Will our indices close above 200DSMA indicating 'Trend Reversal"

On Friday, our indices opened flat to marginally negative and traded firm as the day progressed, as it was the first day of new series, April, during which the Q4 results of many corporates would be announced; and also the guidance, outlook for the next fiscal will be indicated. Since, the outstanding postions in new series at the opening of the day were quite low, in fact lowest in 2008 so far, addition of open interest is seen in many index heavy weights, based on advance tax numbers released by 15.03.2008. Inflation data released at 12 noon indicated an untolerable level of 6.86%, which induced traders to go short on the market at crucial resistance levels such as 4925 - 4950 etc., expecting the fall by the end of day, expecting profit booking on week end considerations, since the European Markets are trading negatively and US markets are likely to be weak over night. Fund buying in the last one  hour of trding, forced the traders to cover the shorts, which lead the indices to post good gains on friday.

 

This phenomenon was foreseen and indicated in our posting of 03.03.2008, titled How march Unfolds: "Markets will improve from 28.03.2008, due to NAV prop up by mutual funds, to close the financial year on positive note, and players will look for first quarter results in April 2008, based on advance tax payments made by 15.03.2008." Nifty and Sensex have crossed and closed above the 20DSMA firmly in the process on friday, now today being the last day of financial year, month and this quarter, similar phenomenon can be expected. Further due to clubbing of Settlements on 02.04.2008, as banks will be closed for finalising accounts tomorrow, i.e., 01.04.2008, Buy Today and Sell Tomorrow facility will not be available for investors in tomorrow's trading, for the purchased made today, which forces people to square of the transactions today it self, if one is not interested in taking delivery. Thus, only funds can control the markets today, who have vested interest in prop up of NAV at the end of this day on year end considerations.

 

Any rally, should be viewed from this perspective, as things have not settled in US, and turbulance shall continue for some more considerable time, and with inflation reaching 14 month high, for our economy, government is already, initiated measures like withdrawl of DEPB scheme, reducing tarriffs on imports, for tacklinng the supply - demand mismatch of components of CPI and WPI, for controlling inflation. Many analysts and economists are expecting RBI to initiate measures tinker with interest rates, hike in CRR etc., but in our view, as the inflation is not caused due to liquidity, money supply(M3) and purely due to supply - demand mismatch in a growing economy the monetary measures shall not yield desired results. More over since banks also will be resorting to some window dressing today, which is an usual phenomenon, to present a better picture of performance in terms of Balance Sheet size, RBI may come out with any measures by week end or next week only. FM has indicated that the inflation shall be tackled, at any cost, including compromising on growth, if moderation is required, should be noted with caution, as the current level of inflation reported at 6.86% is way beyond the year end target of 5% and crossed the tolerance level, which is already hurting the consumer in every sphere of life.

 

Nifty might post gains today too, and close positively at the end of the session, but at what level it closes will be interesting for technical analyists? 5000 to 5100 has series of resistances, and a close around 5100 today(which is 200 DSMA) with volumes and participation of all sectors, all category of players in the market shall give some hope and relief for the out performance of markets in April Month. Asian markets are trading in negative territory, taking cues from US markets, and Singapore Nifty futures are trading at discount of 70 points currently, indicate negative opening for our markets and volatility will be the nature of the markets, as usual.

 

Range for Day: Nifty might trade in the range of 4850 to 5050 today.
 

Markets now look for Domestic data on Economy and Corporate Performance!

March series settlement is behind us. Though volatile through out the day, traded in a narrow range, finally nifty almost closed flat while sensex closed marginally negative. We are almost in tune with asian peers and reacting to US markets, as major players are FIIs, every where. US markets closed negative due to dip in corporate performance, and flat GDP growth etc., Asian markets are trading in positive territory, with gains. Singapore Nifty futures indicate negative opening of 60 points for our nifty, since April futures closed at hefty premium of 24 points, indicate advantage to bears at the opening.

 

Inflation data shall be released at 12 noon, will influence our markets in a major way and investors will be looking for building positions in April series based on the expectations of corporate performance, taking into account of the advance tax payments already made. 20DSMA placed at 4861.08(Nifty) & 16205.53(Sensex) will offer immediate resistance, and a close above these levels today will augur well for bulls to take the fight further upwards to 200DSMA levels next week.

 

Caution: Investors should not have any naked positions in derivatives since Nifty is still in indecisive zone, and should completely hedge for protecting the capital and portfolios.

 

Range for the Day: Nifty might trade in the range of 4725 to 4925 today.

 

Strategy for the Day: Since the Long April Futures is running into profit currently, a stoploss of 4796.15 is to be employed for today, or hedge it with 4800 put options of April series available at Rs.159/-.

 

Derivatives Settlement - Volatility to be high!

After a spectacular rally on 25th, markets everywhere had sideways movement, and absence of short positions, gave breather to the indices, and investors in our markets, preferred to book profits, and close long positions, a head of derivatives settlement, and also anothe main consideration, for many, the adjustments to be made while closing the financial year 31.03.2008. Under T+2 settlement system, today is the last day for investors to book profits / losses for this financial year, as the pay out will be by 31.03.2008. The transactions done from tomorrow 28.03.2008, will be accounted for on 02.04.2008, in the next financial year. Huge volatility and fall of prices can be expected at the opening hours till the end of session today, in our view. US markets have opened in negative territory, and closed finally in negative territory on weak economic data. Crude (106$) and Gold (953$) are raising once again would not augur well for equities.

 

Nifty will open with gap down or trade in negative territory, due to profit booking or long roll over today. The mute question shall be what will be the spot closing price at the end of the session? February settlement price was 5285.10 and January was 5137.25, are distinct possibilities to be expected based on the current mood and scenario. While 20DSMA placed now at 4879.57 offers stiff resistance where as 5DSMA 4684.51 should offer support on weakness. Based on the put call ratio for the current series, roll over statastics, Nifty might close around 4725 today.

 

Range for the Day: Nifty might trde in the range of 4625 to 4925.

 

Strategy for the Day: Buy 4900 puts on rallies and 4600 calls on weakness for intra day trading for quick returns in current series.

It is 'Dead Cat Bounce' - Beware of Road Blocks a head!

Taking cues from global markets, as anticipated our markets posted one of the substantial gains yesterday, due to short squeeze, and bulls had upper hand, as FIIs numbers started looking positive since 24th. 5DSMA is held on Nifty, 20DSMA was not tested yesterday. Since our markets are almost aping the global markets, the negative news on home prices front which is down 11.07% lowest in the last 7 years, prompted US markets trade little choppy, finally closing in marginally negative territory. Asian markets have opened slightly negative, and Singapore Nifty futures point to 35 points negative opening for our markets too.

 

The rally of yesterday, can be termed as 'Dead Cat bounce' in technical parlance, and one should remember that we are in a bear phase, since indices are trading well below 200 DSMA, and also below February closing of Nifty 5223.50(it was the settlement price too); Today being the penultimate day of march series settlement, which is due tomorrow, choppiness can be very high today and tomorrow too, fresh long positions, on the assumption that markets have turned to bullishness will be another, gravestone mistake, usually, uninformed investors tend to make, repeatedly. Investors should exit profitable positions, on rallies, as the selling would come and continue once again, uninformed. The 20DSMA is currently placed at 4893.69(Nifty) & 16350.39(Sensex); would offer immediate resistance, for today.Staying liquid and increasing cash levels, always give ample opportunities a head, and one should not forget the golden principle "Cash is King" and I liked the statement of one analyst, recently, advising investors that 'Cash" is also an asset class, which is forgotten by many!

 

Range for the Day: Nifty might trade in a range of 4620 to 4920 today.

 

Strategy for the Day: Buy 4900 puts on rallies and 4600 calls on weakness in current series for intra day trading.

Correction in Commodities prices help recovery in Equity prices!

The trading was volatile as anticipated and indices have closed in positive territory inspite of the overall market breadth being highly negative. Short covering with long roll over to next month series in index heavy weights, will continue today too and markets will post further gains. US markets opened firm yesterday and closed in positive territory, on the news that JP Morgan increased the acquisition price of Bear Stearns, the troubled 'investment banker' , from 2$ to 10$. CBOE index is dropped to 25 now from the recent peak of 34. The commodities which were rallying on the weakening of US $, as most of the hedge funds, booking profits in equities, or after suffering losses in equities, have been parking the funds in commodities. Already commodities have corrected anywhere 10% to 15% by now, and might correct another 10% in due course of time. Slowly these funds re- enter equities, with sentiment too improving, which shall give a relief rally from 28.03.2008.

Nifty will be volatile during this week on account of expiry of the settlement on 27.03.2008, and it has closed above 5DSMA (4593.15) yesterday, if held will attempt the 20DSMA now placed at 4909.41 during the week. Nifty Singapore futures are trading positive with 66 points gain at the moment.

Investors looking for building long term portfolios; can pick up Andhra Bank, Uco Bank, Vijaya Bank, Nagarjuna Fertilizers, GSPL, GMR infrastructure, Itc, Wipro, Reliance Communications, some that have corrected very steeply and are trading at quite attractive values. One should avoid all momentum stocks such as RNRL, etc., which have reached astronomical valuations, due to investor frenzy in the beginning of 2008. Protecting capital and staying in cash will offer number of opportunities during this 'bear phase' to pick value picks, at any opportune panic reactions.

Range for the Day: Nifty might trade in the range of 4450 to 4850 during the day.

Strategy for the Day: Buy 4500 Calls on weakness and 4800 puts on rallies for quick returns, in intraday trading.

Truncated week ends on negative note! Expiry week to begin with volatility!

US Fed announcing one of the higest interest rate cut in the last 2 decades in single stroke, enthused US markets on 18.03.2008; which have posted one of the largest ever gains on their indices. While this was in line with expectation of the market participants, the fears of recession are confirmed, with this regulatory action. A mix of positive and negative news every alternative day, from US economy, will throw one of the higest volatility on its indices, however, S&P 500 and other indices, seem to have found a short term bottom, and after some struggle, indices will move up with volatility, as the risk aversion to equity is at its highest point. CBOE volatility index being around 30 and its moving with 10% alternatively, suggest that bottom formation is in process, as indices trade at the lower end of yearly range.

 

Coming to our indices, the truncated week, did not allow most of the traders and investors, to carry over the long positions, nor create fresh shorts, due to huge gap up opening on 19.03.2008, as intra day squarring up of positions, to take home whatever little or more profits, was the theme. Because now a days, Gap up and Gap down openings leave no chance for traders to take a directional view, either overnight or during the market hours.This is the reason why there is low open interest in derivatives and low turnover. Markets jump up or fall steeply as only institutional players are operating mostly now a day, as they do not trade and either sell or buy at their technical levels. Nifty has closed negatively for 3rd week in succession, though closed mildly positve on 19.03.2008. One heartening feature is that January low of Nifty is still held though Sensex breached and closed below it, during this volatility and carnage. However, both Nifty and Sensex have closed below 5DSMA (Nifty 4595.89 & Sensex 15151.13) though held the gap up openings on 19.03.2008. Much cannot be read as the trading  days are restricted to 3 only this week.

 

Expiry Week: When markets open for trading on 24.03.2008, most of the news is already out, inflation has reached 5.92 one of the highest in last 45 weeks, prevents RBI to tinker with rates, inspite of Fed, totally reducing rates by whopping 3.25 since the turmoil started in January, 2008. The interest differential is showing its effect on every sector of Indian economy, and moderation of growth is being predicted by economists for next fiscal. Advance Tax numbers of most of the corporates are very robust, and are in line with market expectation, excepting Tatasteel and some other companies. Commodities are correcting steeply, Gold loosing 80$ from its top of 1010$ per ounce, Crude correcting below 100$, other ferrous metals correcting steeply due to strengthening of dollar & profit booking augurs well for equity markets.

 

Hedge funds, which moved out of equity markets to commodities markets, when book profits there, would look to equities as they have corrected around 30% level from their peaks world over, this situation would improve liquidity for equity markets and relief rally can be expected from 24.03.2008, while the bear market structure will continue. Expiry of current series on 27.03.2008 will be very interesting and whether the spot nifty closes below Jan/Feb settlement price wil give a clue to next month series. As the open interest position indicates currently, 4500 puts are sold heavily in current series along with 4600 & 4700 calls. Thus nifty should hold 4500 level on closing basis, in case of any positive news flow,  and sentiment improvement, huge short covering of 4600 & 4700 calls will push the Nifty upwards. However, 5000 will be tough level to breach as Nifty is trading in lower block of 4500 to 5000 during this month and never closed above it any day till now.

 

Range for the Week: Nifty might trade in the range of 4450 to 5050 during the week.

Bulls will have the last laugh!

Our markets were volatile in tune with asian peers, finally closed flat to marginally positive territory, as investors booked profits intraday, a head of an important event..FOMC meeting! Roll over of Short positions to next month series were seen which prompted the upsurge initially as shorts in current series are covered first and then in the last hour of trade, they are created in the next month series. Such volatile movement is common in the pre expiry period. Better than exprected results from Goldman Sachs and Leeman Brothers, before trading hours in US markets, and expectation of substantial rate cut by Fed made European markets to trade strong and close firmly with substantial gains. US markets have opened very strong Dow surging 300 points in the opening trade and Fed announcing 75 basis points cut bringing the rate to 2.25 in finality, helped the indices to post one of the largest gains in a single day ever!

Whether these measures will bring the economy back on track, arrest the financial crisis, and bring back investor confidence in US markets can unfold over a period of time. As far as today's trading, Asian markets opened strong and trading firm, on strengthening of the US $, and Singapore Nifty futures are trading at a premium of 236 at present to yesterday's closing of Nifty, augurs well for our markets. There will be a gap up opening, due to short squeeze, the normal trading hours begin from today, should help stability for our markets. Previous Week's closing of Nifty 4745.80 & Sensex 15760.52 would offer stiff resistance today, and profit booking by traders, and investors since our markets are closed for 2 days from today, shall bring in volatility. If our markets close above the previous week's level, with volumes and all round participation today, then we can assume that we are out of woods for this month, at least.

Range for the Day: Nifty might trade in the range of 4500 to 4750 during the day.

"Bear stearns Collapses on US bourses and Bears on prowl on every market"

Our indices had gap down opening as predicted, on weak US & Asian markets cues, traded in negative territory, since absence of buyers allowed every stock to have free fall. Sensex breached 15000 mark effortlessly and Nifty 4500, creating a panic like situation. While Sensex made a new low for 2008 at 14738.27; Nifty is in striking distance of January low of 4448.50; Bear stearns liquidity concerns sent the stock reach 4$ level by yesterday in just two days from a level of 58 $ from last thursday nightclosing. US fed came with an emergency 25 basis cut discount window for injucting liquidity, JP Morgan came as suiter to help Bear Stearns a bail out come take over, did not go well with markets world over. Investments in Indian companies by Bear Stearn viz., Orchid Chemicals, JP Associates to name a few, suffered huge losses, as the Rs.236 crores is realised on liquidation by the investment bankers in a single day trade to pay to Citibank and Meryl Lynch, as reported on Indian bourses.

Recession of US economy is confirmed by all economists and analysts, the mute point of discussion now is only how deep and long it will last?. Indian markets entered into a bear phase, which shall now continue till June 2009, as being indicated in our reports, and investors have to live with this volatility during this period. Bottom formation process when it begins, we will have the first clues of building portfolios, and investing in stocks. Preserving capital, staying in cash should be the main theme now on. The sentiment now with investors will be "Sell on Rallies" as the flow of bad news will have higher edge over good news, during the year at least till June 2008. FOMC meet begins tonight, the action or non action, the reading on their economy, inflation and interest rates will be minutely watched and dissected by the analysts around the world to know the future course of markets. Crude and other commodities are cooling due to profit booking a head of FOMC meeting;

Dow Jones closing positive, and asian markets opening and trading mildly positive would give some relief to our markets too today. With one more trading day to go this week, traders and investors would be exiting with small profits intra day, which will create two way movement, with roll over of positions next month series to commence from now on. Singapore Nifty futures are trading at 60 points premium currently indicates flat to positive opening for our markets today.

Range for the Day: Nifty might trade between 4400 to 4700 during the day.

Inflation crosses 5% and crude stabilises above 110 $

Sensex breached January Low during last week, due to Yen carry trade unwinding, as Yen breached 100 mark against US$ due to dollar weakness. While Nifty found some support at 4580.15 on 12.03.2008 markets had some relief rally from there on emergence of value buying coupled with partial short covering. However, Both Sensex and Nifty have closed for the second consecutive week in negative territory, below 200DSMA confirms the grip of bears on our markets, which join the global weakness. So naturally, re-coupling story is being advocated by most of the analysts.

Inflation crossed 5% and in actual terms should touch 6% very soon, as the hike in oil price and Steel price are not yet included so far. Slowing down of our economy too in this year, compared to robust growth in the earlier years, is evident from the fall in capital goods growth numbers and manufacturing data released for January. Higher interest rates, input costs, will certainly keep the prices of commodities higher, and consumption shall slow down. Bear Sterns problem of liquidity made US markets tank on friday night, and the bail out package through JP Morgan, confirms that the serious financial system crisis in US still not yet over. Asian markets opened in negative territory, taking weak US cues, and singapore Nifty futures point to 140 points gap down opening for our markets too.

US Fed announces 25 basis points discount cut, a head of FOMC meet on 18.03.2008, to injuct liquidity, increasing the tenure of this option from 30 days to 90 days, is to be kept in mind, which might bring some stability to US markets to night. Technically, Nifty January Low of 4448.50 was exactly 30% retracement level from its peak made on 08.01.2008; which should offer good buying opportunity as domestic funds which are sellers for some time, might lend support at these levels, Corresponding 30% level of Sensex works out to be 14844.74. These levels may be tested, but should be held during this month, in our opinion. The trading is restricted to 3 days only from today for this week on account of 2 holidays Milad Un Nabi and Good Friday, and the Sun outage period of extended trading shall come to an end by tomorrow. From 19.03.2008, normal trading resumes, by which time advance tax payment numbers, and further FOMC action would be known.

Strategy for the week: One can go long on April futures which are available at 18 points discount to the spot on weak opening of Nifty, and hedge the same with going long on 4500 put option of current month series, which require an investment of Rs.50000/- (for meeting margin and premium)

Nift range for the Week: 4450 to 4950

Crude touches 110 $ and retreats - whether bottom is found on 10.03.2008?

Our markets opened in negative ground, taking overseas cues, and quickly recovered on short covering, coupled with some follow up buying in index heavy weights, which have become attractive for long term investors/funds. Both Sensex and Nifty closed in positive territory, around 5DSMA levels, indicates a relief rally. With crude touching 110 $ and retreating on profit booking by traders, and US markets posting one of the highest ever positive closing in the recent times, on Fed moves to injuct ample liquidity, augurs well for asian markets as well as our markets too.

 

Gap up opening on our indices is foregone expectation one can have, and the behaviour of the indices around 200DSMA levels, where profit booking can be expected by short term players, as the sentiment is weak due to prolonged bearish ness in 2008. Investors holding profitable positions can book partial profits around higher levels, as they would get ample number of opportunities to re enter the same stocks, or move into quality, growth oriented, blue chip stocks, and should be cautious with momentum stocks  which have made retail investors to loose more money, as most of them will be illiquid. Recession or Stagflation of US economy is in store during 2008, which certainly is not good news to equity markets, as more skeletons from the cupboard, in the form of loan losses, write offs will be known at the end of this quarter, markets around the world will have the volatility. 

 

Gap down and Gap up openings can not give profit, unless one has overnight position advantageous to book the profits in derivatives trading. If our markets cross 200DSMA and settle above it with volumes in this rally, we can presume that a bottom is formed around lows of 10.03.2008 for the month, as January Lows are held.

 

Strategy for the Day: Buy a Strangle of 4800 put option and 5100 call option at the opening prices for intra day trading in current series. 

Crude touches 108 $ on dollar weakness

Our indices opened gap down on weak global cues and Sensex almost touched January low, where fund buying coupled with short covering, brought the Nifty into positive territory, after very volatile trading. Higher volatility is an indication of either bottom formation or top formation. Since we are in down trend, it may be an indication that our indices may be trying to find bottom. Nifty closed just at 4800, in positive territory, where as Sensex marginally in negative territory, both far away from 200DSMA levels which now stand at Nifty(5067.63) & Sensex(17230.93).

 

Crude touched 108$ per barrel on the weakness in dollar, and seems to be stabilizing above 100 levels; is a cause of concern for all economies figting raising inflation. US markets tanked once again overnight due to bad results from Black stone, and asian markets are trading negative. Singapore futures point to 120 points gap down on Nifty at present, and we can expect the volatility to continue today too. Revisiting January levels is being advocated by most of the technical analysts, and some are expecting even breach of the same too.

 

The long term bull market is under threat now, as the sentiment is very weak, since companies like L&T also are taking hit on account of other than their main business(it reported a loss of Rs.200 crores on hedging in commodities market). Liquidity pressure shall be there till corporates plan their advance tax payments due by 15.03.2008.

 

Range for the Day: Nifty might trade in the range of 4650 to 4950 for the day.

Had Indian Bull Market too entered 'Bear Phase'?

Our indices opened gap down on weak global cues on friday morning, and in the absence of any buying support, breached important level of 4800 on Nifty and 16000 on Sensex, effortlessly. The situation became worse with the release of inflation data showing more than 5% for the first time since a long time, and the opening of european markets in negative territory aggravated the selling in the last hour of trading, finally the indices closed below above important levels, confirming the grip of bears on the markets. Most of the index heavy weights have breached their 200DSMAs and are looking weak. US markets have closed in negative territory on friday, and asian markets are following suit.

 

This week is crucial for our markets, to see whether relief rally emerges with fund buying or weakness continues due to liquidity out flows on account of advance tax payment by corporates by 15.03.2008 & FOMC meeting scheduled on 18.03.2008 would influence the markets in general. India growth story is very much in tact, where as sentiment is very weak, as investors have lost money in 2008 already, so risk aversion continues till dust settles. REC shares will be listed on 12th on our bourses, and the behaviour of indices around 200DSMA, on any relief rally will confirm the on set of bear market, which may take 6 months to 18 months time for it to end. Thus, investors should remember that the days of easy money are over for the present, and it is traders market who have professional expertise, to move with the swings.

 

Range for the Day: Nifty might trade in the range of 4650 to 4950 for the day.

 

Crude touches US$ 106 and BOE leaves rates unchanged!

Our Markets were closed on account of 'Maha Shivarathri" holiday yesterday(06.03.2008), while they closed in positive territory on 05.03.2008 after volatile trading, but they are still way far below 200DSMA on both indices. Crude touched 106 $ as OPEC decides to maintain the same level of production, and US inventories shown fall. Bank of England has left the rates unchanged at 5.25 as it expects the inflation to touch 3% with raise in crude prices. These indicators made investors nervous in Europe and the european markets posted losses, and US markets tanked on further weak data from Home sales etc., overnight. Asian markets which recovered yesterday and posted gains, on the strength of overseas cues are trading in negative territory already.

Our markets will continue to be volatile as marginal purchases by long term funds around 4800 on nifty, have held this level till now. The sentiment is completely shattered, and every raise will meet with liquidation by trapped bulls, and if 4800 is broken, then margin calls will trigger further fall easily. Increase in Short Term Capital gains tax to 15% and treating STT as business expenditure are direct hit for traders, jobbers and market makers, who create liquidity and volumes in any markets. The fall in volumes in our markets is a direct indication of lack of interest and participation by these group of players. Inflation data will be released by 12 noon which should have further uptick, as the raise in petrol & diesel and other commodities will be taken into account.

In our view, even if 4800 is breached intra day or during the month, march closing on settlement day should be above this level, thus one has to watch this level carefully, to decide on the long term trend of our markets.

Strategy for the day: Buy 4800 Calls on weakness for intra day trading.

Sensex breaches February low and closes below it!

Our indices opened marginally positive initially, due to positive trend in asian markets, and were very volatile through out the day, as european markets opened, Sensex Februrary low of 16457.74 and closed below it at 16339.89 finally. Where as Nifty has held 4800 level in the carnage, which is the downward range and support advocated in the earlier posting. Both the indices have closed below 200DSMA firmly for two days, make things difficult for the trend to reverse immediately, as bears hold firm grip on all markets. Now the 200DSMA offers stiff resistance to any relief rally and trapped bulls will liquidate their positions, as the month of march is already having continuous down tick days.

 

In this type of uncertain times, safe investment principle shall be picking stocks with good dividend yield, low P.E. and having growth stories in tact. PSU stocks and PSU banks offer great value on every down tick. Indian economy growth momentum shall be intact, in spite of what happens globally, like recession in US etc., as they cater to domestic economy which is buoyant. Price to Book Value of some of the PSU Banks looks quite attractive as they offer decent returns, in long term portfolio; One should stay away from over owned stocks like infrastructure, momentum stocks which have reached astronomical levels during the euphoria of bull markets, on futuristic stories doing round during 2007.

 

We have indicated in our posting dated January 8, 2008 "At the outset a happy new year to all viewers of the blog! 2008 shall be a tough year for equity and financial markets, as inflation, raising commodity prices, Elections for US president, and last budget from UPA, certainly aiming at the early elections in 2009; would bring in huge volatility on indices world over, including Indian Markets.

 

One need to understand that bearishness will not continue daily and indices will not become zero, there will be relief rallies and out performers in such markets too. One needs to devise a strategy to identify such opportunities and churn the portfolio, instead of thinking that momentum stocks having corrected 50% to 60% will go back to original levels, have sleepless nights.

 

Strategy for the Day: Buy 4800 calls on weakness and 5200 puts on rallies for intra day trading.
 

Freee Fall of Indices breaking 200 DSMA!

As anticipated our indices have opened gap down, and unabated selling through out the day persisted. Nifty opened straight away below crucial support of 5110 and held for some time around 200DSMA placed at 5056 and further selling once European markets opened for trading around 2 p.m. broke this level to see breaking of 5000 mark on Nifty and crucial 17000 mark on Sensex, finally both indices closing below the 200 DSMA for the first time in 2008. In all earler corrections of the current bull rally which is 5 years old now, indices have breached this long term support intra day only, and bounced back quickly above it immediately, which whether will happen this time, is a big question?

 

In the earlier scenario, the participation of players, sentiment, news flow and liquidity were supporting the bounce and markets went on to post gains and make new highs, whereas the current scenario is exactly the 'opposite' Thus, can we call it a bear market from now on? Definitely it is the first sign of on set of a bear market, and the length of the bearish ness can vary anywhere from 6 to 18 months from now on, in our opinion, for the sentiment to come back with participation and volumes. It is mostly the institutions who are at play right now, thus technical levels play importance, the institutions do not trade, and indulge in buying at key support levels and selling at key resistance levels, and also indulge in churning of portfolios to tune the tax proposals and look for defensive bets in bearish environment, and exit where the valuations are high and astronomical, due to over owning phenomenon.

 

4800 on Nifty is the important level for this month, where one can expect support to emerge from institutions, since by that level nifty should have corrected 8% from February closing, would offer substantial on a bounce or relief rally. 200DSMA is placed at 5056 will offer first resistance, and 5110-5140-5180-5225 will all become supply zones, on any rally due to the melt down seen in March already by trapped bulls. Trading hours are extended till 4.15p.m. from today till 18.03.2008, due to sun outage, with a break at 11.45 hrs to 12.30hrs in between on NSE which is a period generally associated with volatility as per the experience faced earlier.

How March unfolds!

Union Budget 2008-2009 presentation, uptick in inflation data on friday, had their toll on our indices movement, which were volatile in a range of 200 points on Nifty. Nifty and Sensex have closed positive, week on week, bouncing from key support levels during the day's volatility, finally closed in negative territory comparable to thursday closing. While Nifty closed firmly above January closing and also above technical level of 20DSMA, Sensex failed to close above January closing, gives an indication that the uncertainity shall continue for some more time. US markets tanked on friday again on resumption of recession fears, asian markets are following suit with deep cuts, and Singapore Nifty futures are down by 140 points at the moment, indicate weak opening for our indices too today.

Union Budget have number of positives, like reduction in Excise duty across, Customs duty on specifics, raise in income tax exemption limit upto Rs.1.5 lacs and revision of slabs will keep good amount in the hands of tax payers, which will help the economy and individuals in particular, will be digested by markets players slowly and liquidity, advance tax collections by 15th march, 2008, FOMC meeting scheduled on 18.03.2008 will influence the markets during this month. Settlement of Nifty positions for the month being scheduled on 27.03.2008; with number of trading holidays in between, keep participation at lower levels. Markets will improve from 28.03.2008, due to NAV prop up by mutual funds, to close the financial year on positive note, and players will look for first quarter results in April 2008, based on advance tax payments made by 15.03.2008.

Thus, with no domestic triggers during the month, our markets will be reacting to the overseas cues, as FIIs are still the largest owners of majority of index heavy weights. In our opinion, any weakness to September closings levels of 5022 on nIfty is a good buying opportunity in blue chips, for building long term portfolio. Nifty may move in the range of 4800 to 5800 duirng the month; break out of this range in either direction will decide the long term trend of our markets, where most of the analysts are thinking that the current weakness is correction of long term bull market.

A word of caution: Bull markets end while everyone is thinking that the weakness is a correction, and on set of bear markets is realised by everyone, when enough damage is already done. Every one should hedge the portfolios with proper hedge depending on one's own risk perception.