January: What does history tell us about January

Taking into consideration how the market has fared in the last 12 January months, there are certain interesting observations one can come up with.

1. The market has fallen on 7 occasions and risen on 5 occasions.3 out of the 4 occasions were in 2000, 2001 and 2002. In recent years the markets have had a negative January.

2. The markets had given a double digit negative fall in 2008 (16.1%) and and 2011 (10.2%)

3. The rises have been fairly muted while the falls have been quite severe.The max rise has been 8.6% and the max fall has been 16.1%. The average fall has been 6.4 % and the average rise has been 4.64%

4. If we take December closing of 4624, the on closing basis we have a range of 4328 and 4827.

5. If we take the sequence, the market has always followed a Fibonacci sequence before reversing. 3 positive closes, 3 negatives closes, 2 positive closes, last 4 closes have been negative so to complete the Fibonacci sequence this Jan should also be negative.

6. If January closes again on a negative note, then February will be positive.Never have markets given more than 3 negative closes in a row.

Markets update:
The markets are stuck in a range. Short below 4585 and go long above 4732. Till then it is stuck in a range.
The NHAI bond issue is very attractive considering that the interest is tax free. For those interested in equity picks, there is Lakshmi's Cherry Picks available.

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What does December hold for us?

The markets returned their best weekly showing in 2.5 years to close at 5050, a net gain of about 7.2 pc. Are we out of the woods?Let us try and explore.

1. This stunning rally has been on the back of Domestic liquidity. DIIs have bought about 700 crores worth of shares whereas FIIs have sold to the tune of 110 crores. FIIs have sold for about 3 days of the 6 day rally.

2. The Nifty has outperformed the broader market. The Nifty has gone about 7.2 % for the week whereas the broader CNX 500 has gone up by less than 6 %

3. The month of December has by and large been a very positive month for the equities. Since December 2002, the markets have always closed above the November close. This implies that this year if we go by history the markets should close above 4832. In all the years, the low for the month has always been below the previous month close. This implies that we should go down below 4832 at least once during the month.

4. If I try and project the average values, close should be around 5131, high at 5187 and low around 4731.

5. If we consider this up move as a retracement of the 5400-4639 fall then the next resistance to the up move comes at 5110.

6. In terms of number of sessions, the up move if it is an retracement should last for 6 to 10 sessions. 6 sessions are already over.

7. The logjam over FDI in retail will impact the markets negatively over the weekend. The next week should be either a flat or down kind of week.

For those interested in individual stocks or Gold, we have Lakshmi's Cherry Picks which are doing well.

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Gloom and Doom Ahead

If one goes by the headlines, there is doom and gloom ahead. Airlines are going bust, people are being laid off, bond yields have crossed 9 pc and Italy tethers on the brink of a collapse. Lets us look at things in detail and try and find a silver lining to the cloud.

1. For any medium term upside, 5390 - 5400 remains the key resistance. There are a confluence of resistances here. The previous high comes at 5399, the 200 DMA comes at 5390 as also the lines joining previous tops from 6339 comes at this value. Prudence suggests that one should not go long before 5400 is breached.

2. On the downside, fresh shorts could be taken below 5072 and 5011, the previous significant bottom. We are in some kind of consolidation move right now. This expiry is 9 trading sessions away and we wait and watch. In this series it is only the Option writers who have made money.

3. Fundamentally, Kingfisher is in trouble. The problem is not as simple as an airline going bust. It has a cascading effect. Several banks have a very high exposure to the airlines and their NPAs will go up. The Power sector also has NPAs rising and banks will be wary of lending to the power sector as well.

4. The government bonds are trading at an yield of almost 9 pc. The Repo Rate is at 8.5 pc and will raise further in the month of December. The high yields imply that government bond supply is not being absorbed by the market. In simple language, government is borrowing big time from the markets.

5. Gold is also trading in a range. The previous top needs to be taken out for investments to be made in gold. The rupee has breached the psychological Rs 50 mark. Weak rupee means the companies which import are in trouble. India is an economy which is a net importer and hence the fiscal deficit target of 4.6 % is not likely to be met.

6. With elections in the key states of UP and Punjab round the corner expect no fiscally prudent measures from the government at least till March 2012.

Now, is the time to start nibbling at stocks, systematically picking the good companies. Those interested in stocks and gold investment advice, there is Lakshmi's Cherry Picks available.

Finally, a tailpiece on Austerity in these tough times by Sanil Sonalkar.
Financial year 2011-12 has truly marked the dawn of a new era of austerity measures being adopted by countries worldwide, caught in the midst of a recession which seems to be spreading by the day. The developed world, particularly the USA & the Eurozone countries, are grappling with huge debts and failure to pay sovereign obligations is becoming a stark reality. To tide over the crisis, these countries are resorting to unprecedented austerity measures in a ferocious bid to salvage pride and credit ratings (no pun intended).

Back home, the common man is increasingly feeling the burden of high prices and household budgets have taken a hit like never before - austerity begins at home too. The government,
almost belatedly, has tried to offer some respite by increasing the interest rate on the popular savings schemes - PPF, NSC, etc, etc. This may seem too little, too late.
A judicious mix of savings and investments is the order of the day in these troubled times.

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