UP, UP and AWAY

It was a mind-blowing rally on D-Street. The Nifty rallied to close at 2009 closing high of 5178. Santa Claus had come to town. Lets see where we can go from here.

It was a Bear Trap nicely set by having huge OI built at 5000 and 5100 calls. This is the third month running that OI has been used to mislead the punters.

The Markets rallied as anticipated from 4944, key support areas. They retraced all the losses made in 5-6 sessions in a couple of sessions. The Faster retracement theory states that this is a fresh up move.

The FIIs made huge purchases on both Wednesday and Thursday thus debunking that they are on vacations.

The FM came out with rosy GDP projections which proved to be trigger. Remember the Government has massive disinvestment to be made while the going is good. Expect more such noises.

The Dollar Index rallied from 74 to 78. It may retrace a few of the gains made. This rally in Indian equities has some more steam left.

The famous December - April effect will now come into play. I will post more on that later.

The US markets look all set to rally to their next pivot point of S&P 1166. That is a good 4 pc more up-move.

5300-5350 seems to be the next target areas based on both fundamental and technical factors.

I continue to SIP in Gold.

Remember while enjoying the present, on must plan for the future. What 2010 holds is a different post altogether. Lets use these holidays to plan for 2010.

Enjoy your Investing.

One could play this up-move by buying Reliance at CMP with strict stop losses.

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Dollar Index Rises, Nifty down

Last week, we had spoken about the Dollar Index rising and its implications on our markets. The markets shed wait in the last 2 trading sessions and the Nifty is now at 4987. So, where do we go from here?

1. The Nifty broke the support line from the November lows. The support at the trend line joining the lows from July comes to around 4860. This is a very crucial support line, breach of which means the rally from March lows may be over.

2. The 50 EMA at 4990 and 20 EMA at 5056 have been breached. The 50 EMA is a very strong support and the markets may bounce up from current support levels. The Markets had bounced from 50 EMA in August.

3. The 61.8% of the rise from 4807 to 5182 comes to around 4950 a key support level.

4. The 5 week low ema which the market had taken support during the Dubai crisis comes to around 4940.

5. The maximum open interest in Puts is at 4900 and in calls is at 5100 and 5200. The next week is a truncated week and volumes would be light.

6. The inflation is running away and the government would have to raise Interest Rates. It would not help much as this is Supply Side inflation not Demand side inflation.

7. The Dollar Index rising would lead to Dollar Carry trade unwinding and also commodities becoming cheaper. Good time to SIP in Gold.

8. The Bollinger band top is at 5181 and bottom is at 4960. The Bands have narrowed so a breakout on either sides would give additional 200 points. This means 4750 or 5380. The index does not stay out of the band too long. So, the markets may bounce in a day or two. If they do not, then indices would decline further.

9. I would go long on break of 5038 on closing basis. Stop loss for shorts would be 5025.

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Watch the Dollar Index

The Indian markets ended almost flat for the weekly forming a weekly doji. A Doji depicts indecision and usually signifies a top or a bottom.
The Nifty made a triple top at 5182. So does this mean the rally has ended?
There just might be juice left for 1 final blow out rally upto 5350 or 18000 sensex. For that to happen, the indices may need to dip a bit.

1. The max open interest is at 5200 call for December series and 4900-5000 puts.This means lots of people have interests (Option writers are usually big institutions) to cap this up move at current levels for this month.

2. The Bollinger bands are at 4980 at the lower side and 5184 on the upper side. The Bollinger bands are mostly respected by the indices. The Bollinger bands are narrowing down implying a big down or up move is coming (+- 500 nifty points)

2a. The RSI is making a negative divergence. First time nifty hit 5181, it was at 63, then 59 and now 55. Price usually follows the indicators.

3. The 50 ema is at 4978, the 5 week low ema is at 4920. Usually these levels are respected by the indices.

4. Its the Christmas season and foreign brokerages will soon do some profit booking and go on vacation. I expect the usual December Jan rally to kick in for 1 final swing. But this should happen in the next series.

5. The US markets are rage bound and S&P is oscillating between 2 pivots 1091 and 1106. It needs to convincingly break either these 2 for a breakout or breakdown.

6. The Dollar Index is at 2 months high and this means commodities like gold, oil will become cheaper. The sovereign debts of countries like Greece and Spain are i question. December 14th is a key date for Nakheel bond repayment.

7. The dollar index may retrace its current up move before a final swing up. I would watch the 77-77.5 levels closely.

To summarize, I feel a dip to 4900-4950 is most likely with a final blow out rally of 1500-2000 points on the sensex.

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Dubai Crisis: What it means for India?

The markets tanked on Thursday and Friday. The markets lost about 6.46% to hit a low of 4806 before recovering to close at 4942. The Dubai World inability to pay the loan raising the possibility of sovereign default.

Dubai World is a wholly owned subsidiary which has interests in businesses across the world. It has a stake in Dubai Ports. Its real estate arm is called Nakheel which is developing Dubai.
Contrary to public perception, only 6% of Dubai's revenue comes from oil and natural gas. Most comes from Trade (16%) and real Estate (22%). The Dubai World is asking for interest holiday on their loans. The loans total to almost 64 billion dollars.
Dubai was being developed on the US model of taking huge debt and developing another Las Vegas.
So what does this present crisis imply?
First of all, the speed with which it is resolved will decide the course of the global markets. Most likely the cash rich Abu Dabhi Emirate may step in. A lot of UK Banks have exposure to this debt. This crisis will send alarm bell rings across the globe. A flight to safety and risk aversion may mean the dollar index strengthening.
In March 09, the dollar index hit a high of 89 when the emerging markets hit a bottom.A 17 % dip in dollar index has led to emerging markets doubling.
The FIIs sold 1050 crores on Friday and they have been selling the whole week.
If there is a flight to safety, the dollar index will strengthen and the dollar carry trade will unwind.
The dollar strengthening means commodities becoming cheaper. Gold prices eased on Friday hitting 1155$ dollar to a ounce at one point of time.
This could be a good point to add gold at lower rates. The Dubai crisis how it pans out will decide the future course of the markets.
Also, the India diaspora working in the Middle east will be hit if employment opportunities go down. A large Forex boost for India is the inward remittances from Indians employed there.
The government has a lot to think about.

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How to play the upmove

It was a Friday second half rally which took everyone by surprise. It looks like the previous high of 5182 for this calendar year could be taken out. So how do we play this upmove?



First there are several confirmations we need to wait for:

1. The fall from 5182 to 4539 was retraced in slower time than the fall. Retracement in slower time could mean that the rise was just a retracement to the fall. The pullback could be 80% of the fall in extreme cases, which in this case would be 5054 +- 30 points for whipsaws. We have already seen a high of 5079. The market corrected to 4933 (a weekly pivot). This fall was 27 pc of the up move from 4539.

2. The trend line joining the lows from 4539 comes to 5083 approx. The index needs to close above this for the uptrend to sustain. Weekly supports come around 5016-5022.

3. The 89% retracement comes to 5111. Beyond this level it is clear that this up move is more than just a retracement.

4. Reliance is 1 stock which has a record date of 1:1 bonus on 27th November. Typically stocks tend to move up after the ex-bonus date. This is also especially because of the perception in people's mind that the stock has become cheap. Reliance is currently trading at Rs 2125. If we look at the charts, it has broken the trend line joining the lows from Oct (Nifty 4539). If it moves up above 2150, it would also break the trend line joining the highs from October. Next would be a first target of Rs 2300.

5. Reliance formed a bullish engulfing pattern on the charts on Friday and also negating the highly bearish 3 black crow pattern.

4. Another advantage of playing Reliance is that if the market tanks, its a solid stock in one's portfolio.

5. The dollar index is strengthening. This could lead to FII unwinding. This needs to be watched. The next week is a shortened week in the US due to Thanksgiving. With our expiry on Thursday, the trend would be clear by Wednesday.

Happy Trading.

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Airport Developers: Niche Sector

All throughout history, those cities have flourished which serve as a gateway to countries. The era of colonization may be over but the adage still hold true. London,Paris and Mumbai are just few examples where cities which have ports nearby have flourished.
Airports are the new gateways to the world. Every big city in India has just 1 airport or maybe in future to have 2 airports. Airports require lots of land and its a monopoly business.
I took a look at the major airports in India. GMR Infra has Delhi and Hyderabad airports under its belt. GVK Power had Mumbai and now a 12 pc stake in Bangalore airport.
The benefit of these 4 airports is that more than half of the nation's air traffic passes through these airports.
How do these folks make money?
1. Landing charges for aircraft, passenger fees which passengers pay when they take off from the airport.
2. Ground handling and baggage charges.
3.Non-Aero streams like rentals from shops, beverages, ATMs, car hire and airport amenities.
World wide about 70 pc revenues come from non - aero streams.

These operators have the airports on lease for about 50-60 years. I am particularly excited about Bangalore and Hyd airport because they are far away from the main city and the developers get huge parcels of land around the airport to develop for commercial use.

Remember 50 years back when current airports were built they too were on the outskirts of the city but now have become central airports.

Airports fall into the category of businesses which have high entry barriers. This is because no 2 airports can be built within a radius of 200 kms and current developer has first right of refusal.

The Noida airport has not taken off because of this same fact. The Navi Mumbai airport also will remain just on paper. This is because I have visited the site and seen for myself that lot of mangroves will get destroyed if they build the airport. This is precisely the reason it is stuck with the Environmental Ministry.
Even if the permission is given tomorrow, it will take at least 5 years for the airport to be operational.

Its difficult to find new investment ideas every day. This is 1 opportunity in front of us.

Next is valuations. That is as per individual appetite. These are real long term buys with great gestation periods. Both GMR and GVK are in power generation as well which would be hived off as separate companies.

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The Broad Picture: Are we onto new highs again?

The Key event for me in the past week was the RBI picking 200 tonnes of Gold. We have come a full circle since the time, the Indian Government pledged gold with the IMF in 1991.
Are we then on our way to new highs?

Fundamentals:
The Corporate Results, by and large have been good to excellent. The bottom lines of the companies have grown more than the top lines. This shows companies are cutting costs, getting rid of the excess flab accumulated during the good times.
Autos, IT companies have done exceedingly well. At the same time, dangers lurk around the corner.
The food inflation is almost 13 pc. The SLR has been hiked and CRR are a matter of time. The early signs of revival are there, but they need to be on a sustainable basis once the crutches of stimulus are removed.
The government has come out with a disinvestment list. This bodes well for the economy and the stock markets. Governments should be in the business of running the country not businesses. This would increase the depth of Indian Markets as well as bridge the fiscal deficit.
Domestically things look good.
The catch is in the global economy. The UK government has extended bail-outs to the UK Banks. The US interest rates are almost close to zero yet again.
US risks going into a long period of no growth like the Japanese did in the mid-90s. Also, the current liquidity is leading to the Dollar carry trade like Yen carry trade.
Once, the US dollar strengthens, that is when the US Interest Rates rise on the back of Inflation, the pack of cards will collapse.
The US is the world leader. Unless US consumes, the rest of the world will not have a big audience for their exports. For all the talk of de-coupling, the global markets are still integrated.
The rise of Gold prices to 1100 dollars is seen as a flight to safety. Throughout history, Gold is the only asset to have existed for thousands of years.
Gold was Rs 6500 in 2005 and now is Rs 16500.
My preferred picks on declines would be Sugar, IT companies, Autos and Gold.
I would err on the side of caution now and stay light.

Technically speaking, the 4800-4900 is littered with resistances. We have the 5 week ema at around 4867, then the 20 and the 50 day emas in the same band. Also, the retracements for the entire fall from 5182 to 4539 falls from 4860-4936.

I would go long only on a decisive close above 4900 or short below 4700. Till then watch.

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