NEWSLETTER

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We have another squeeze set up - this one is on HUL. Again, the bandwidth is at six month low.

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Here are two daily charts of Dr Reddy's Labs. On the top chart you can see that the bandwidth has dropped to a six month low - a condition which helps in identifying a squeeze set up. As the health care sector has been outperforming, we can expect a breakout on the up side.

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Wow! That's called a bull market!

Half Hourly Chart

Daily Chart

Weekly Chart

Last week I wrote, "We are once again in the perplexed state whether markets will move up or down. This is the reason we follow price with stop losses instead of making these difficult predictions about the future. Remain long with a stop loss of 4200 for targets of

• 4402 61.8% retracement of fall till 3918
• 4480 previous top
• 4590 falling wedge target --shown on half hourly chart
• 4693 top of rise from 2539
• 4812 channel target shown on daily charts."

Targets one and two were achieved easily firming up nifty's neck further. Lets see where the nifty stands now.


Momentum

• Weekly oscillators are showing strength having started moving up again after a very shallow dip.

• Daily oscillators too exuding strength -- RSI14 and Macd have moved up after taking support at levels above oversold territory which is a sign of strength.

• Intraday oscillators are moving up but shown negative divergence.

Moving Averages are bullishly aligned on all time frames.


Bearish Price Pattern

• The Nifty has moved decisively above the neckline of the bearish Head and Shoulder pattern indicating a flase breakout below neckline. Moving above 4693 which is the head, will nullify the bearishness of this pattern.

Bullish Price Pattern

• Breakout from a bullish falling wedge formed on weekly charts giving a technical target of around 5100.
• Downward sloping channel breakout on daily charts with a target of 5170.
  
• The latest pattern to emerge is a potential bullish Inverse Head & Shoulders pattern and the Nifty is on the verge of a breakout . The upward sloping neckline makes it all the more bullish. Breakout will give a 600 point move.
  

Sentiment Indicators

• Advance Decline line has started moving up supporting an upmove.
• Follow up buying during the week was on marginally higher volume.
• A high put call ratio of 1.30 indicating downsides are limited.
  

Direction is now UP. So long as the 4500 levels are held we can expect higher levels. If the 4500 level breaks on a closing basis then chances of testing 3918 are high. There are negative divergences on intraday charts which may be signalling that a correction is due. The Nifty is near strong resistances and the 700 point rise from 3918 has had no meaningful correction.

Strong support at 4300. One can look for oppurtunities to go long with a stop loss of 4300.

NIFTY - may form lower top or double top as per the trendline.

so BE ALERT @ 4650-4700 zone.

If trade above 4700 comfortably then stop may be below 4650 and target may be 4900 - 5050 zone.

Reliance Net Falls on Lower Margins; Misses Estimate

July 24 (Bloomberg) -- Reliance Industries Ltd., India's most valuable company, said profit declined for the third straight quarter, missing estimates, as the global recession curbed fuel demand and refining margins narrowed.

Net income dropped to 36.4 billion rupees ($754 million), or 23.1 rupees a share, in the three months ended June 30, from 41.1 billion rupees, or 28.30 rupees, a year earlier, the Mumbai-based oil refiner and explorer said in a statement today. The median estimate of 13 analysts surveyed by Bloomberg was for profit of 40 billion rupees. Net sales fell 23 percent.

Demand for gasoline and diesel has slumped as the deepest recession since World War II forces consumers to reduce spending on goods and travel. The lower refining profit highlights the need for Chairman Mukesh Ambani, India's richest man, to expand natural gas sales from the country's largest field.

"Refining was the major setback," said Vinay Nair, a Mumbai-based analyst with Khandwala Securities Ltd. "Now it will be full priority for the oil and gas sector."

Reliance shares fell 1.2 percent to 2,016.85 rupees in Mumbai trading before the announcement, giving the company a market value of $66 billion. The benchmark Sensitive Index, which gained 1 percent today, has advanced 59 percent this year.

Margins are declining as refiners, including Reliance, bring new capacity online. About 6 million barrels a day of oil- refining capacity will come on stream globally by 2015, the Organization of Petroleum Exporting Countries said July 8 in its World Oil Outlook report.

Surplus Capacity

That will create a surplus of more than 4 million barrels a day by 2010, rising to about 5 million barrels a day two years later, where it will remain for "some years," OPEC said.

Reliance earned $7.5 on every barrel of crude processed into fuels compared with $15.7 a barrel a year earlier, the company said. Refining accounted for 65 percent of revenue in the quarter ended June, while the oil and gas business contributed 5 percent, Reliance said in the statement.

Reliance joins SK Energy Co., the biggest South Korean fuel producer, in reporting profit that missed analyst estimates on lower demand for oil products. SK Energy reported net income of 301.4 billion won ($242 million) today, below the median estimate of a 350.8 billion-won profit in a Bloomberg survey of nine analysts.

Global profits from turning crude into oil products fell to an average $4.98 a barrel in the quarter ended June 30 from $8.25 a year earlier, according to BP Plc data.

Sales Agreements

Reliance invested $4.7 billion in the KG-D6 gas field in the Bay of Bengal's Krishna Godavari basin, which started production on April 2. Reliance has signed agreements to sell about 15 million cubic meters a day of the fuel to fertilizer companies and as much as 18 million cubic meters a day to power producers nominated by the government.

Peak production at the field may climb to 80 million cubic meters a day by December, P.M.S. Prasad, president and chief executive officer of Reliance's oil and gas business, said March 27, doubling the availability of gas in the country.

Mukesh Ambani, ranked seventh in the Forbes 2009 listing of world billionaires with a net worth of $19.5 billion, is fighting a lawsuit in the Supreme Court over the supply of gas to Anil Ambani's Reliance Natural Resources Ltd.

Court Hearing

The younger Ambani, ranked 34 on the Forbes list with a net worth of $10.1 billion, wants to enforce a 2005 agreement requiring Reliance Industries to sell gas at 44 percent less than the government-set price. The court has scheduled the next hearing on Sept. 1.

Reliance shares have fallen 15 percent since the Bombay High Court ruled last month that Reliance Industries must honor the accord that split the family empire. The court lifted the ban on gas sales from the KG-D6 field in January.

The agreement requires Mukesh's company to sell the gas to Reliance Natural at $2.34 per million British thermal units. Reliance Industries says the fuel can't be sold below the $4.2 per million Btu level set by the government in 2007.

Selling the gas at $2.34 per million Btu may lower the value of the total gas reserves at KG-D6 by as much as $3 billion to $13 billion, Nomura Financial said in a June 15 research note.

Domestic Sales

Reliance Industries exports most of its refinery products and plans to counter declining overseas demand by selling fuels in India, the second fastest-growing major economy. It started sales to state-run refiners including Indian Oil Corp., the nation's largest, after giving up the export-only status of its first refinery at Jamnagar in Gujarat state, capable of processing 33 millions tons of crude a year.

In December, Reliance started operating a 29 million ton-a- year oil refinery adjacent to the older unit. The new plant can produce high-quality fuels using low-grade crude and shift production among products based on market prices.

Refining capacity worldwide will increase by 7.6 million barrels a day between 2008 and 2014, with 54 percent of the new capability in Asia, the International Energy Agency said June 29. Demand for oil is projected to rise by 3.2 million barrels a day, the Paris-based organization said.

Weekly Technical View by Tanmay G Purohit:
Nifty (4568) rose 194 points or 4.43% this week on the back of recovery in Monsoon and strong corporate performance from companies like MARUTI, DR REDDY, UNIPHOS, ACC, ULTRATECH. Nifty trades close to 2009-high level of 4693 but has closed above 4500 this week which has negated the bearish H&S formation. Now it is well-placed inside an up-channel and going past 4693 next technical target at 4790 is possible; which is also a 61.8% retracement of fall from 6357 to 2252. Next week will have RBI Policy Meeting on Tuesday, F&O Expiry on Thursday and the results season will be almost over until weekend to get a clearer picture of corporate scorecard for Apr-June quarter. Markets normally turn volatile near important tops and as we trade close to 2009-high levels with important events next week, traders may experience a lot of volatility. Nifty moving below 4490 will break the rhythm of up channel and below 4380 panic selling is not ruled out. Still caution is advised and investors are advised to remain light for time being. Stocks looking positive - SINTEX, MCDOWELL, UNIPHOS


Support 4480/4420/4375
Resistance 4635/4700/4790

Last Week Recap Of Technical View:
Nifty (4375) rose for 4 days on trot after Monday to close up by 9.27% this week and recouped almost all of the previous week losses. 3900-3930 was minimum target for downmove and Nifty took U-turn from that place. Sustained move past 4500 will negate the bearish H&S formation and we will have to assume that the trend is still up, but for now it is trading in a broadening triangle which indicates large swings on both sides. Nifty breaking 4200 this week will be negative and caution is advised if 4100 is taken out. Because I had a cautious view, we could not catch the 400+ point move on Nifty this week but market is always supreme and we have to obey its orders as no one can dictate terms here. Many ask when Nifty will correct to 3600 so that we can buy - the point is one should not worry much about index movement. When there are opportunities, we should buy. Buying value gives us margin of safety and caution is being advised because a bit of risk management will only improve the total returns of the portfolio.


Contrarian View:-
Nifty has formed an inverse head & shoulders formation in Weekly graph which suggests if Nifty breaks out above 4700, the next target will be in the region of 6500-6600 which will be new AllTimeHigh for the index. A chart is attached here for a better view. But taking into consideration various other factors, I still feel some caution is needed as the risk-reward ratio doesn't favour the buyer in a great way. We have capitalized on a large swing of nearly 2500 Nifty to current levels of 4500 because at that time the risk was minimal and rewards were optimal, current circumstances and valuations don't have such an attractive payout at this juncture. For long term investors, Sensex target of 20000 is maintained by Dec 2011 and 35000 by 2016.

Positives for long-term growth:-

• India remains in quite safe positions as far as global recession is concerned, we have had only a slowdown effect and India GDP grew 6.7% in 2008-09 which was the most severe year in recent times for global economy.
• Young population: India has one of the lowest Median-age of population, living a big working class which doesn’t have to serve a lot of ageing population. Many other country nationals will be getting older as Indian youth will blossom in the boom once the recession recedes. Major benefit is that many can speak English easily. English is a world language and China still hasn’t developed well in this aspect but they are coping with it.
• Global Auto companies have faced a lot of brunt of recession and some have even faced bankruptcy. But Indian Auto sector continues to grow and in future India is likely to be a global auto hub.
• Indian economy is sustained by one of the highest remittances from Indians living abroad, improving outsourcing and talent-led export growth can make the economy recover quickly
• Stable government at the center confides about stress on growth and continuation of reforms.
• Reliance's KG-D6 gas and other capacities from CAIRN, ONGC coming on stream can save India around $19bn through savings in imports and savings for Indian consumers through the approved price. Subsidy burden from fertilizer companies is expected to reduce as import costs will go down.

Negative Factors:-

• High Fiscal Deficit widened to 6.8% in recent Union Budget, any rise in this deficit can degrade India ratings.
• High government borrowing can impact interest rates and rising interest rates may disturb the consumption-led growth.
• Tax collection took a hit last year on the back of stimulus packages and any roll-back in terms of rise in excise duty and other tax rates will contain the fiscal deficit but can hamper demand for the related products as prices will rise after rise in taxes.
• Failure of Monsoon is still a worry and already food prices are shooting up in the sky. Inflation can be a factor to watch out if food prices sustain their rising trend.

Clustering of important events:-

• Nifty trades above 20 P/E which makes many positive factors built into the prices.
• Sensex/Nifty have completed 89 days of rally on Tuesday, 21Jul2009, 21 weeks of up trend will be complete this week - Both are important fibonacci numbers in technical parlance.
• Sensex has created 8 up gaps during its journey in the last 5 months of rally, also on weekly graph we are having 3 up gaps open. It is not necessary that we close these gaps always, but closing these gaps can give us a comfortable entry point which is needed for future safety of returns. If Sensex tries to feel even 2 gaps from the 9 open, we may see 13460 levels. If 2 of the 3 weekly gaps are to be closed, we may see even 12250.
• 61.8% retracement of Sensex fall from 21206 to 7697 will complete at 16045 which can be a place where good supply can be seen.

Nifty Chart - 5 Mins:

Nifty opened a gap up of 32 points, exactly at 4570 levels, took resistance here and moved down and took support from 4520. Both these levels were mentioned in the morning post. Later on bears tried to crack this 4520 levels with big volumes. They succeed for a brief time but the happiness never lasted for them, as nifty immediately took support from yesterday's pivot levels of 4510 and bounced back.

On the higher side, 4540 levels were very hard to break for the bulls. But after some sideways consolidation, the break out happened with good volumes. Later on with increased demand, market moved up very fast towards the resistance levels. The red resistance trend line held very well.