Markets Next Week: FIIs press the Sell button

It was another week of losses for the Indian Stocks with the Nifty losing -3.2% for the Week. It was a Week characterized with Heavy FII withdrawals.

1.The FII withdrew about 5245 crores for the week and also were Sellers for the Entire Week. The DIIs bought about 2302 crores. For the year, the FII tally is now in the negative with a net sell figure of about 1600 crores. On Dec 31st 2009, the Market was at 5200 and today at 4931, a loss of 270 points.

2.There are few reasons for this FII sellout. First is the Dollar Index shooting up, leading to the hot money pullout. Typically these hedge funds borrow in dollars with an Interest Rate of say about 1 pc and leverage it about 10 times. Now if 1 Dollar = 44 rupees moves to 1 Dollar = 47 rupees, the markets have to rise about 10 pc for them just to recoup their capital.
3.The Strength in the Dollar Index and the fall in the markets have hastened this pullout. Another fact is the is the ULIP mess which has led to lower inflows into domestic funds.
4.The positives for the Market are the 3G Auction bonanza and also the lower crude prices. If global markets go down, then Indian markets will also follow. But these savings form the base for the next rally. When the markets recover worldwide, the Indian stocks would go up faster.
5.The Markets breached 200 DMA now at 4993 and which would act as a resistance. The markets rarely break a resistance and support at the first attempt and there would more re-tests of the 200 EMA now at 4898 levels.
6.The Weekly Bollinger Bands are rarely broken on either side and when violated, the markets simply collapse. The support comes in at 4776 for the next week.

7.The markets took support exactly at the downward channel. For the next week, support comes in at 4780-4820 band and resistance at 5050-5090. I expect a relief rally to these levels


8.The market breached the support line from July and it now becomes a resistance around 5020

9.The Weekly RSI is on a downward spiral. The markets could fall till it tests the support line.


10.This is the Expiry week and expect sharp moves the either side.The Max OI is around 5000 strike. Expiry should be between 4950-5050.
11. It took about 38 sessions for the markets to rise from 4675 to 5400 and the fall has consumed about 32 sessions. One of the theories is faster retracement theory to see if the direction has reversed. By this logic, the markets should breach 4675 by next Monday, if this is the beginning of a deeper correction.
Its time to start making the shopping lists ready.

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Markets Next Week : Watch the Dollar Index

This week, Monday we had big up day and rest of the week, it was just sideways movement followed by a breakdown on Friday. We are heavily dependent on FII flows and I did a study for the Month of May on the Dollar Index and FII funds flow pullout.

1. The Results season is out of the way and no major surprises. Honestly, I feel the Results usually get factored in much earlier. The next triggers could be the onset of Monsoon setting in. This not too big a trigger unless the Monsoons fail.
2. The EU mess continues. The bailout does not seem that great a thing as was seen earlier. The ghosts of EU will keep haunting us.
3. The FII outflow continues. It is the hot money outflow which will be a drag on the markets. I did a study on the dollar index. It went from 82 to almost 85.6. The FII pullout of funds increased directly. So, just watch the Dollar Index. Euro weakened to 1.24 levels in spite of the bailout. Eventual target is 1 Euro = 1 Dollar. That will take the Dollar Index to 91-92 levels.




4. If we see the Downward Channel, we have support around 4926 and resistance at 5160 levels


5. Weekly channel supports are at 5008 and 4800.

6. If we see the falls from August onwards we see an interesting divergence this time. Usually, when the market rebounds and goes past 30 and 50 emas it just goes up again. This time, it tested these 2 averages and fell again indicating a larger fall is around the corner.


7. I had show the break of 3 trend lines from the lows of March 09. 1 thing I forgot to highlight was that once breached the trend line it never goes past it again. We came near to violating the trend line but fell off.

8. The BB supports come in at 5016 on a daily scale and 4726 on Weekly scales.

9. Its Open Interest time again, huge Put build at 5000 strike around 85 lakh and at 5200, 5300 calls also. This indicates 5000 will not give way that easily and 5200, 5300 will not breach very easily this expiry.

10. The 200 EMA comes in 4895 ad 200 DMA comes in at 4982. They have not been tested so far.
So in a nutshell, I expect Markets to take support around 5000 levels, a small bounce up of 100-125 points before continuing the fall.

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