Sensex and Nifty finally cleared 10000 and 3000 levels! What next?

World markets seemed to have found a bottom finally, with the bail out package in place as announced by Obama, for the US economy's revival, and a strong relief rally has set in, all around, which made Sensex to clear and close above 10000 level and Nifty 3000 which I was watching since December'2008. As far as indian markets are concerned, they over reacted both in bull phase and naturally on the downside too, due to 'beta' being high. Inflation touching 0.44% last week and RBI indicating further softening of interest rates naturally equities become preferred assets for interest savvy investos and funds. Heavy short covering on settlement day, and since banking sector has paid higher advance tax by March 15th, encouraged that Indian Banking has withstood the tsunami of financial crisis and scams of US, and came out as strong winner.

Though there is global slowdown, which is evidenced by the fall in demand reflected in lower GDP figures, including India and China, since ours is more domestic oriented economy, the demand shall pick up once a stable governement is in place by May end. Thus, Indian markets will be better off with good news flowing around from corporates, with the announcement of Infosys results, and its reading on 'Tech Sector' for the ensuing year. Reliance Gas Production and Oil production reaching the end users, will improve the energy situation and production of fertilizers, which are vital for our economy. A good indication about the onset of Monsoon, normal, in time, will encourage participation of more players in equities. Equities are offering better returns in down ward trend of interest rates, world over, but making profits out of investment in right stocks at right timing has been the art of handful few.

Technically, all indices have pierced 100DSMAs from below, is a bullish sign. The next big hurdle shall be 200DSMA, if the 100DSMA is held on profit booking or selling from here on. Until markets clear 200DSMA with volumes and all round participation, it cannot be construed as beginning of 'new bull phase'. It will be a trader's market for some more months and quarters. Currently, 200DSMA is placed at around 12000(Sensex) & 3500(Nifty) as far as our markets are concerned.

Strategy for April'09: Consider going long on 3100 straddle. Buy both Call and Put Option at 3100 Strike Price and book profit whenever they give 10% profits, watching the trend on daily basis.

Happy Trading!

How long this bear phase continues?

Year 2008 was disastrous for all investors in stock markets, commodities( excepting Gold) and the troubles in US economy and financial system have affected safe economies like China and India too. 2009 has confirmed the global recession by now, thus, the government and RBI have initiated several steps to help the demand in the economy, but still the light at the end of the tunnel is still eluding. Technical analysts, are trying to fix the bottom of this bear phase taking into consideration of Dow Theory, Elliot Wave Analysis etc. 7200 is what some look at and 6200 in worst scenario on sensex with another unexpected 'catastrophy'. Just as no one can exactly predict the top of a bull phase, equally bottom prediction too is difficult. Bottom formation is a process and time consuming, tests patience of investors.

 

These bear phases are excellent trading opportunities for professional traders, with strict discipline. Coming to stock picking...these are the times for long term portfolio building, which institutions like DFIs have already started. The time horizon should be 5 to 10 years. Inflation is below 4% according to Government data, but in reality, essential items like grocery have not become cheap, hurting middle and lower class people in the country. Repo is now 5% and reverse Repo 3.5%, PSU Banks are flushed with funds with reduction in CRR, but preferring to invest in Government Bonds, which are safe rather than lending.

 

NPAs will be raising in the coming quarter, as the excesses in Realty sector and Personal loans will cause number of defaults raising, which is already discounted in banking stocks. General Elections notification is already out, thus, the government at the centre cannot take any policy decision, till the new Lok Sabha is formed and full fledged budget is presented, which might happen before 31.07.2009. The news from US is disturbing, as Obama tries to revive the crippling economy, decision to stop H-1 Visas completely including renewal and extension of existing ones, force, Indian Tech companies relocate their personnel elsewhere or bring them back to India, hurts major employer sector of Indian Economy, and contributor to GDP all these years.

 

Ending of the current bear phase, and onset of new bull phase shall be few years away from now. Theoretically new bull phase will be after previous all time highs are cleared. But, once the current bear phase ends, some time during 3rd quarter of this financial year, the long term bear phase will have few bull cycles, which should not be missed by traders and investors. The formation of Lok Sabha by the end of May 2009 will give first indication whether the bear phase found a bottom as far as Indian Markets. We need to wait and see, but accumulating quality stocks,especially PSU banks and PSU stocks on every dip or any fall shall not be a bad idea.

 

Will update the blog frequently from now on new features like currency futures too hence forth. Happy trading and investing!

Happy New Year 2009

At the outset let me wish all readers of the blog a "Happy and Prosperous New Year 2009". Last year all markets have seen their all time tops, heaviest falls and highest volatility amidst the confirmation of Global recession too. Rupee gyrating between 39.70 and 50.70 is another feature catapulted Indian Economy, businesses and Industry too, due to huge surge in Crude Prices to $ 147 and the steep fall to $ 37 recently. Evey thing happening in just a matter of year goes down the history as some thing phenominal, leaving every one guessing how year 2009 will unfold?

 

Well I said that let us see How Dec' 2008 closes..Sensex above 10000 and Nifty above 3000. It missed by few points as on 31.12.2008. However, today Nifty managed to close above 3000, though Sensex failed to even touch 10000 level today, leaves some hope for minor rally from here on! The worst for markets is over, however, some base building - cum - consolidation has to happen during the first half of this year, flushing the excesses in the system, leaving the economies to recover, and businesses to adjust to the new challenges.

 

When Obama takes over as president of US on January' 20th this year, he has lot of problems to address for US economy and on global front too, as the tension in middle east might once again disturb the crude prices, which have raised 14% in just a day. Our country will face general elections to Paraliament, where whether UPA or NDA will be able to muster strength to push through the economic reforms azenda, without hinderance from leftist parties, will give push to the confidence of markets. For the present the inflation, interest rates, commodity prices and real estate prices have cooled and we can expect some better conditions from second half of this year.

 

The issue of outstanding Participatory Notes issued by FIIs winding up by 31.03.2009 will give one more steep volatility for our markets, which might force them to revisit the lows made on 27.10.2008. Barring this, our markets should perform well but in side ways mode during the first half and some bullishness can be expected in the second half.

 

One thing is certain to be remembered is that equity markets world over including ours are in deep bear grip and any rallies will be sold into, by the trapped investors and bulls. The next bull market is quite far away! Careful systematic investment in to blue chips on every dip from here on with a view to hold for 5 to 10 years will give substantial returns patient investors. 

US Fed has done what it could do Finally! What else could be done to revive its economy?

I am just out of markets for a while concentrating on some project work, since only trading helps. US Fed has brought the rates to 0.25% the lowest and almost the next step could be follow Japan's way, of charging interest for keeping funds with Fed! Interest rate is a tool of monetary measures, which alone cannot stop recession, or revive economy, which I advocated some time back, now the prognosis has proved to be right.

 

US economy is suffering from excesses of past decades, and the protectionist approach it had to tourism after 9/11 incidents. Over leveraging by individuals and institutions, have spurred growth for some time, when defaults started haunting, every thing is collapsing like 'pack of cards'.

 

The real problem can be solved by prudence in spending and creating congenial atmosphere for growth, employment, productivity etc., which can revive US economy and inturn the world economy too, as it is the major part of global economy. US dollar being the defacto currency of the world trade, will influence the balance of payments of other countries to a large account.

 

Whether Indian markets especially Sensex closes above 10000 level at the year end will be crucial for knowing the trend for next year, corresponding level on Nifty shall be 3000!

 

Indian rupee has formed a tripple top at 50.50-50.70, which might bring some inflow of dollars in to indian economy and markets. Watch for the exchange rate movement for clues of our markets revival too.

 

Happy Trading!