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!