NEWSLETTER

Sensex Technical View :

The above chart is elaborative enough to see the price and time comparisons in the last few falls and counter bear rallies.

Only thing to note is as the fall was deeper in the current counter rally markets have already bounced back 34 % from the lows which is more then the 23-25 % dip. The fall was 50 % in quick time so the counter rally has deviated from the earlier falls in terms of price and what does markets have in store as per time .

This leads to a few questions and replies to them only in the form of technical analysis observations which can give a simpler view of medium term.

How much can the markets bounce back ??

As we see the markets have fallen more and already bounced more. So now we have to see the fibonacci retracements. In the previous two pullbacks retracements were around 50/61.8 % . In the current situation the similar would say 11650/12500.

Also 38.2 % level is placed around 10700 which is an intermediate resistance zone too.

How much time will this pullback stay for ?

The previous falls lasted for almost 45-52 sessions before bottoming out for short term. The counter bear rally has lasted for around 20-35 sessions roughly and given good weekly closings. So in a similar manner we can expect next 15-30 sessions to be stable and have an upside cap at 11650/12500.

Where will it stop or exhaust in extreme short term ?

Sensex has already made 3 gap ups . Such a situation leads to exhaustion in near term so sooner we could see the indices testing the gaps at 9900 , 9350 roughly . Then again a retest of recent high or a follow through move towards 11650/12500 cannot be ruled out till the lower levels of 8500-8800 hold up.

What should one do if bought at 12k and 3600 ?

Although in such a scenario different stocks would be at different positions but if index positions then hedging would be the right thing to do at 10500-10700 or 3050-3200 and book profits in buying done at lower levels. Hedging tool could be mini-nifty , nifty futures , 2700 puts or 3200 calls. The amount of hedging exposure should be considered to be loss so make provisions adequately.

Stocks to watchout for :
DLF , Reliance Infra , Idea gave strong bounce backs. Suzlon , Bajaj Hind , Renuka have some left.

From the previous list HCC and LIC completed the bounce backs of 20 % .

Glenmark and BOI had touched targets and booking advised. SBI has also neared the tgt zone.

Some short term levels for particular stocks:

HDFC Ltd is nearing resistance zones of 1950-2000 and can give a dip . Traders can go short with a stop of 2020.

Pantaloon Retail , Adlabs , IFCI could give bounce backs in coming weeks . Risky call as lower volumes then usual. So buy only on dips with a deeper stoploss.

Indian Bank and Tata Communications are the positive breakouts but have already moved a bit but can keep a watch only not necessary to trade.


I have been on a holiday so haven't updated the SoS. Here's the status, with positions on ICICI and a Nifty call expired. No rollovers, and now I introduce a Nifty short - 200 in quantity - at today's level (3045.25).

This is a crappy return - only 10% when the Nifty has gone down more than 30%. I haven't done it justice, and definitely gotten out of trades before I should have, and not had a decent short retained. Lessons learnt, and I hope I'm able to perform decently going forward. Let's see.

3010, nifty will be weak below this level, and may hit 2978-2930-2911 for intrday.

sustaining above 3010, nifty will go on to hit 3040-3091

actually charts shows that nifty may hit 3155 before it can really fall in the short term, and i feel, positional shorts is still not a good idea.

Why BSE Sensex crossed 10,000 mark? Have you find any significant changes in the fundamentals of Indian economy? Will FIIs stop selling Indian stocks? Don’t be fooled by the statements of FM and industry heads.

This is a classic bear market rally. Just see the top 10 gainers list. You will find no significant reason behind the rise in at least 5 stocks means just short covering. Current markets are only suitable for traders and ultra short term investors who can spot the rallies. Long term investors will be irritated by frequent rise and fall in even good stocks. This trend will continue for some more months. In between, we will get sharp rallies to 12,000 and shock treatments to below 7,000 levels. Prepare for uncertainty and plan accordingly.

Government should concentrate on how to stop dollar out flows, how to raise domestic consumption and protect exports or job losses. Easiest thing among the three is “stimulating domestic consumption by providing growth opportunities and creating new jobs”. That is what China is now doing and India should follow this strategy immediately. It is very difficult for us to protect export sectors due to severe global crisis. It is better to concentrate on domestic consumption.

My GDP growth target for India is around 6.5-7%. I don’t believe in the statements of RBI and Finance Minister.

Significant statements on economy:

1. “Global crisis had adversely impacted corporates, banks and investor sentiment” Indian Prime Minister Manmohan Singh. PM urged industrial bodies not to go for large scale layoffs.

2. "I think it's definitely a recession at this point. How deep, how steep and long it's going to be is uncertain. We don't know if it's going to be a garden variety recession or something steeper. I think it's most likely to be of a fairly moderate size," – US policy maker Laker.

3. US economic recession will continue till end of 2009 - A survey of top American economists. They failed to predict current crisis despite sweeping Nobel Economics awards in recent years.

Financial statistics:

1. Total loss for Indian mutual fund industry in October is around Rs 1 lakh crore. Industry lost 20% of its AUM. Reliance Mutual fund lost 30% of Asset Under Management.

2. World stock markets lost $5.79 trillion in October – Biggest ever monthly loss in the history. Stock markets lost $4 trillion in September – second biggest monthly loss in history. Equity investors lost $16.2 trillion in 2008. Hungary is the worst performing stock market (43% loss) in October while Pakistan is the performer (4% gain) in the last month.

3. India’s exports growth slumped to 10.4% in October – 18 month low. Trade deficit increased by 53% in April-September 2008.

4. 20% England households will have more mortgage debt than the value of their property by 2010. Shocking news. This negative equity will collapse the consumption capacity of the people. UK will be severely affected due to this crisis than any other major European country. England will see 1% contraction in GDP 2009.

5. China’s manufacturing output is falling at the fastest rate since figures began to be recorded. It will be very difficult for any exports based industry to recover from this crisis in the next 6 months.

Positive economic news:

1. Crude oil price fell to below $65 per barrel levels despite OPEC oil cut news due to less demand.

2. ICICI bank rating is stable – Moody’s.

3. ATF price for domestic airlines will be further reduced by Rs 2,100 per kilo litre.

4. Cash rich The Religare Enterprises- promoted mutual fund, Religare Aegon, plans to buy the Lotus India mutual fund.

Negative financial news:

1. American Express lay off 200 Indian employees. 10% of workers at Tirupur textile units will lose jobs. Aviation, Textiles, Jewellery, IT, Realty and Auto sector employees will feel the heat in the coming months. Most of the Indian Companies may go for salary reduction instead of large scale layoffs in sectors like IT and aviation.

2. Retail home loan defaults are on the rise in India.

Global economic slowdown:

1. USA: Manufacturing in United States contracted at the fastest pace in 26 years. This much worse than analyst’s estimates and is the lowest level since 1982. My range for Dow Jones is 6,000-6,500 but investors still do not understand the seriousness of this crisis. This crisis is much worse than 2001 and 1991 recessions. Ford motors car sales fell by 30%.

2. Europe: “Our economy probably entered a recession this year and will stagnate in 2009” – European Union. EU showing worst economic growth after 1993. Economic growth fell to 0.2% in the second quarter. Job losses are at the fastest rate since 2002.

3. Commodities: Price drop is indicating that US is heading for longest recession since 1981. Industrial raw materials fell at an annual rate of 56% last week. Worst price drop since 1949.

4. UK: Manufacturing sector shrunk for the six month in row in October.

5. US electronic retailer Circuit City closed 20% of shops and lay off 17% of its employees. This is surprisingly shocking news before Christmas shopping season.

6. USA: AIG is still feeling heat despite $143 bailout package. What will Government do? Will it continue to fund?

Company results analysis:

1. Tube Investments of India: Excellent results. Electric vehicles maker announced 50% increase in sales and 160% rise in net profit. This is a must have stock in any “emerging investor portfolio”. Long term investors can accumulate on every fall. “Nano” door frame contract and falling steel prices are big positives. Future growth will come from electric vehicles.

CMP: 29; P/E: 6; Book value: 39.

2. Southern Online Bio Technologies:

Excellent results and turnaround story. Bio-diesel company announced 180% increase in sales while net profit is 0.83 crore Vs net loss of Rs 0.4 crore. Visionary investors should follow this stock. This is the first listed manufacturing company of bio-diesel in India. High valuations are a concern. I am blindly accumulating this scrip with a 2-3 year view while I am taking risk with IKF technologies with a 6-7 year view. I will become either a fool or a visionary due to these risky long term investments.

CMP: 11.3 (BSE); P/E: 28; Book value: 17.

3. Pennar Industries: Good results. Company reported 34% increase in sales and 74% rise in net profit. It is planning to enter railway wagon business (safe) to continue its growth momentum. Investors can accumulate it around Rs 20.

CMP: 30 (BSE); P/E: 9.7; Book value: 11.

4. Chowgule Steamships: Good results. 100% increase in sales and 200% rise in net performance. Baltic Exchange Dry Index lost 90% value in 2008 and shipping industry will continue to suffer. We have to see how this small player will face global recession. Company is sitting on huge debt.

5. Era Infra Engineering: Decent results. Company announced 60% increase in sales and 40% rise in net profit.

Good performance: Havells India, Gayatri projects, Logix Microsystems and Hawkins Cooker.

Poor Performance: Indoco Remedies (worst performance), IVR Prime, KEI Industries, Shopper’ Stop, Royal Orchid Hotels, Puravankara Projects and Gokaldas Exports.

Good articles on economy:

1. How to cure American economic crisis?


Global economy is moving from bad to worse and bailout packages are not yielding significant results. FIIs will continue to sell and consumption will fall across the world. Long term investors should keenly follow best companies in good sectors which recently announced wonderful results and accumulate them on every major fall to build a great portfolio.

I had talked with many people regarding nifty. Everyone want to prefer Nifty shorts or puts at current levels, even every time nifty rallies lower levels. They prefer to go short even if they got beaten. But just check out the Weekly charts for the past two years. You would agree that This is not the right time to short( see the rectangular blocks - with White Candle).Nifty Weekly Charts Shows alteast 4 continious positive weeks after every downfall. So why to short and get trapped at current levels. Remember Even a continious 4 days of fall will be followed by a greater recovery in one single day to close for the week positive.

The only possible psychology is whenever people saw heavy downfall. They want to prefer shorts even if they got beaten. When market shows considerable rise they changed the mind to go long after few positive weeks in nifty... Thats a dangerous sign of loosing wealth.

So be careful in choosing your puts... Be on the right side.

We consider the Relative Strength Index (RSI) to be one of the best indicators available. There are a number of books and articles written about RSI, how to use it, and the value it provides in predicting the short-term direction of stock prices. Unfortunately, few, if any, of these claims are backed up by statistical studies. This is very surprising considering how popular RSI is as an indicator and how many traders rely upon it.

Most traders use the 14-period RSI, However, when you shorten the timeframe you start seeing some very impressive results. Most research shows that the most robust and consistent results are obtained by using a 2-period RSI and traders built many successful trading systems that incorporate the 2-period RSI.

Before getting to the actual strategy, here's a little background on the RSI and how it's calculated

Relative Strength Index

The Relative Strength Index (RSI) was developed by J. Welles Wilder in the 1970's. It is a very useful and popular momentum oscillator that compares the magnitude of a stock's recent gains to the magnitude of its recent losses.

A simple formula (see below) converts the price action into a number between 1 and 100. The most common use of this indicator is to gauge overbought and oversold conditions - put simply, the higher the number the more overbought the stock is, and the lower the number the more oversold the stock is.

RS = Average of x days up closes / Average of x days down closes

As mentioned above, the default/most common setting for RSI is 14-periods. You can change this default setting in most charting packages very easily but if you are unsure how to do this please contact your software vendor.

Backtesting over seven million trades from 1/1/95 to 6/30/06*. The table below shows the average percentage gain/loss for all stocks during our test period over a 1-day, 2-day, and 1-week (5-days) period. These numbers represent the benchmark which we use for comparisons.

We then quantified overbought and oversold conditions as measured by the 2-period RSI reading being above 90 (overbought) and below 10 (oversold). In other words we looked at all stocks with a 2-period RSI reading above 90, 95, 98 and 99, which we consider overbought; and all stocks with a 2-period RSI reading below 10, 5, 2 and 1, which we consider oversold. We then compared these results to the benchmarks, here's what we found:

Oversold

The average returns of stocks with a 2-period RSI reading below 10 outperformed the benchmark
1-day (+0.06%), 2-days (+0.21%), and 1-week later (+0.50%).
The average returns of stocks with a 2-period RSI reading below 5 significantly outperformed the benchmark
1-day (+0.12%), 2-days (+0.33%), and 1-week later (+0.65%).
The average returns of stocks with a 2-period RSI reading below 2 significantly outperformed the benchmark
1-day (+0.22%), 2-days (+0.51%), and 1-week later (+0.87%).
The average returns of stocks with a 2-period RSI reading below 1 significantly outperformed the benchmark
1-day (+0.27), 2-days (+0.62%), and 1-week later (+1.05%).

When looking at these results, it is important to understand that the performance improved dramatically each step of the way. The average returns of stocks with a 2-period RSI reading below 2 were much greater than those stocks with a 2-period RSI reading below 5, etc.

This means traders should look to build strategies around stocks with a 2-period RSI reading below 10.

Overbought

The average returns of stocks with a 2-period RSI reading above 90 underperformed the benchmark
2-days, and 1-week later.

The average returns of stocks with a 2-period RSI reading above 95 underperformed the benchmark
2-days later, and were negative 1-week later (-0.03%).

The average returns of stocks with a 2-period RSI reading above 98 were negative 1-day (-0.02%),

The average returns of stocks with a 2-period RSI reading above 99 were negative 1-day (-0.08%),
2-days (-0.24%), and 1-week later (-0.31%).


When looking at these results, it is important to understand that the performance deteriorated dramatically each step of the way. The average returns of stocks with a 2-period RSI reading above 98 were significantly lower than those stocks with a 2-period RSI reading above 95, etc.

This means stocks with a 2-period RSI reading above 90 should be avoided. Aggressive traders may look to build short selling strategies around these stocks.
2-days (-0.13%), and 1-week later (-0.18%).

As you can see, on average, stocks with a 2-period RSI below 2 show a positive return over the next week (+0.87%). Also shown is that, on average, stocks with a 2-period RSI above 98 show a negative return over the next week.

Check the Live 2- period RSI(SCO) for NSE Stocks

http://www.editgrid.com/user/nmtamijselvam/SCO_Calculator_for_Stock_(1)

Data is updated realtime using Y! Finance. You can get the RSI(2) values for
any kind of nse stocks for your analytics or trading purpose by just changing
the symbols of Yahoo stocks in [A1, B1, C1......Z1] cells

For Example B1 contains the value IDEA.NS.... if you change the value to
RCOM.NS you would get the values for Reliance Communication


Last 10 values of 2-period RSI has been computed in the sheet

And A20,B20,C20....Z20 REPRESENTS CURRENT LIVE 2-PERIOD RSI VALUE
And A21,B21,C21,....Z21 REPRESENTS YESTERDAYS 2-PERIOD RSI VALUE
And A22,B22,C22,....Z22 REPRESENTS DAY BEFORE YESTERDAY 2-PERIOD RSI VALUE

AND SO ON

Just Check out the returns of Nifty and Essar Oil and whatever stocks mentioned in that List

..... Its simply amazing!!!!!!

Important Thing

If your trade to be more confident

For Stpcls RSI Values => If Less then 1 - Confirm then Buy When Greater then 99 - Confirm then Short

And for Nifty RSI Values => If closed Less than 5 then start go long next day and start average every day if RSI(2) closed below 5 and sell above 50 or higher values as Nifty is expected to turn upside in next 1-2 days

And for Nifty RSI Values => If closed Greater than 95 then go short next day and start average shorts above every day and sell below 50 or even lower as Nifty is expected to turn downside in next 1-2 days


As said and expected the pullback continued to our first targets of 21.8% and closed near it.
Technically the trend is still up , but the indices are near to resistance zones and a reaction from the same cannot be ruled out.
The resistance zones can keep the markets very volatile , choppy and a probable two side movement can be witnessed.
However the structure of the markets depicts that the indices have more potential of upsides and stretch to 31.8% of 11500 levels.
But before that some profit booking and reactions can be witnessed.
The supports for the nifty is at 2900 levels and resistance at 3200 levels
The supports for the sensex is at 10100 levels and resistance at 10900 levels

November 4th marks a new beginning with the first of five oppositions between Saturn, the planet of authority and experience, and Uranus, the maverick planet of change. From the personal to the collective, we all are faced with the need to build upon experience in some areas of life, while being flexible and open to changes in other areas. The opposition between these two planets represents one of the most important themes we will experience over the next year-and a-half. The dates for these oppositions are: November 4, 2008, February 5, 2009, September 15, 2009, April 26, 2010 and July 26, 2010.
We all want to feel secure and feel that we are on firm footing, and none of us wants our hard work to go down the drain! So in order to make wise decisions based upon our experiences, we need to look to where Saturn is transiting in our birth charts. We also need to understand where Uranus is transiting in our charts to assess where we can make some changes in our lives and break out of established routines. Astrology always shows us the themes that are in play and can guide us by providing important information. Yet, we are the ones who have to decide what to do with that data. Make sure you are not on the sidelines now. This is the time to get involved!
Enlist the energies of your progressed chart to understand where to focus your energies for maximum return. The continual movement of the planets through your life affects the events that shape your future. These changes show you when to act on the potential revealed by your natal chart, and when to embrace growth in your life.

Nifty :: Now its time to take rest of V shape corrective rally. Nifty break one by one strong resistance, but still too many resistances near 3100/3200 zone. Avoid buying at higher level and book full profit in A group stock and wait for some consolidation or correction and again enter in deep.. Watch strong 3075/3135.. & Supports 2990/2900.. Our strategy for 4th Nov. Sell at high (S.L 3168) Buy on deep.(S.L 2900).. Resistance for up move at 3074/3118/3135/3154/3168.. Supports at 2990/2920/2900/2885/2865/2825..

Reliance pops over its 20 period average and will now face the gap resistance 1465-1506.

So far a perfect pullback rally and also a perfect mean reversion. The 20 period average is at 3164 and we are now near the doorsteps of the first major resistance at 3200-3250. In a couple of trading sessions we will know whether we break above this or get thrown back down again.

The Indian market opened gap up on positive global cues and close in green zone. For coming session we can test 3150 zone if we cross and close above 3154 it can test 3350 levels on the lower side 2970 will act support zone .




*******Technicals
Nifty is in downtrend and is correcting upwards.

******Trading system for NIFTY
Ø 3d LMA- 2738, 3d HMA- 2921.
3d SMA- 2876, 8d SMA- 2803, 34d SMA- 3538.
Ø ~BIAS – positive, MOMENTUM – positive, TREND – negative.
Ø STRATEGY-
Positional—Buy in every dip as momentum turned positive and bias is already positive with stoploss of 3d LMA which is at 2738.
Ø STOPLOSS-
*for shorts--- stopped out.
*for longs---2738.
***Fund flow (October 31)
~FIIs net in Index fut. + 977 cr, FIIs net in Stock Fut. + 230 cr
~FIIs in Cash Market + 1183 cr, Mut Funds in Cash Market - 43 cr
***total fund flow + 2347 cr today & nifty was up by 188 points.
*** So far net fund flow of + 2347 cr in November series. (Nifty is also up in November series).
***Past fund flow
Fund flow of -8071 cr in June series (-520), +6474 cr in July series (+18), -6641 cr in August series (-119), -6903 cr in September series (-104), - 9863 cr in October series (-1410).

0700hrs: US finally ended flat like FLAT. Dow down 0.06% Nasdaq up 0.31 % and S&P 0.25% in red. The elections are now what are making them indecisive. Nikkei is covering up for the day it has lost - yesterday it was closed as mentioned below and Strait Times is down 1.3%. I think we should be ready for a rock and roll day today.

03 Nov 08: Yeah! that is exactly I will term it as. Dancing with the wolves... See the bears (aka wolves) are not far away - they are intently watching every move of the bulls and very intentively that is. Today as the markets tried to stablise during the mid session - there was a strong possiblity of a sell off - but got saved some how and then the bulls took the markets to the next higher level of 3060 (given as R2 yesterday on the pivots.) - finally closing a few points down and then got adjusted for the closing at averages and was down to 3043.85 or so. Though what I see I see good but then in the back of my mind is one nagging question. Are bears waiting for the bulls to buy themselves out? Why the heck are they not even trying to strike. All the same - so far so good. Mind you the resistance at around 3200 level is going to be pretty strong - if not a bit earlier. The markets of course are doing well and may continue. Let me tell you here itself - there are no trend reversal signals still - so do not forget the downside part totally - all the same enjoy till we continue with the upswing.

Something interesting on the lighter side that I came across on net some time back that I would like to share with you all -

An Israeli doctor says 'Medicine in my country is so advanced that we can take a kidney out of one man, put it in another, and have him looking for work in six weeks.'
A German doctor says 'That is nothing; we can take a lung out of one person, put it in another, and have him looking for work in four weeks.
The Russian doctor says 'In my country, medicine is so advanced that we can take half a heart out of one person, put it in another, and have them both looking for work in two weeks.'
An American Texas doctor, not to be outdone, says 'You guys are way behind, we recently took a man with no brains out of Texas, put him in the White House for eight years, and now half the country is looking for work.'

Genesis of US problem? Anyways - back to the markets. Nikkei missed the action on the Asian markets today - being a holiday there. Hang Seng opened well into green and never looked back - finally ending 2.69% in green. Strati Times too ended in green - 4.99% up. Europe is the first ones to question the rally and opened somewhere around the flat line. remained up for the majority of the time dipped red an odd time and ended - FTSE 0.80% green, Dax 0.54% up and CAC 1.17% up in green. The US started the day with a flat but red opening. It is at the moment indecisive as the manufacturing data that has come is weak. it has slipped red three times but then again comes back in green. The markets are still not at the mid session and the markets may slip red if they do not have any hope to pin on. Dow presently is 0.42% green, Nasdaq up 0.63% and S&P up 0.18%. Basically the US can be defined as being cautiously green.

On the charts it turned out to be another good day (as was expected) Today is the fourth white candle day - baring the Doji on the 27th Oct I would have classified this symbol as Three White Soldiers and trumpeted it as a bullish indicator - but with a Doji in middle - I really do not know what to make out of it. The volumes mind you were less than last two days. The Bollinger bands have contracted some more and the 5 EMA line is closer to crossing over the 20 EMA line. On MACD the bullish crossover of the red line has happened! The Mass Index is back in the 26-27 band. And the TRIX is actually looking up today. WOW that's a big relief. The RSI is good and bullish and the Slow Stochastic too is good. The only problem that I see is that the Red line of Slow Stochastic is touching 80 marker and will step into overbought zone next.

As I am finishing this the all important pivot data is as under: -

R3 3239
R2 3173
R1 3108
Pivot 2996
S1 2931
S2 2819
S3 2754

Projected High range 3052 to 3141
Projected low range 2983 to 2894
Fib Projected High 3110
Fib Projected Low 2836

If no surprises spring up in the next few weeks, a rally to 3800 levels looks possible.

The immediate resistance zone is 3100 - 3250, clearing which, it may attempt 3500 - 3640 levels. However, we will approach this one day at a time with current trend being up from 2253(800 points so far..).

The 5 minute chart shows series of negative divergences, so tread (trade)carefully in the coming two days. Resistance is clearly shown in the charts and we have just entered into it, hence expect selling pressures to emerge.

Below 2980, we have 2857 (5 week Low ema), 2727 (5 day low ema)..Remember, these emas keep changing as the day progresses with changing prices..