Market Buzz

Market is critically poised below 200EMA & on verge of breaking 300EMA showing bearish signal for next few weeks. We have been mentioning about weakness since indices could not sustain above 5750. After three days of continues fall some bounce can be expected but could find selling pressure on rise. Based on formation the long term trend line from july 2009 is broken which will have negative impact.

Further on long term basis last week markets have closed below 50 weeks moving average. Today after gap down opening on EGYPT concern & looking to all global peers our could find support at 5400 levels. Putting all the perspective together current market looks good for sell on rise & this bearish view will be negated only if indices manage to close above 5750 & 19200.

After the announcement of RBI’s credit policy, Markets made a high of 5800 on Nifty, but could not sustain at those levels due to a lack of strength. In the last few trading days indices have eventually managed to sustain above the 5700 level after trading a couple of times below the 200 EMA.

To add to the upward momentum, the banking sector is also showing some signs of revival. Short term indicators are favoring the bulls at this point of time but Nifty Jan futures needs to cross 5780 to add impetus to the recovery. Chart pattern formation & moving averages suggest that today if indices manage to close above 5755 & 19200 there is a very high probability of a bounce back.

After a deep correction of more than 8 odd percentage points, markets are now trying to bounce its way up. As we had believed the stocks have given a sharp bounce from these levels, especially those which had been beaten fair and square. I believe that watching the events this week, markets would remain choppy, however the RBI policy statement would be a key driver. Every time the debate arises that RBI policy’s so called rate hikes have been priced in, but I think this time it is different. Even though market participants expect something between 25-50 basis points hike, the mood of RBI going forward and its stance will be something to be watched out for.

Also the FED is supposed to meet this week for its policy. Although no major changes are expected in it, but a surprise cannot be ruled out in the markets. Being a short week for the markets, and also expiry day for the January contracts, volatility is likely to be the order of the week. So far the quarterly results have been mixed, but mostly it has been in line with the expectations, so it seems that no further fall in the stocks after the results suggests that most of the expectations had already been factored in.

Let us keep a strong watch on the RBI policy meet and the Fed meet, to take further cues for the markets, going forward.

Crude oil prices, refining margins and petrochemical spreads have been rising throughout CY2010-11. In spite of this, the oil & gas sector has underperformed the broader index with the BSE Oil Index dropping by 2.7% as against a gain of 11.3% in the BSE 100 Index year-to-date.

The reasons for the above are not hard to find. Lack of clarity regarding the subsidy sharing mechanism hangs like an albatross around the necks of the upstream companies (ONGC, OIL India) as well as the refining & marketing companies (IOCL, BPCL, HPCL). The positive effect of petrol deregulation has been nullified by the relentless rise in crude prices (Brent crude touched $ 99/bbl couple of weeks ago). This has increased the projected under recovery for FY11 to Rs 73,000 cr, compared to the projection of Rs 53,000 cr made post petrol deregulation in Jun 2010. Hopes of diesel deregulation in FY11 have been nipped in the bud by the Government in the face of 8% plus inflation levels. The Government, which is expected to provide for half of the total under recoveries, will find it tough to rein in fiscal deficit as it has abolished the practice of issuing oil bonds.

Cairn India, whose stock price has a correlation of 95% with crude price, has not performed in line with crude prices, as it awaits Government approval of its take-over by Vedanta Plc. RIL has turned in a stellar Q3 performance on the refining & petrochemicals front, however, ramp up of gas output from the prolific KG D6 basin remains uncertain. This delay is also raising questions on optimum capacity utilization of the pipeline network that is being set up by GAIL (India) and GSPL in the near term. Petronet LNG will be the beneficiary of the developing gas shortage scenario in the country.

As a response to India’s over dependence on crude imports, the Government is considering a system of OALP (Open Acreage Licensing Policy) where oil firms can choose the blocks they want to explore without waiting for the Government to put them on offer. This will minimize the lead time between bidding & commencement of exploratory activities, which can be as long as 3 yrs. The Government also needs to apply its mind towards simplifying the maze of price controls, duties and taxes being charged on the regulated petroleum products so that investors gain clarity on the working of the oil & gas sector.

The rise and rise of commodities in recent past has started to affect the Governments and the economy observers alike and talks of inflationary pressures have started doing the rounds. Even the ECB chief hinted that they won’t be hesitant if a rate hike was required. A glance at the CRB Index weekly charts suggests that the rally in commodities has still some steam left before any meaningful correction and/or a trend reversal would set in.

The current levels are near to the peak of year 2008 and hesitation at around the previous peak isn’t new for any underlying. But selling short purely on the fact that its near to its previous peak can be disastrous and anyone who is thinking of taking a bearish position should allow the CRB Index to break down at least to 564 levels before considering short trade.

However if someone is holding longs then the trailing stop should be placed around 603 areas which is the immediate area of support for the CRB Index. A glance at the individual charts of commodities is painting a different picture. On one hand daily charts of Silver is suggesting caution for long position holders followed by a similar chart pattern in Gold which is
indicating some profit booking in the coming week. On the other hand, chart of HG Copper is indicating that the upward bias could stretch for some more time and taking a bearish view in HG Copper should be avoided. Heating Oil and Crude oil charts are suggesting an upward bias and one can look forward for some gains trading with a bullish position.

Overall the outlook for commodities for the coming week is mixed, energy commodities would continue to swing upwards and metals like copper are still not showing any weakness. The only area of weakness is in precious metals wherein Gold and Silver could see some more profit booking in the coming week.

Markets have been extremely volatile since the last few days as investors are trying to fathom out the bottom in the near term. A quick look at the technical picture of our markets depicts key supports placed between the 100 and 200 EMA, which has a very important significance. Importance of 5700 and 19000 on Nifty and Sensex respectively, is now turning out to be ‘high octane’ stuff for the markets, judging by the reaction of the markets at these levels. Today the benchmark indices made a low of 19003/5695 & after inflation numbers it is now trading at 5830/19440 rising by almost 2% from the lows. On the negative side, breaking 5690/18950 on the downside will increase the intensity ‘southwards’.

Technical pattern formations on daily charts indicate that there is a significant bottom formation seen at the levels of 5700/19000 on the benchmark indices, which proves to be a crucial support for the market, in the absence of no negative news flow thereafter.

Markets had shown a strong pull back after announcement of the IIP numbers yesterday. Critical level of 5700 & 19000 on Nifty and Sensex respectively, was not broken during the volatile period that we have seen in the last two trading sessions.

Formations on daily chart indicates that there is a significant bottom formation seen at the levels of 5700/19000 on the benchmark indices which can prove to be a crucial support if we do not see any further negative news flow.

Today the markets have recovered from intraday lows during the first half but it could not sustain thereafter and gave away yesterday’s gains completely. Volatility has been at peak since the start of this week & I think this kind of volatile moves makes strong case of bottom formation. Nifty future is indicating down trend at this point of time, however, once it crosses 5850 upward momentum will increase.

Investors have now lost close to 5 lakh crore in the last 5 days of trading, and we still are scouting for a reason why the markets have fallen?

Markets have lost more than 6% in the first 6 days of trading for the year 2011. To statistically put it, benchmark indices took an entire one year (2010) to gain ~17%. Such numbers are nerve wrecking, but we need to ask ourselves, is this is the end of the strong rally in the markets?

In times like these, when the pace of fall is so swift, the first thing we should try and avoid doing is justifying the fall and exploring for various reasons why the markets have fallen. I believe that the markets are exceptionally smart and are also forward looking and do not dwell on the present scenario. Sample this; the Banknifty was down close to 20% end of December 2010 from their November ’10 lows, much before the inflation numbers started rising in the month of January 2011.

If you follow reason far enough it always leads to conclusions that are contrary to reason. – Samuel Butler.

We can always have a reason why the markets have fallen and try and associate the same, but what is more important is whether these events/news etc have a long term impact on the markets or not. I believe that all the recent news of the ‘issues’ unearthing from various scams in the markets and many other issues, will provide a long term stability in the markets. We can see stringent rules and regulations, more transparency across corporate affairs etc. In the short term, however such events do impact the ‘sentiment’ of the investor, as we can see from the reaction of the various stocks.

Now the next trigger for the markets which everyone is eagerly awaiting is the corporate earnings of Q3 FY11, and the RBI policy meet to be held on 25th January 2011. These events can lead to an understanding of the overall scenario going forward.

Everything now boils down to one question; Do you still have faith in the Indian economy going forward, or is your confidence shaken?

Yesterday was sixth straight day of fall with no signs of recovery. Markets at this point are trading at a strong support zone. Based on technical study the 5750 is a very important level & the inability of the market to bounce after breaking this level could mean serious trouble ahead. For stability, indices should arrest the fall & remain range bound for few days. For today, short term traders should wait for Nifty futures to sustain the 5820 level & then take short term buying positions with stop loss of 5750. Further on the down side 5700 & 19000 is next critical level that needs to be monitored. The opening bell had sectors like Metal , Banking , FMCG showing a pull back from lower levels, while IT stocks remain negative.

After the catastrophic fall in the markets last week, we can say that the markets have retraced the entire rally of last 3 weeks. The strong selling in the markets have brought the indices very close to its critical supports of 5750. I believe that in the absence of further negative news/events, markets would become rangebound and volatile between 5750 and 6050. Traders can find ample opportunity by buying on declines with a strict stop loss of 5750 and selling on rises with a strict stop loss of 6050, in this range bound market.

Investors with a medium term outlook(3/6 months) can look to invest in stocks such as HUL, Tatasteel and Sterlite.