September Derivatives Settlement as anticipated!

It was anticipated that this month Derivatives Settlement will be around 5000 levels on Nifty, based on the average weighted price of Nifty from previous settlement till the date on which previous report was written on 23rd. Today the Nifty settled at 5015, with see saw movement during this entire week owing to overseas news flow and volatility in currency movement. Tomorrow being the last trading day for the month, quarter and half year, it is to be seen whether Nifty will close above 5000 levels as it closed exactly at 5001 on the last day of august.

Germany's lower house has passed the Euro Stabilization Fund with good majority during market hours by afternoon, which has helped the sentiment in European markets, and this has helped in some short covering in the last 2 hours of trading. The subject will be put up for vote of approval tomorrow at the upper house, and this will send some calmness for overseas markets and currency temporarily. The real issue of debt default crisis which is haunting European countries, cannot be solved with these short term measures, unless the respective governments tighten their fiscal situation, creating environment for moving towards growth, as the global recession is almost certain, with all the data supporting this happening, if not already in place?

Coming to our economy and government action it is very disturbing with falling IIP Numbers, raising Interest Rates and Inflation, the investment climate is disturbed. There is disconnect between high commodity prices, while the recession is gripping global economies. Sudden sharp correction is overdue in Indian bourses, which are holding 4720 level so far during this year, I therefore see that higher volatility will continue till Diwali (26.10.2011) as the advance tax numbers do not suggest better performance by corporates for the quarter ending Sept 30th. There might be some built up in positions anticipating better performance from IT sector, leading in to Infy results in view of the weakening of rupee, and the markets might face downward pressure post the announcement of results and the guidance for the next quarter, which is generally the shortest one, owing to the holidays and also the business outlook from US and Europe in view of the present slow down being experienced there.

The financial sector, Banking in particular faces NIM contraction, raise in provisioning due to loan deliquencies, raising pension payment and above all firming of interest on long term dated securities which shall call for higher provisioning, as government has announced higher market borrowing for next half year amounting to Rs.52,800 crores, while retiring Rs.15,000 crores of Short Term Securities ( Treasury Bills).

Breach of 4700 and close below 4650 will push markets to further lower levels, as most of the long term investors and funds are supporting this level for the past one month. The capitulation move will happen sooner than later, if the uptrend now fail to breach 5181 level, as the Nifty turned downwards already 3 times, therefore, investors should be light on long positions, and sell on rallies until Nifty consistently trades above 5360 with all round participation and volumes, which can confirm medium term bottom around 4700 - 4750 zone, for this calender year.

Strategy for next Series: Investors can buy Straddle of 5000 and watch the volatility to book profits.

Happy Trading!

Weak Indian Rupee causes Mayhem on Indian Bourses

FOMC two day meet did not bring any positive indications or road map to solvage either the US economic or fiscal problems, which most of the investors and traders world over were watching keenly. In fact the head room for any step on monetary measure by Fed is already exhausted long ago as the interest rate is quite low for considerable time. Fed Chairman in his last meeting has already announced that there will be freeze on the interest rate movement till mid 2013, was a clear indication of his helplessness. What the US Government can do is to be only will put their house in order, bringing stability to global economy and world markets in times to come.

The reaction on US indices was reasonable as expectations were buil7 a head of FOMC meet. However, the strengthening of US $ has lead to weakening of currencies world over, and the rupee breaching 49 levels, has caused havoc for Indian equities, where FIIs and Hedge Funds investment will have double whammy with prices falling and rupee weakening simultaneously. Nifty Futures opening with a price of 5010 as against 5133 closing previous day, clearly confirms that these category of investors, have thrown their towel and ran away from our markets. The huge gap down on both the indices, continued the bear grip through out the session and once Europe opened with losses ranging from 3 to 5 %, there was breach of psychological level of 5000 on Nifty too. For yesterday, 4910 was defended intra day, which is tested the third time already in recent past, and the closing of 4923 was positive for the day.

With US markets tanking further 4 % down, and the Rupee likely to touch or breach 50 levels today, SGX Nifty is already indicating breaching of 4900 at the opening itself, however, whether 4800 will  be held and closing happens above 4845 today, needs to be watched closely, as it is week end session too. In my view, this level will be held for today, as we move into the settlement week later. Nifty September derivatives settlement which happens on 29th should be around 5000 levels and 30.09.2011, the last day of the month, quarter and half year should see better closing. 

With all the events behind, markets will concentrate on local issues while keeping watch on global developments, however, higher volatility in the range of 4800 to 5200 is a positive sign for base building for any further rally post Diwali. Domestic situation is also clumsy with Government caught up in number of scams, and lack of authority and will to move a head firmly, from PM is a main cause of concern for our economy and markets.

It is confirmed that our markets will continue to offer only trading opportuniites in 2012 too.

Trading Strategy for the Day and Month: Buy 4800 Calls and hold till expiry, if the market opens below 4900 today at the opening.

Happy Trading! 

Have Indian Markets bottomed out??

The price action in our indices during August 2011 and steep fall in all most all index stocks, touching new 13 months lows, due to relentless selling by FIIs and Hedge Funds, made equity investments highly risky, and the question being asked by everyone is whether a bottom is found around recent lows....4720 on Nifty??

The answer is both yes and no. Technically, most of the analysts following Dow Theory, expected Nifty to take support in the region of 4700 to 4800, where mulyi year long term support emerges, for  the long term bull market began in 2002, after a ten year bear market from 1991 to 2001. The level of 4650 to 4750 offers good support zone, which is also a fibonacci retracement level of entire up move of larger bull market from 2002 too. Now the mute question is whether this support holds in the next down move, whenever it happens, owing the almost confirmed US recession, and the turmoil of debt markets in Europe, where developed markets are bleeding continuously?

My reading is short term trend is down, medium trend is sideways where as long term trend is up until 4720 holds. 4650 to 4750 range will be re-tested before this diwali, andour  markets might  rally to 5300, or even much higher levels, before the next major down move happens. Only a rider shall be, any external shocks like, collapse of Eurozone, due to break up of Euro as nation after nation are landing in to debt crisis in Europe, and the contagion effect on US can have their rub off effect on all markets globally, including our markets too, as it would change the equation of inflows, currency valuation, etc.,

What an investor in indian equities is supposed to do  in these uncertain times?? Invest in beaten down stocks / sectors..Invest in Mutual Funds...Invest in Gold..Go for Bank Fixed Dposits.. The answer is not simple and straight for every one. It all depends on the risk profile of each individual and the long term goals.

Let me take up one by one..Equities...Invest in Index heavy weights..preferably PSU stocks,with good fundamentals, as the businesses will continue irrespective of the state of economy, and any trouble to their finances, receives the Government support. Identify the next bull market leaders and start building a portfolio for substantial returns.. will discuss about individual stocks separately.

Mutual Funds performance depends on stocks they hold, and fund manager's skill but can give returns only in Bull Markets. Some sectoral funds have performed in bear markets and bear phases of Bull markets too.

Invest in Gold even at current price because, there is going to be a crisis of international medium of exchange if US dollar looses its shine. Gold has risen very steeply from last diwali to this diwali from 20K to 30K as predicted by some analyst, during last year diwali time, which I was not believing. The current price is quite high, and one gets a doubt, whether it would fall from here along with other commodities and markets? According to an analysis, Gold has not performed in the last 20 years, and now entered multy year bull market, would continue to post new highs, with intermittant corrections, as Governments also started accumulating Gold Reserves in huge way, in the recent times. Recent peak of $1918 once taken out it will be into an unchartered territory..shall quickly cross $2000 and in due course might touch $3000 too, as all great investors like Tim Rogers, Marc Fabers, are all bullish on this Yellow Metal. Therefore, I stongly recommed investing in Gold ETFs in SIP mode for averaging the price from now on, for the coming few years, to reap in good returns.

Bank Deposits of PSU Banks are offering 9.5% taxable return which does not beat the inflation also hovering around the same level, but if one is risk averse, this is best instrument, as capital is secured, and interest rate cycle shall peak with another maximum two more hikes of interest rates by RBI.

Finally on Nifty, indices will be volatile during September as events unfold on 15th (advance tax payments) 16th RBI's policy statement, 22nd and 23rd FOMC meet and statement on QE etc., 

It is a traders market only..not yet investors market in short to medium term.

Strategy for the Month: Buy 5000 Straddle of September Series, and exit on profits, 

Happy Trading!

Nifty tests 4800 level and what is Next!!!!!

In my earlier note I have mentioned that 5200 will notbe broken in hurry during August, 2011 and I was proved to be completely wrong, owing to global crisis in Europe and USA, equities as a class of investment became totally orphan.... The ease with 5200 is taken out followed by 5000 in the complete sell off in response to the global turmoil, has shifted the range too, below 5200 levels. Nifty moved in the range of 5200 and 5800 during entire 2011, both the indian indices making new yearly lows and 52 weeks lows everyday for the past 10 days, brought the values of index heavy weights like RIL to very attractive levels. With Nifty touching 4796 on last friday, and bouncing back to 4850 levels, gives rise to two scenarios.

1. Nifty having completed 38.2% retracement of entire up move, can consolidate between 4800 and 5200 for some time,before the next break down or break up shall happen.

alternatively,

2. Nifty might continue the down ward journey and test 50% retracement levels around 4200 in this leg itself, with minor bounce due to derivatives expiry and because of oversold position in all counters including Nifty.

My personal view, is that nifty shall hold 4800 level for some time, as the time wise correction came much faster than anticipated, due to external factors, and astrologically, Planet Mercury who went into retrogression from August 3rd, 2011 will become direct from tomorrow...August 23rd, 2011, which will change the direction of existing trend, as observed on number of occasions, in the last decade, by me and eminent astrologers. As we go into expiry of August Settlement this week, I hope that some relief rally shall happen from here on, and the advance tax numbers as on September, 15th followed by RBI's monetary policy announcements and action based on inflation data in the coming two weeks, will influence indian markets, as I feel that RBI might pause to raise rates for some time, as the Crude Oil has cooled off, which helps the Indian OMCs and Fiscal situation too.

Strategy for the Day: Aggressive traders can buy 4800 Straddle of September for good returns, as IVs are high, with CBOE and VIX indices shooting up. One need to have strict stop loss owing to one's risk taking ability. Will suggest Trading Strategies for this settlement separately after seeing the price action today.

Happy Trading and Investing!

Strategy for August' 2011

July Series and month ended within the range of 5400 to 5800 predicted at the beginning of the month and a strategy of selling straddle resulted in profit. RBI surprised markets and all analysts with 50 basis points raise in Repo and Reverse Repo rates in its monetary policy meeting on 26.07.2011, which brought our markets into bearishness again. The results season of Q-1 performance was mixed. While the inflation continues to raise, the pass on effect of petroleum products will be felt in the coming weeks, global markets kept their watch on US debt ceiling issue, and the resultant impact on its economy as well as Global GDP performance in the coming quarters.

The news from abroad is not encouraging either Europe or USA., as the economies and governments are battling for recovery, from the slowdown, and to avert recession. Our markets especially Nifty breached 5400 in yesterday's trade and made a low at 5378, before it finally closed above 5400, is well below July settlement closing or monthly closing. August month has no triggers on the positive side, and the Indian Parliament is in session, our markets have always fared badly, while Parliament is in Session, on most occasions, as Government will find it difficult to take any policy decision during the periods, by passing Parliament.

Therefore, I see a narrow range for the nifty, with a downward bias for this settlement, as the participation is low due to 'risk aversion'. Crude cooling off with weakening of US dollar is a good news for our markets, and if it falls further, there could be a relief rally. Gold hitting new all time highs touching $ 1678 per ounce overnight, and analysts predicting it to touch 1800 $ per ounce in this journey, points to lack of interest in equities or risky assets, by investors. I do not see Nifty breaking 5200 in hurry during the month on the down side, whereas 5650 itself will be a big challenge as trapped investors, push sales at every technical level of Nifty..viz., 5440, 5477, 5532, 5580 5612 and 5647.

One Can construct a 'Collar' buy going long on August Nifty at CMP(5430) with a stop loss below 5350, and also hedging with a put option of 5400 at CMP Rs.80/- and also selling 5500 call at Rs.63/- in the opening trade today. This Strategy shall require an investment of Rs.50000/- (approx) for margin initially.

Happy Trading.

RBI MONETARY MEASURE SHOCKER TO INDIAN MARKETS

RBI has come out with a shocker of raising the Repo and Reverserepo rates by 50 basis points, as against street's consensus expectation of 25 basis points, which has sent jitters in all interest rate sensitive sectors, like banking, automobiles and real estate sectors. Being an ex-banker, I am extremely happy with the RBI's decision to take 'inflation' bull on by its horns. The current inflation is really hurting everyone, mostly common man, the pass on effect of raise in petroleum products is yet to be built in. The Government policy to do away the subsidies gradually on Diesel, Kerosene and LPG (domestic consumers) will further make these products costly, in the months to come, which inturn will push the manufacturing, production and transportation costs, across all sectors of economy. Therefore the inflation not coming under control is well written on the wall for a year or two.

How much raise in interest rates by RBI will help in controlling inflation is a big debatable point, however, RBI has this monetary instrument in its foray to pre-empt the possible shocks, even from externally like the debt market crisis in Europe and possibly in USA??? August 2nd dead line for allowing the borrowing by US Government is already making US markets lot nervous, also has the rub off affect on all markets including our markets.

Well, as forecasted by me July series are likely to end between 5400 and 5800, the result of which will be known at the end of trading today! The strategy has given good return for anyone who has followed. I will come up with the strategy for August series in tomorrow's article, after analyzing the technical pattern of nifty at the end of the day.

Strategy for the Day:

Short term traders can go long on 5400 calls today, at the opening for a bounce and exit quickly, with profits.

Happy Trading.

Nifty levels for July 2011

June Settlement happened in style, where last week of settlement, seen a spectacular 'short squeeze' and Nifty settling exactly around 200 days EMA. FIIs have pumped in more than a billion rupees in the last fortnight. Once the settlement is behind, markets are languishing in a range of hundred points (5600 to 5700), where DIIs are net sellers on rallies though FIIs are marginally net buyers. Retail participation is completely absent, as lot of bearish sentiment is in mind, due to the huge volatility seen during June.

Results season unfolds from next week, and RBI policy in the last week, on set of monsoon as well as estimates and actual data on precipitation, will be watched closely. Inflation being very high, and Interest rates not peaked out as of now, and Government is moving towards decontrolling the other petroleum products, gradually, are all negative for risky equity investment. I am foreseeing that Nifty might not be able to move above 5750 during July, as 200 day SMA would fall around the same level, and the recent relief rally in june, made upward gaps, closest between 5600 to 5606, is held till now. Nifty should ideally consolidate in a narrow range of 5450 to 5750 during the month, and take out the 200 DMA (SMA) may be next month or so., 

One can play a short strangle of selling 5400 put and 5800 call for july series, duly protecting with stop loss, with a hedge of going short on nifty future below 5450 or long above 5750, if it gives a breakout of the range.

Happy Trading!

Nifty levels for June'11

Dear All,

2011 has seen lot of volatility in Indian Stock Markets, though developed markets like US and UK are in multi year Bull phase. From the day one our markets started falling from the peak made in November' 2010 during diwali, raising a question whether we will be in a bull phase or bear phase during 2011. Analysts are divided over the technical levels of supports and resistances, as the market started moving in its own way, since it has its own dynamics, and some pundits put it 'its own mind'.

Instead of drawing the levels for entire year or more, I wish to look at the pattern that is developed over past 5 months in 2011, and try to forecast the range and levels for June'11.

On monthly closing our markets have the following low( 5333.25 on Feb'28th 2011) and high( 5833.25 on Mar31st 2011) as far as Nifty is considered, which is taken as basis, since the volumes traded on NSE are larger, and maximum Derivatives are traded on NSE, which give indication of futuristic view of option writers.

Month    Closing on Nifty on the last trading day of the month

January     5505.90

February   5333.25

March       5833.75

April         5749.50

May          5560.15

From the above data, I am of the opinion that Nifty should move in the range of 500 points, i.e., 5333 to 5833 during the entire year. Well, once the high or low are broken decisively on monthly closing with volumes and participation, then our markets will witness prolonged bull phase or bear phase.

June Derivatives settlement, and last day of the month fall on 30th, which has lot of significance, as 2 quarter closing, for MFs to show better NAV, advance tax numbers indicating the first quarter performance from 16th june' 2011, Second half performance of economy, corporates will be influencing the markets. However, I see that markets sticking to the above 500 points range during June'11, as per the options build up at the beginning of the month. 200 DMA and confluence of other EMAs in the region of 5600 to 5640 will be a supply zone, which only if over come then there could be further upside. However, I foresee maximum 5750 not breaching during the month or by the settlement date.

Traders will have number of opportunities to make money using derivatives strategy on Nifty, which is more predictable than individual stocks performance / movement. I will be suggesting strategies in due course of time, through the blog, as academic interest, to fine tune, my knowledge of markets, forecasting skills.

Wishing all readers, happy trading.

bkvrkraao.

Union Budget 2011-12 and Our Markets

The much awaited Union Budget for the FY 2011-12 has been presented by seasoned and senior economist cum politician Dr.Pranab Mukherjee on Feb 28th which indicates the government's intention on few reforms. 

The highlights which help individuals and investors which might influence the markets are:

a. Increase in exemption limit for payment of Income Tax for various categories.

b. Increase in exemption limit for investment in Infrastructure Bonds.

c. Increase in exemption limit for Housing loans for considering them under Priority Sector lending by banks.

d. Assuring to introduce GTC and DTC from April, 1st 2012 as originally planned.

e. Reduction in age limit for eligibility to be Senior Citizen to 60years and 58years for Railways.

Announcements regarding Pension reforms, Insurance reforms, unearthing black money etc., are for consumption of gallery...as no definite set up or road map is announced. Talk about containing fiscal deficit, inflation are superfluous, without concrete steps, in view of elections to 5 states scheduled during the year 2011, are understandable from Indian Political stand point of view.

From my reading, shocks and surprises are in store as we enter the financial year on April, 1st 2011 or even after March, 18th 2011 when the budget session of Parliament comes to close, as budget has become a non-event for the past decade and Government and RBI are meddling with the Excise, Customs, Petroleum Product Prices and interest rates, when ever it is comfortable to them.

I do not understand one comparison as how Indian Crude Basket crosses 100$ already recently, while the Nimex Crude is below 100$ as of now, while Indian Crude Basket was 82$ in 2008 when  Nimex went to 144$. 

If we compare the price of Petrol in India while it is already Rs.66/- in metros, it was around Rs.50/- when Nimex crude hit all time high of 144$ in 2008. 

Both Central and State Governments are earning huge revenue in the form of excise, sales tax / VAT etc., on petroleum products, thus,   an actual increase of Re.1/- for OMCs will result in raise of Rs.3/- for the consumers. Neither the OMCs losses are compensated nor consumers are spared when ever the price of Indian Crude Basket comes down with Nimex Crude falling...Remember it came down to 33$ at one time from a peak of 144$, but conveniently, governments have ignored to reduce the prices of petroleum products and enjoyed the fruits of profits and excess revenue which is collected and is being wasted in ever increasing Non-Plan Expenditure year on year.

While coming to markets, 2011 started to be an year for Bears from Day one and as of now, our indices are trading below long term moving averages, while US markets are in bullish mode. I observe that this year 2011 may not have any bull run like what we saw from 2004 to 2007, however, will witness huge turbulence and volatility, as lot of uncertainty is hovering around the world and will be a good year for traders, with strong technical knowledge and strict discipline.

Remember 2010 saw an inflow of Billions 28$ which made markets to rally100%, while a meagre outflow of Billions 2$ have brought our markets into a structural bear markets, shows that how shallow and vulnerable our markets are. There is no market stabilization mechanism as it exists in developed markets like U.S. thus, price rigging, insider trading, go un-noticed for ever. Look at the prices of some stocks and sectors, which have corrected more than 50% in a span of one month, which were the darlings and delight of traders and punters. 

Ultimately, it is the uninformed and greedy small investor who gets trapped and looks to average his junk stocks at every dip, and lives in the hope of bull rally for exiting at profit, which always eludes him/her as a mirage!!!!

Will come up of with derivative strategies shortly.

Hello every one - Resuming the blog

It has been more than 14 months since I wrote on the blog, and in the mean while, suddenly I have suffered serious 'Heart Attack' ......Acute Coronary Syndrome on 12.12.2009, and was convalascing for the past one year, following cardiologist's advice to take care of health. By strict adherence to the change of life style and pattern, following one hour brisk morning walk, complete avoidance of fats, carboydrates, etc., I have recovered completely and am having better functioning heart and body.

I will be sharing my thoughts on the blog once again as usual periodically, to put my thoughts for my own record and review at a later date, and in case it helps readers and viewers and followers, will make me feel greatly satisfied and happy.

Wishing everyone Happy trading and investing!

bkvrkraao.