema was broken without much ado around 4850. The next support comes around 4600 odd levels.

6. The heartening thing to note was that both FII and DII were net buyers on Friday to the tune of 500 odd crores each. In spite of this the markets fell. Maybe a bear trap for shorters.

7. The Dow closed down 250 points on Monday nut it has also reached the oversold levels and a bounce is expected.

8. The RSI(14) is at 31. This is at lowest levels since March and in the oversold levels. A bounce ca be expected any month. Till 50 EMA is decisively taken out, I would use rallies to short.

9. The RBI credit policy with a hike of 100 basis points is a good step. RBI is ahead of the curve. Better pain now, that a bubble being created.

10. The US GDP growth of 3.5% is largely due to the cash for clunkers scheme and fiscal injections.

Conclusion: Those who have booked out, enjoy the fall and be ready to buy at lower levels. The rises can be used to get out. Those who have missed out the fall as a shorting opportunity, the first fall is always difficult to catch. I would wait for a confirmation of a second weekly close below 4900.

Read More

Critical Week Ahead

The markets hit a high of 5182 on the nifty before closing the week at 4997. This was a very interesting week, and the week that follows will tell us whether the entire rally which started from March is over or just a small dip. There were several differences this week over the previous 7 months.

First, the FIIs were huge sellers on last 3 days. They pulled out almost 1500 crores whereas DIIs pulled out 80 crores. I went back and checked. The DIIs have bee net sellers over August, Sept and Oct. In July they were marginal buyers.
This means the entire rally from July, post budget has been on FII flows. This week FII liquidation could be because of Galleon and Lehman forced liquidation or something else. If it was only a forced liquidation, then we should be ok.

Second, Nifty closed at 4997. The 5 week EMA was at 5000, and it has closed below it. This is only the second time in 7 months it has done so.Hence, for the bull run to continue we should close above 5000 next week. All the max open interest is at 5000 strike price for Oct expiry. So we should be somewhere around this by Thursday with a negative bias as there are more calls than puts written at 5000.

Thirdly, we have closed below 20 EMA from which we have taken support many times. 50 EMA comes at 4853 which becomes a key level to watch. Closing below this level for 3-4 sessions, then all bets are off.

UK recession continues. Longest recession since they started keeping records. In US, the corporate results were better than expected. The main thing is profits have increased but not the sales to the same extent. The increased profits come on the back of cost cutting measures. But you can cut costs only to an extent.

Lets see if the entire upmove from March is over and we begin the next leg of downmove or the uptrend is intact.

Over the longer term, I am bullish on sugar, gold and Telecom (Bharti).

Read More

Diwali Picks

It is Mahurat trading time. We have picked up certain stocks which we feel will do if the markets do well.
Also, it is a time of caution, as P/E of nifty is around 23. A staggered buying approach would be good.
I would also like to thank Lakshmi Ramchandran for all the efforts and encouragement put in to make this presentation a reality.

Please check out the presentation here:
http://groups.google.co.in/group/nav-files/web/Diwali%20Picks2009v1.0.pdf

Read More

Markets: Amber signs flashing, but not Red Yet

It was a day trader's paradise this week at the bourses as the markets oscillated.

Key events were the dumping of Telecom Stocks, Infy results and Reliance bonus announcement of 1:1. Reliance came out with a bonus issue which surprised the markets but there was no reaction from the markets. An intra- day spike of 6 pc and thats it.

The markets typically hail a bonus issue which is nothing but a sentiment booster for the Retail. Eventually after a month or so after the bonus announcement you get the stock cheaper. An example of this was the Siemens stock last year.

Infosys as usual delivered a good set of number. Their Eps of Rs 100 for this year puts it at a P/E of 22. Not cheap for a stock where there is no growth year on year. The P/E to growth ratio the thumb rule is that it should 1.

Fair P/E for Infy I would put it in the range of 15-17 giving it a valuation of 1500 to 1700.

The most shocking was the dumping of the Telecom sector stocks following a price war announced by Reliance and TRAI declaring a discussion per second billing. Bharti lost almost 25 pc to end around Rs 343. The institutions follow a herd mentality in dumping stocks. I would accumulate Bharti for the simple reason it has 110 million subscribers out of 443 million in India. It has submarine cables and landing stations i key cities.
Bharti is an integrated telecom player and with 3 G, data communications would be another major play. Voice would be just 1 plain vanilla low end offering to entice the customer. The idea is to lock in a subscriber and use his mobile to be his gateway for payments, accessing the net and even his supermarket.
I would not be surprised if free voice calls upto a limit are offered if an user goes in for data solutions from a vendor.

The FII flows seem to be pausing, with the dollar weakening. A weak dollar means for fresh inflows, 1 dollar can buy less amount of stocks. Good news for existing investors as they can exit the Indian stocks with more dollars.

Nifty ended at 4945. It has a cluster of supports. It is at the trend-line joining lows since March 2009. 20 EMA is at 4935. If it breaks this next support comes around 4750.

Nothing is impossible but next week it seems it would be tough to touch 4750. My reasoning is simple. A truncated week with a holiday on Tuesday. Indiabulls Power IPO closing on Thursday means the market will remain shored up at least till Wednesday afternoon or even Thursday.
Look at the put-call spreads, 5000 is a key pivot. Almost same number of puts and calls have been written around this mark. So, its in the interest of the option writers that the markets revolves around 5000. Thats what has been happening last week, and option writers have been eating the premiums.
4800 and 4900 have huge OI in Puts ad would act as strong supports. They will not break easily. 5100 and 5200 calls have good OI build which would be resistance points.
Looks to be a range bound week.

Read More

Sporting excellence a sign of an emerging superpower

The Olympics for 2016 have been allotted to Brazil. Brazil has edged out established cities like Tokyo, Chicago ad Madrid.

Often, when a country is on its way to becoming a economic superpower, it is reflected in the Sports Arena. By this, I mean consistent performances, not a few flashes in the pan, moments of individual brilliance.

Lets take the 1992 Barcelona Olympics. During those games, Soviet Union was at the top with 45 golds followed by USA and Germany. China was just making a small splash in the pool with about 16 golds.

In the 2000 Games, USA had 36 golds, followed by Russia with 32 and China 28 golds. The gap between China and the the top powers was coming down.

Cut forward to the 2008 Games and the performance reflects the new order in the world. China has got 51 gold, USA 36 golds followed by Russia.

There are several reasons for sports mirroring the economic strength of a country. As a country grows prosperous, the surplus funds grow and its citizens get better facilities. Athletes and other sportsmen get world class facilities to practice and are taken care of by the corporates.

China hosted the 2008 Olympics and it was making a statement to the world. We have arrived. We have the best facilities in the world. Our Sportsmen are the best in the world.

As the economic clout of a country grows so do its allies. Brazil was able to edge out even the mighty Obama backed Chicago. Speaks a lot about where USA is heading.

We have the 2010 Commonwealth Games. Lets see what message we send out to the world.

ps: Sometimes, its fun to ignore the markets and look at other angles associated with economics.

Read More

P/E:An update

The Nifty P/E is at 22.89 as of 01st October.

It has exceeded these levels only during the bubble crashes of 2000 and 2008. In 2004, it briefly flirted above this level before falling.

We have 2 scenarios now:
1. It keeps rising to about 28 creating a bubble like scenario. It would break the previous high or thereabouts and the a mega fall.

2. Correct from anywhere here to 5200 zone. Every time it corrects, it comes down to a P/E of 14-16 which would be equivalent to 3200-3600 range.

Right now, the liquidity is gushing with FIIs pumping in 1000 crores daily. I have not seen even in the earlier bull run.

We have the dollar carry trade like the yen carry trade with hedge funds borrowing at low interest rates in the US and leveraging these dollars in India.

These positions will be unwound when the dollar strengthens, (it would take more rupees to buy the same dollars invested) or interest rates rise in the US.

The dollex is showing some signs of rebound on Bernanke comments. Interest rates rising in US will take some more time.

Troubles in China or at home in US could reverse the flows.

Time not to invest aggressively and keep taking profits with trailing stop losses. I would keep a stop loss of 4900 for my investments.

Read More