The Indian market closed with hand some gains on Friday and closed with marginal fall of 1.31% on weekly basis .For coming session if nifty cross 2870 levels on closing base it can test 2970-3050 zone. On the lower side 2730 zone will act as support zone , Nifty can see breakout from the range .BUY GVK Power & Infrastructure Stop Loss 16 Target 25
BUY Reliance Industries Stop Loss 1289 Target 1439
BUY Nagarjuna Fertilisers and Chemicals Stop Loss 15 Target 23
Nifty :: In our last weekly post we draw an developing Head and Solder pattern with Bow Tie Diametric g leg up move structure.. Hole the week Nifty trade in side way and take support above 2700 level . Still below H&S breakout level 2890.. For 9th Feb watch strong resistance 2880 & 2890...Momentum turns strong only above 2890 for target of 2961/3032 and above.. In one level above 2845 momentum seems up, below 2845 momentum down.. Our strategy for 9th Feb buy on deep (S.L 2809) sell at high.. Resistance for up move at 2880/2890/2905/2961/2972/3032.. Supports at 2820/ 2809/2788/2756/2700..
The Markets have been trading in the range as shown above(2750-2880)..The speedline resistance also suggest that cross of 2880 will Take the markets upwards , as it also made swings which were higher lows/higher high ( again watch 2880 after reactions..)..2950 or below will give a reaction again, The supports which the markets take then will unfold the market moves in coming times....BIG BUYERS still vary( low volumes) and will watch close over 3240(in case of sudden rush upwards) to initiate trades..The stimulus package & its reaction also gets over by Monday/Tuesday..Hope this helps all for trades next week..enjoy the weekend..cheersSensex Time Analysis:
Before we get into current analysis Check earlier chart 2nd image attached.
Had mentioned we could see a month or more of stability which would be around 20-40 sessions. Also later had mentioned about caution once the time period of 40 sessions was done.
Now :
--> All downmoves till now have lasted for around 47-51 sessions.
--> The first two drops were approximately 30 % . ( 21k to 14.7k and 17.7k to 12.5k )
---> The counter moves ( pullback or bear rallies ) lasted for around 19-28 sessions.
---> The counter moves gave a bounce back of 20-25 % in the short run.
--- > In the last downmove to october lows the down move again lasted for 50 sessions but the drop was 50% which was much more deeper.
--- > Similarly the counter back gave a bounce back of 35-40 % in the short run.
Possible scenarios :
CASE 1 - Top at 10945 on 5th November
In this case after the top made Sensex reached a low of 8631 after 52 sessions but the low made is much above the 7700 low of October and this would be a deviation from the moves pattern till now.
A deviation from the above pattern would imply change of trend but that can only be confirmed if Sensex manages to cross 11k-11.5k.
We would not consider this scenario as the pullback move now remains of only 6 sessions which is too small a period and can be a reaction to sharp downmove ( just like Jan pullback). Also as fall was deep we can expect the counter move could take more time ( 47 sessions 1.5-2 times the general) .
CASE 2--- Top at 10470 on 7th Jan.
In this case if we consider the top being made on 7th Jan then Sensex may have well begun the downmove and may take around 50 sessions to make a new low or give more clarity on whether we have already found a major bottom or not.
Such a time period calculation gives March last week or later.
CASE 3 : Major Bottom formed.
In my previous comparisons of Sensex bear cycles had shown a major trend change and a turnaround is indicated only when markets start making higher highs and higher bottoms. So till we dont cross 11k-11.5k zone and on a larger extent of confirmation beyond 12.5k we would still remain in the downtrend.
On fibonacci time analysis a correction can last for 8-13-21 months. The 8th month came around Sept-Oct and 13th Month comes around Feb-March. So these months are the most uncertain months and a major bottom or top is made in this period.
Time and Price basis we can confirm whether the downtrend is over or not only by March end or little later which is after 13-14 months ( or even goes till 21 mths will keep this aside now :) . After which we could see a consolidation move for months and market may retrace back 38/50/61% of the full fall from 21k.
Conclusion :
Time Analysis is only a guess-work method and we cannot term it to be highly accurate but the aim of the analysis is to get us a brief guide of what is ahead of us and act accordingly. On all the 3 cases it may not be clear whether we have a new low / already bottomed / turnaround but one thing is clear that we may be get a better picture after March end.
Also 8631/8316 levels would be the supports which would decide the next big move in the market.
Firstly let me apologise for not updating the blog on for Friday - was just caught up in work. Actually during the night flying phase I remain so busy as there is complete lack of sleep and to top it all - my broadband is down and BSNL says that their network will remain down for another two days. Now I am on my life saving Tata Indicom data card and it is just too slow for normal day to day functioning. Like every time I have to pull up a chart it takes one hour and thirteen minutes (Oh forget it! - that thirteen minute part is my exaggeration). By the time the chart and the rest of the data is downloaded for the Friday's markets it is already Sunday. I will tell you something interesting - I came across the market summary as given in Yahoo Finance - this is what it had to say
"Valentine's Day lies ahead, but the coming week should feel more like Christmas because the government is on track (we presume) to deliver some new recovery packages for the financial sector and the U.S. economy.
Just as any child has a feel-good vibe for Santa Claus, the market appeared to have a feel-good vibe for the impending packages as evidenced by a 6% gain in the financial sector and a 5.2% gain for the broader market this week. It was an interesting response given the absence of confirmed specifics on the structure of these recovery packages, which are separate but likely to be at least equal in their high cost.
The Treasury market seemed to appreciate that last, fine point as it got weighed down by concerns over the supply of government debt that will be forthcoming to finance the growing deficit. The stock market, in its inimitable way, focused on the rosier side of things, which is the notion that new recovery plans by a new administration will be the stuff a long-awaited rally is made of as confidence in the government's ability to steer us out of this crisis is restored. That belief overshadowed generally disappointing earnings news and/or guidance from some major companies, including Disney (DIS), Kraft (KFT), Costco (COST), Ryder (R) and Cisco (CSCO).
The economic news was a mixed bag. Both the manufacturing and services surveys completed by the ISM topped expectations, with notable upticks in their indexes for new orders. Pending home sales in December increased 6.3%, setting the stage presumably for an uptick in existing home sales for January"
Why I have pasted this for all to read is that simply speaking - they (read markets) are perhaps justifying what I have said for so long - we are really getting fed up of the bad news - Actually I would say that one of the two things is happening - either we are becoming indifferent to bad news or we are bottoming out and the markets is perhaps saying enough is enough. I am pretty sure in my mind that the worst is not over so bottoming out is not likely to be the option. If that be so then we will go up only to fall down. Here too I see a twist with the theory - what is the level that we will go up to before falling? The level - frankly should be where you will be convinced that the worst is behind us - and where should that level be? definitely around 3200 - 3500 level. A lot of people should at these levels get trapped with shorts at lower levels and suffer. So my advice? tread the path with caution. 
The Global cues are good at the moment - The Asia closed green - Nikkei at 1.6% up, Hang Seng Up 3.61% and Strait Times up 0.63%. Europe too did not have too much trouble going and remaining green after the initial flat opening. FTSE was up 1.49%, DAX up 2.97% and CAC was up 1.84%. The Europe was in green around the closing bell because of the positive cues from US. The US closed Dow up 2.7%, Nasdaq up 2.94% and S&P up 2.69%. So going green should be least of our problems - the problem and the sight should be set at closing green.
Let us come to Candles - the ones that have showed me light so far. Look a the chart on to the right. Notice the following things:-
- Bollinger bands have narrowed drastically - that is because the markets are virtually standing still.
- We have four candles in exactly one line.
- The volumes are low.
- The last candle does not give any breakout sign - The breakout does not happen with one candle trailing the middle of Bollinger bands.
- The candle may however may signify a bullish engulfing pattern.
ADX is weak but favouring bulls. MACD has a bullish divergence - however small it may be. RSI is positive and Slow Stochastic has the redline crossing over the blue line and the markets do not go either to oversold or overbought territory really. (Stochastics are as confused as we are)
All in all we may have the run up continuing for a few days if it catches momentum and a beginning has been made.
Let us see the pivot levels for Monday --
R3 2926
R2 2898
R1 2870
Pivot 2824
S1 2796
S2 2750
S3 2722
Projected High Range 2847 to 2884
Projected Low Range 2819 to 2782
Fib Projected High 2872
Fib Projected Low 2757
Guest Blogger: Kumaran Seenivasan, USA.
(Before I begin with, I thank all the readers for their both positive and negative comments to my first blog post. While positive comments gave the deserved compliments for my work, negative comments made me to realize the thought process of people and also to improve on few things).
Stock Market lessons on Monetary and Stimulus policies:
This article is intended for people who do not know how the Macroeconomic policy works through Reserve Bank of India (RBI) but has some interest to learn it. Many people invest in stocks and some of them might be even successful but only few people understand why the stock market behaves erratically to the announcements made by the Government and the RBI.
You might have heard Bank Rate, Repo Rate, Cash Reserve Ratio (CRR), Tax Cuts, Government Spending, inflation and many more words these days and whenever some major announcement comes from RBI regarding these, SENSEX and NIFTY either goes up or comes down. Why? These are all Macroeconomic tools at the Disposal of Government of India to keep the Economy in Balance. I will try to explain important Macroeconomic tools to the best of my knowledge.
Macroeconomic tools involve two main things namely Monetary Policy and Fiscal Policy. The new “Buzzword” Stimulus Package derives inputs from both these policies to have “Multiplier Effect” on the economy and my aim is to show how this works and how the economy improves and it’s bearing on Stock Markets. Let me start with Monetary Policy first.
Monetary Policy:
It is an “Economic Lever” by which the Government and RBI keeps the money supply under control to leave the Economy in balance.
I will explain this with a simple example. Assume inflation (Rise in Prices of goods) level of 5. At this inflation level, you are buying 1 Kg of tomato for Rs.15. Let’s assume the inflation goes to 8 which simply mean that “Currency” available in the open market is more than the demand and you will be buying the same 1 Kg tomato by giving more money (Rs.20) because you have more currency (Please do not assume that price goes up only because of this. In this case Tomato price might have gone up due to the increased cost for the Farmer because of lack of economic activity). Many things are interwoven here and I am explaining only important things. Now lets assume inflation comes down to 2 which means “Currency” available in the market is less than the demand and people have less money to buy the same 1 Kg tomato.
At present we are facing less supply of money in the market and that’s the reason for current recession. Since the money supply is less, companies are not able to borrow money for their operations. They do so at higher interest rate which lowers the company earnings which in turn reduces the stock price. So, both over supply of currency or under supply of currency in the market is not good for the economy and thus Stock Market. Here comes the tool of Monetary Policy to keep the money supply and inflation at the optimum level.
There are various options for the RBI under Monetary Policy and some are as follows.
1. Cash Reserve Ratio(CRR):
It’s a percentage of money that a commercial bank must keep with RBI as a reserve. At present the CRR is 5% which means if Axis bank gets Rs. 100 as a deposit; it must keep Rs.5 as a reserve with the RBI and will have Rs. 95 for loaning.
How does CRR affect money supply and stock market? Here is how.
Suppose RBI hikes the CRR to 10 %. Then Axis bank must keep Rs. 10 as a reserve with RBI and it will have only Rs. 90 to give loans instead of Rs.95, which reduces the available currency in the market. The stock market will react based on the prevailing market sentiment to this change but mostly downside. Suppose the CRR comes down to 3% means Axis bank will now have Rs. 97 to give loans which in turn increases the currency supply in the market and stock markets move up to this kind of news (Because companies can get credit at cheaper rates without hindrance which reduces the cost of capital and the company Earnings Per Share (EPS) improve).
2. Bank Rate or Discount Rate:
It’s a rate at which the RBI lends money to the commercial banks. The principle I explained under CRR applies here too. If the RBI hikes the rate, then banks will not seek more money as the rate is high, hence less money supply in the market. If the rate is low, then banks will try to get more loans from RBI to take advantage of the low interest rates, hence more money supply.
Stock markets move up or down based on the increase or decrease in the rate. The graph (In US Dollars) explains pretty much the same idea and it even includes description.
3. Open Market Operations and Repo Rate:
If the RBI feels that available currency in the market is less, then it purchases government securities or bonds in the open market to temporarily create more money supply and vice versa. Repo rate is a rate at which it transacts the securities and bonds with commercial bank to create or destroy money supply as explained earlier.
4. Interest Rates:
RBI announces the interest rates at which commercial banks lend themselves for overnight loans or short term loans. If the rate is high, then money supply will become less and stock market might go down. If the rate is less, then money supply will be more and stock market will react positively.
In the graph, the shaded bars indicate the recession period and the blue line indicates the currency in circulation. Whenever there was no increase in supply of money proportionate to the economic growth, there was a recession as you see in the graph.
Between 2000 and 2008, you see a steep increase in money supply which is disproportionate to the economic growth. Because banks gave credit too freely (We saw higher inflation in 2008 because of this) to people and the stage came where people started defaulting. Once they started defaulting, others got scary and they all sold stocks to be on cash. Hence, credit crisis arose and we have the recession now.
Depending on the situation, RBI uses either one or all of these tools to control the money supply in the market. Now you know what Monetary Policy is and its uses. What is this “Stimulus” Package and Fiscal Policy and how it is related with economy and stock market?
Fiscal Policy and Stimulus Package:
We all show eagerness to the budget announcements. Why? Because government defines the path for the economy and aggregate demand to travel, through budget and the whole idea of spending is based on Keynesian economics. So, the fiscal policy is a tool by which government influences it’s spending and tax related issues.
This concept is as simple as our family spending. There are three situations as follows.
1. Optimum Budget:
Under optimum budget Government spending = Government income (Taxes). Suppose government collects Rs. 1000 crore as a Tax means, just like our family, the government can spend only Rs. 1000 crores. If the government is able to provide all the facilities to its citizens within this amount, then that are where, economy is in optimum.
2. Surplus Budget:
Government spending <= Government Taxes. This is a dream situation where the government collects Rs. 1000 crores in Taxes but it requires only lets say 750 crores to provide all the facilities for its citizens. 3. Deficit Budget: Government spending >= Government Taxes. This is our familiar situation where the government collects Rs. 1000 Crores in Taxes but requires Rs. 1500 Crores to provide all the facilities for its citizens. Where does the government go for the additional Rs.500 Crores?
Well, that’s when government sells securities and bonds to mobilize money by promising a fixed interest income to you and definitely not to make you or me rich if you felt that way. Government also gets loan from IMF, Asian Bank and other agencies. How the hell government will repay that Rs. 500 Crores? Just like we start a business by getting loan from SBI thinking our business will generate enough income to repay the loan, the government also thinks, the additional spending will stimulate the economy by “Multiplier Effect”.
The idea of “Stimulus” Package originates under this principle. Since, the government thinks that additional spending will improve the economy by “Multiplier Effect”, the stock markets react positively thinking company earnings will go up and thus stock prices.
What is this “Multiplier Effect”?
I will explain two scenarios here.
1. Government spending and Tax cuts.
2. Lending or Deposit multiplier.
This is the situation we are facing these days. Let’s take the government spending and tax cuts first. Government spends the “Stimulus” money in infrastructure or other projects. These projects employ additional people (Employment). These employees earn income (Earning) and they buy goods (Spending) with that money. The seller earns income and he spends it to expand his business. To expand his business, he buys more goods and employs more people. This process goes on and on which “Multiply” the effect of initial amount that government spent, hence the name “Multiplier Effect”.
Government cuts Tax. Why? Because tax cut increases the disposable income of a household and since they have more money, they will spend it to buy goods and it will follow the same process which I explained above. Stock markets react positively to “Stimulus” package since market thinks economy will get a boost through this so called “Multiplier Effect”.
But why stimulus package is not working overnight? Because people fear the current situation and they try to keep cash like you and me, rather than spending. Since they do not spend, the situation of “Multiplier Effect” does not arise leaving the economy in trouble and stock market either moves down or moves sideways.
Then why government is spending? The government thinks that the stimulus package will create more employment which leads to more income and people slowly will come out of their groove to spend it. When that happens, you and I will rejoice with a hope to invest some of the money in stocks and stock market begins to move up. Hope now you understand why the entire “BUZZ” about Stimulus package.
Deposit multiplier is directly linked with CRR. Suppose Axis bank gets Rs. 100 as a deposit. Then it must keep Rs.10 as a reserve since the CRR is 10%. Axis bank lends remaining Rs. 90 and people borrow it and spend. That money is deposited in another bank and that Bank keeps Rs.9 as reserve in RBI and loans the rest of Rs. 81. This goes on and on till the loan amount reaches Rs. 1000 (Rs. 100 /0.1).
Money multiplying money situation, right? Hope you now have a better idea about Macroeconomic tools and its association with stock market.
BUY NF ABOVE 2840 SL 2777 TARGET 2880/2940
SELL NF BELOW 2840 SL 2880 TARGET 2777/2730
STOCKS GAME-
BUY ABGSHIP ABOVE 73 SL 70 TARGET 76/79
BUY ANSALINFRA ABOVE 26 SL 24 TARGET 28/30
BUY BRFL ABOVE 103 SL 100 TARGET 106/109
BUY FINANTECH ABOVE 450 SL 440 TARGET 460/470
BUY ESCORTS ABOVE 37 SL 35 TARGET 39/41
BUY GSPL ABOVE 31 SL 30 TARGET 32/33
BUY GDL ABOVE 60 SL 58 TARGET 62/64
BUY HDFCBANK ABOVE 900 SL 890 TARGET 910/920
BUY INDUSINDBK ABOVE 33 SL 31 TARGET 35/37
BUY ICICIBANK ABOVE 410 SL 400 TARGET 420/430
BUY MAHASEAMLESS ABOVE 125 SL 122 TARGET 128/131
BUY MCDOWELL-N ABOVE 610 SL 590 TARGET 630/650
BUY PENINLAND ABOVE 21 SL 20 TARGET 22/23
BUY SREINTFIN ABOVE 34 SL 32 TARGET 36/38
SELL ACC BELOW 540 SL 550 TARGET 530/520
SELL BPCL BELOW 385 SL 395 TARGET 375/365
SELL CIPLA BELOW 190 SL 195 TARGET 185/180
SELL FSL BELOW 14 SL 15 TARGET 13/12
SELL HINDUNILVR BELOW 260 SL 265 TARGET 255/250
SELL MARUTI BELOW 575 SL 585 TARGET 565/555
SELL MLL BELOW 30 SL 32 TARGET 28/26
SELL NTPC BELOW 180 SL 182 TARGET 178/176
SELL OFSS BELOW 620 SL 640 TARGET 600/580
SELL WWIL BELOW 15 SL 17 TARGET 13/11
--Nifty Feb. future discount decreased to 12 points thus cost of carry increased.
--Nifty open interest increased by 10 lacs suggests long accumulation.
--Nifty call option added 8 lacs and put option added 44 lacs.
--Put-Call Ratio increased to 1.2.
--Implied Volatility of options decreased by 100 basis points indicates bullishness.
--India VIX closed at 50.65, increased by 12% suggests instability.
--US markets closed in green. Dow was up by more than 200 points from intraday low.
--Asian markets trading strong.
--Sgx nifty trading at 2854. (Up 20)
--Open interest gainers—orbit, prism cement, SAIL, peninsula.
--Open interest losers—Ansal properties, HDFC bank, GSPL.
--Positional strategy for nifty—Hold Long with closing stop loss of 2771. (Initiated at 2843)
************CALLS FOLLOW UP AS PER FEB 6 TRADING DIARY
NOTE--These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice.
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