Global Meltdown 'Melts' Nifty

It’s the scenario of a global meltdown today. It’s like a ship, much bigger than Titanic, which is as big as the whole world, and it is going under. Everything seems to be sinking. Let’s have a quick look at the world markets. The Nifty closed with a loss of 215 points for the day while the BSE Sensex tanked 724 points. Asian markets were down quite a bit today (Monday) with the Japanese Nikkei shaving off 4.25%, Hang Seng 4.97%, Chinese markets losing 5.23%, Singapore Straits 5.6% and Jakarta leading the pack with a loss of 10.03%. The situation in the European markets was no better with the London FTSE losing 5.77%, German DAX losing 7.07% while the French CAC lost 9.04%. As far as America is concerned, at the time of writing, Dow Jones was trading 559 points in the red (5.41%), the Nasdaq was losing 139 points (7.13%) while the S&P500 had lost 71 points or 6.43%. On the commodities front, Crude was losing 4.92% today, copper 7.62%, most agricultural commodities losing 6-7% while Gold being the ‘safe haven’ for investors was up 4.13%.

As far as the technical analysis of our charts is concerned, there seems to be no hope for the Nifty, even though there was some good news for the Indian markets. The 40% cap enforced by SEBI in Oct 2007 on Assets Under Custody through Participatory Notes (P-Notes) has now been done away with. So, now there is no restriction on P-Notes. Moreover, the RBI has slashed the CRR by 50 basis points. Both these decisions have been taken with a view to increase increase liquidity in the markets. But one wonders how much will this help when the Nifty has broken the major support level of 3800 and is even below the next support of 3640.

Seen above is the weekly chart of the Nifty showing the movement in the last two years. The portion of the chart from Mar 2007 to May 2008 has been marked with a bearish head and shoulders pattern with the neckline as shown by the green dashed line. The target for this head and shoulders pattern is 2600. It seems that the Nifty today has confirmed another, and larger, head and shoulders pattern formed between June 2007 and today. The neckline for this pattern has been shown as the solid green line. The target for this new pattern is half of the last pattern which roughly works out close to 1300 levels on the Nifty. Though, nothing is ever certain with the markets, I can say with reasonable certainty, and accuracy, that this target would not be achieved. And I sincerely hope, for the good of the nation and so many investors, that the markets do not prove me wrong here. Shown in the bottom portion of the chart is the Relative Strength Index (RSI), which continues on its way down and is not even showing a divergence, which might give us some glimmer of hope.

Some immediate support levels for the Nifty are at 3554 (minor), 3130 (reasonable) and 2600 (strong). The Nifty may go on to achieve one of these levels or can find support somewhere in between. Let us hope that this support level comes as soon as possible. But, if things do not change very soon, I’m afraid to say that we’re going to have a lousy Diwali.

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Short Term Bullishness, Intermediate Term Bullishness

After the US bailout package was defeated in the House of Representatives on Sep 29 228-205, the Senate approved the same last night with a thumping majority 74-25, says Bloomberg. The package would be sent to the ‘House’ again Friday afternoon for reconsideration. Many republicans who voted against the package last time may reconsider and switch their votes in favour of the bailout package. Despite the Senate’s approval US stocks remain down today with the Dow Jones trading with a loss of 330 points. European markets also remained weak losing between 2 and 3%. Gold has lost a few dollars while crude has slipped to $94 a barrel. The only thing that remains strong in this kind of a market is the dollar, and who can forget our very own Nifty.

Seen above is the daily chart of Nifty. Just like it was seen a few days back, the Nifty again displayed long lower shadows on its candles, which happens to be a short term bullish sign. The 5,3 stochastics oscillator, too, slowed down by 3 days has given a buy signal. The Nifty seems all set for a short rise from here. Possible resistance levels for this short spurt seem to be near the two green trendlines drawn. For tomorrow, one of the resistances lies near 4043 and the other lies at 4075. The Nifty, on Wednesday, after touching a high of 4000.50 dropped and finally closed at 3950.75.

Well, the Nifty is displaying short term bullishness, as the charts suggests, but also, as is evident from the charts, we still happen to be in an intermediate term downtrend with the Nifty clearly showing a pattern of lower highs and lower lows since early August. Now, which of these trends will prevail in the short term is difficult to say. It could be a downtrend since there is bearishness all across the world. But that has been there since quite a few days now, yet our Nifty is displaying strength. The Nifty may decide to go up first, touch one of the trendlines, and then fall back. And finally, the Nifty may even decide to slip from where we currently are. What will be its final decision, will be seen tomorrow. Till then be careful at 4043, 4075 and 4100 on the upperside and 3800-3850 on the downside.

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Rakesh Jhunjhunwala Positive On the Markets

Since a number of days now, I have been talking of a target of 3800 on the Nifty. This morning because of the global weakness the Nifty opened weak and touched that target of 3800. In fact, so close was the prediction that today’s low on the Nifty happened to be 3799.55. And once the target was achieved, the Nifty started moving up. The move up was steady and consistent and so good was the recovery that the Nifty finally managed to close near the highs of the day with a gain of 30 points. The high made today was 4050.10, which means an intraday recovery of 250.55 points. Such a good day changes the outlook totally. Crude, as of now, is trading flat near $96 while gold, after a stunning $70 rise yesterday is up again by $46 or 6%.

Seen above is the daily chart of the Nifty. Three days out of the last four have displayed candles with long lower shadows, as marked by the green arrows. Two of these candles have very small bodies and, in comparison, very long lower shadows. Today’s candle, in candlestick charting parlance, is also called a hammer. And it is named a hammer not only because it looks like one but also because such candles are found near the end of a downtrend and it is said that such candles are ‘hammering out a base’. Options outlet says the following about a hammer.

So, is this the end of the bear market? Well, we can’t say for sure. The prices have started ‘hammering out a base’, inflation has stabilized, crude prices have softened and India does not seem to be having too much of an impact of the credit crisis in the US. Who knows, this may be the end of the bear market. But hey, look at the world around you. There is so much of pessimism around. Surely, India cannot remain insulated from the problems in the rest of the world. Hmm, maybe it cannot. Or maybe it can. But as far as pessimism around the world is concerned, I would again like to point out what Sir John Templeton said. He said that “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

Rakesh Jhunjhunwala, according to Moneycontrol says that India is still in a long term bull market and that the current phase is only an interruption to that bull market. His logic is simple. That had we seen the market rise from 3000 to 13000 and then come down to 11000, it would have been termed as a correction. Now when we have seen so much of greed and so many excesses that the markets went to 22000 and then came down to 13000 then why are we not calling this phase a correction too? Shireen Bhan, in that context, in conversation with him mentioned that we have recently seen ‘the mother of all bull markets’ to which Rakesh Jhunjhunwala immediately disagreed and said the ‘the mother of all bull markets’ was yet to come. This conversation with Rakesh Jhunjhunwala will be telecast on CNBC this Saturday at 7:30 pm or Sunday at 10:30 pm. Watch it.

Shankar Sharma of First Global, though, remains a bear and says that the Sensex may not be able to reconquer its previous highs for the next 2-3 years and that it may come down to 10000-11000 levels.

But Vikas, where does that leave us? Do we remain bullish or bearish? Well, I have given you both sides of the market. You decide for yourself what you want to be. I, personally, am not too bearish on the markets, especially after seeing the candles formed in the last four days.

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Nifty Slips Into Another Range, Gold Shoots Up

The Nifty today opened weak, stayed weak, made a weak attempt to recover after noon but failed and became weaker after the European markets opened weak. So, there is weakness all around. The only thing that’s not weak is Gold, which went up sharply today rising $84, almost 11%.

After breaking down from the double top pattern formed on the 30 minutes charts a few days ago, the Nifty achieved its target at the opening bell of the third day. After achieving the target, the Nifty has now slipped into another range, this time on the 30 minutes charts, as seen above. This range is between 3950 and 4100. While the target on the daily charts remains 3800, it will be only after this range is broken through on the downside. In case the prices break out decisively above this range, that target of 3800 will be cancelled, at least for the time being.

If the prices do break out of this range on the downside, what will be the target on the 30 minutes charts? Well, this range is 150 points wide (4100-3950) and a breakdown will give us an additional 150 points which gives us a target of 3800 (3950-150). So, well, that conforms to our views/target on the daily charts.

That’s fine, but which side is the market likely to break out on? Well, we don’t know. That is what happens in a range. In a range, not only is the market confused/unsure, it confuses us too. Well, we may get some early indication from oscillator indicators when there is a divergence visible, but in this case the Relative Strength Index (RSI) is also not showing any visible divergences. This means, that we shall have to wait till a divergence is visible (which may or may not come) or for the market to come out of the range. So, for now, it is buy above 4100 and sell below 3950 (in the short term). Investors are advised to wait for now and not take any long positions, at least not till the market either achieves 3800 or breaks out on the upside above 4100.

But the international markets may provide some cues. There is some good news from the US. The Fed government has agreed to bail out AIG by giving them a $85 billion loan (that will be repaid by liquidating the company) in exchange for a 80% stake in the company. But there are fresh concerns about Morgan Stanley and Goldman Sachs (the two remaining independent securities firms), the result being that, at the moment, Dow Jones is trading 240 points in the red while the Nasdaq has lost 75 points. Crude remains flat near $97 a barrel. So, all in all, it looks like we are going to have a downside breakout from the range that we are in.

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The World Around Us

Today is a weekend and on weekends I, usually, write about general things for which I don’t get time during the week. On previous occasions, I have written about mutual funds, the US Recession, Retirement Planning, Greed and Fear, Renewable Energy, Price to Earnings Ratios, Rules for Analysing Charts, why technical analysis works, Fibonacci Techniques and have done a couple of webinars also. The whole week a question keeps propping up in my mind that what am I going to write about this weekend and sometimes my mind draws a blank and I don’t know what to write about. Today happens to be one such weekend. Maybe you readers can give me some ideas about what I should write about. Just send me a list of topics about which you need some more information and I can keep picking up a topic from the list and every weekend I can write about a different topic. I hope to get a list which could last me 2-3 months. So please send in your lists today.

Though, I didn’t know what I should write about, but then I thought why not write about something which seems to be driving our markets. And in my opinion, there are three things that are driving the Indian markets, namely, inflation, crude prices and the American markets. Inflation, I feel, is more because of the shooting commodity prices the world over rather than being an Indian phenomenon. The government is trying to control inflation by regulating the supply of commodities or by raising interest rates but when the inflation is driven by external factors how can we control it with these measures? Though, I’m not much of an economist but I feel there could have been better ways to reduce inflation than this. I’m shocked at how horribly wrong the Govt. was. According to this news report the Central Government had said on April 19, 2008 (when the inflation was 7.14%) that they would bring down the inflation under 5% in the next two months.

Well, about crude prices the sky seems to be the limit to which the crude prices can go? Will this never end? Will crude go to $200 a barrel? When I don’t understand anything I make use of technical analysis. But I have done the technical analysis of crude in an earlier post too with the help of Elliott Waves and had suggested that crude could make a high near 6300 or $148.50. Things have changed today. Crude, after a $10 jump that day slowed down and is now gradually inching up. This gradual increase has pushed the target upto between 6500 and 6600 (in rupees), which means it could go upto $157 a barrel. But I also saw the short term chart of crude and I found it to have some similarities with the chart of the Nifty. Let us see how.

Seen above is the daily chart of the Nifty showing the period between November 2007 and January 2008. Significant in this chart is the presence of dojis. I’ve mentioned in numerous other posts that a doji is a day when the open and the close of the day is the same or is very close to each other. In this case, the candle that is formed has an upper shadow and a lower shadow but a non-existent or a very small body. All such dojis have been marked in the chart above with green arrows. Dojis are signs of indecision/confusion. Such indecisions and confusions cause a strong trend in the market to slow down and then reverse. This is exactly what happened in late January after a series of dojis were seen in late November, all of December and the initial part of January. Another thing to note in the chart is the presence of the ADX index which measures the strength of a trend. A strongly trending stock/index will show higher values of ADX while a trend slowing down or a stock/index going through a consolidation will show lower values of ADX. This ADX, which was as high as 47 in late October came down between 15 and 20, when the Nifty actually reversed.

Let us look at the crude chart for the period between mid May and now. The similarities seen are obvious. This chart also has seen a number of dojis in the last two months, though, may not be as many as were seen in the chart of the Nifty. Looking at the ADX indicator, we can see that here too it made a high of 47 and then came down to levels between 25 and 30 and is now at 33. The striking resemblance between the two charts shows us that the high for crude oil may not be very far off. What also cannot be ignored is the presence of so many red candles. The chart looks more red than blue even though this chart is of a period when it has been in an uptrend.

And lastly, let us take a look at the American markets too. Seen above is the chart of Dow Jones Industrial Average for a period of last one year. We can clearly see that the trend has been downwards. The chart currently shows no indications of the downtrend finishing or an uptrend building up. But there are a couple of things which I want to share with you. The first is the trendline drawn from June 7, 2007 till date. This trendline shows that there may be support nearby near 11100. And a one year long trendline, which has been tested 4 times in the past should provide a pretty strong support. Secondly, the Relative Strength Index (RSI) is currently near 20 and considering that the downtrend has been in place for the last 9 months, a level of 20 is highly oversold which has never been seen in the last year, at least. Both these things show that a support, could only be a short term support, is nearby. And that is what we are expecting with the Indian markets too. More downside possible but a short-term low may have been formed.

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Inflation and Crude Oil Technical Analysis

The topic of my discussion today is crude oil. But because of the increasing oil prices we saw a hike in the prices of petrol. That will increase the inflation, so let me talk about inflation. With increasing inflation, the markets will come down, so let’s change the discussion to the markets. But this oil price increase may be because of the weakening dollar. Shall we talk about the dollar then? There are so many things to talk about, why limit ourselves to one topic. I’ll just write type whatever comes to mind.

Let us take a very simple example. Let us assume that milk and cows are not easily available commodity/animal. Let us assume that you have 5 cows with you (lucky you) and that you get about 50 litres of milk a day. Since milk is not easily available you don’t want to sell it all and would like to keep some for your future use, so you freeze it. And since your neighbours are buying from you, you sell about 28-30 litres in a day, consume 2 and freeze the rest. Now, your cows are getting old and their milk giving capacity is going down. You know that in a few months time you will be left with no milk. Your neighbours are requesting you to start selling 40-45 litres a day. Obviously, you won’t do it because when the cows stop giving milk, you could charge a fortune for a litre of milk.

Now let us say that the cows will give milk only for 6 months more, which is 180 days. At your current rate of 20 litres a day, when the cows stop giving milk you would have 3600 litres of frozen milk with you. The neighbours have been paying you with a kilo of rice for each litre of milk. But rice is easily available and its value is going down. And because of the value of rice going down, you have started asking for 1.2 kg of rice for every litre of milk. And because you are selling less your neighbours are even willing to pay 1.5 kg of rice for a litre of milk. You know that your 3600 litres of milk which was worth 3600 kg of rice, will now get you 5400 kg of rice. So, in effect you are richer by 1800 kg of rice without doing a thing. Would you sell more milk or just keep building up your wealth which is now increasing without even selling?

This is exactly what is happening in the world today. Just substitute crude oil for milk, the oil rigs for the cows, the Arabian countries owning the oil rigs for yourself, the rest of the world for the neighbours and the US dollar for rice. It is all so simple. Why would they sell more oil when their net worth is increasing every day because of the depreciating dollar? Why would they sell more when they know that 20-30 years down the line when the production is zero, the crude will be worth much more? Why would they sell more when they could get a fortune for a barrel of oil 30 years down the line?

Inflation jumped to 8.24% for the week ended May 24, 2008. On Wednesday, the government hiked the price of petrol by Rs.5/- per litre, diesel by Rs.3/- per litre and LPG by Rs.50/- per cylinder. The government says this hike could increase the inflation by 50 or 60 basis points. But inflation is not only affected by fuel price hike. This fuel price hike will have a cascading impact on all sectors from industries to agriculture and even services. The worst hit, as is easy to understand, will be the transportation sector. It will also mean increased house rents because the cost of construction material will be pushed up by the cost of transportation. And since almost everything needs to be transported before and after production, this hike would affect everything. In time, the food will also becoming dearer, and now with the LPG hike even cooking the food is going to become costlier.

The Economic Times says that historically a Rs.2/- per litre hike in petrol and Rs.1/- per litre hike in oil pushes up the wholesale price index by more than a point in the subsequent two weeks. The LPG price had not been increased since 2004 and this time with a Rs.50/- per cylinder hike in LPG and Rs.5/- and Rs.3/- hike in petrol and diesel respectively, the wholesale price index could move up about 4 points (though the Economic Times says only a point and a half) in the week ended 7th June, the figures for which will be released on 20th June, 2008. This would push the wholesale price index to about 234.5 to 235. A figure of 235 would translate into an inflation of over 10.48% since last year in June the Wholesale Price Index was 211.8.

Coming back to crude, the crude price jumped by more than $10 a barrel on Friday to a record high of $138.54. Did the government do something wrong in increasing the petrol, diesel and LPG prices? Absolutely not, but it came too late. This was a decision which should have been taken months ago. With the reformist finance minister, Dr. Manmohan Singh heading the government, we didn’t expect such a good economic decision to come so late in the day. But maybe the government was just waiting for the Karnataka assembly elections to get over. But the decision took more than 10 days after the elections to be announced. Every single day was adding up several crores of rupees of losses for the oil companies. But in the end such a drastic hike was a bold decision by the government. But despite that, Petrol sold in India is still about Rs.10/- per litre cheaper than what price it commands in the rest of the world. But where is it headed? $150 a barrel is not too far away and there even have been predictions of $200 by the end of the year. Let us do some technical analysis.

Seen above is the daily chart of crude oil near month futures listed on Multi Commodity Exchange (MCX) in Rupees. In this chart we are not taking the help of any line studies or indicators. The only thing on the basis of which we are trying to predict is the Elliott Wave Theory. Applying the Elliott Wave counts to the above chart, we can see that we are currently in the 5th wave. All waves have been marked as 1,2,3 and 4. 0 is where we have started the wave count from. You can also notice that within wave 3 also there are 5 waves which have been numbered in brown colour to avoid any confusion. Wave 1 was Rs.1076/- long while the length of wave 3 was Rs.1838/-, which clearly shows that wave 3 was the extended wave. This means that wave 5 should be, more or less, as long as Rs.1076/-. From the end of wave 4, this gives us a target of Rs.6288/- per barrel for crude when wave 5 ends. A target of Rs.6300/- would translate into a price of $148/50- per barrel in dollars. There the crude should, rather, could make a short term high, at least.

More tomorrow. Happy Investing!!!

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Markets Tumble as Crude Advances

The US markets (Dow Jones) was down over 200 points last night (Thursday) on concerns of crude oil reaching a record high of $123 a barrel. Even the Asian markets were weak this morning and we were bound to go down with weak global cues. It was because of this reason that the Sensex opened more than 200 points down while the Nifty opened about 50 points in the red and then stayed down all through within a range of only 30 points throughout the day.

We have the 30 minutes chart of the Nifty with us today and there are some observations that we can make from it. The support trendline on this chart is lower than it was on the 60 minutes chart. Here we have support from the trendline at around 5070, which has not been broken as yet. The highs made between 5065 and 5070 on 22nd, 24th and 25th of April also provide support at these levels, which has been signified by another trendline. And then we have another trendline, and this time a downtrending one, which signifies that prices should go up if they cross this trendline at 5100. This last trendline, if seen in conjunction with the RSI signifies a positive divergence, which means that while the prices have been coming down during this period, RSI has remained more or less stable. There is another trendline, which connects the high made on 7th April and the lows made on 15th and 16th April, which also provides support at 5070 but that has not been shown here to avoid two things – firstly, and more importantly, confusion, and secondly, excessive analysis, because excessive analysis leads to paralysis, also known as analysis paralysis, says Chris Garrett.

The price of crude oil has more than doubled in the last year and a half, has become six times in the last six years and has become eight times in the last nine years. Some of the causes of rising crude oil prices have been discussed in one of my previous posts titled “Renewable Energy”. Incidentally, this article has also been published on Reuters.

This article on Bloomberg writes that countries like China, India, Russia and the middle east may be responsible for the rising crude oil prices. A few days back President Bush too attributed the rising food cost to China and India. While that may have been a little far-fetched to swallow, Bloomberg (rather, the International Energy Agency in Paris) may well be right about its claim, though if we compare the per capita consumption, US is still consuming 10 times the energy than India does.

Dance with shadows says that The burden of the rising crude price has a huge bearing on the profitability of many industrial units in India. Commodities such as aviation turbine fuel (ATF), naphtha and bitumen have witnessed a huge price increase during 2007-2008. These products are selling at market-determined prices. Their prices are up by 27-39% year-on-year. It is expected that the rising price would have a huge impact on air travel, power and polymers sectors directly. We need to prepare to pay more for most manufactured products in the future.

This clearly shows that these increasing crude prices will have an effect on the inflation in our country and CRR hikes and interest rate hikes may not be the only solution. Maybe that is why the markets went down today, fearing the worst. It could very well be the same tomorrow, depends on global cues. Plus, the inflation data is also due out tomorrow. Let us cross our fingers and hope for the best. Technical Analysis does help buy but sentiment holds the key.

Happy Investing!!!

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Above 5000, Expect a Target of 5500

Before I start with anything else, I must thank all my readers for their continued support. I have now posted 100 posts on this blogspot. It is all because of your continued support and readership that this blog is still a success. I hope that my source of inspiration – my readers – continue to extend their support to me.

Last week was a good week. The markets were closed on Monday on account of Ram Navmi and they were closed again on Friday because of Mahavir Jayanti. So, we were working only on Tuesday, Wednesday and Thursday. I, somehow, liked this three day week. I hope there are many more to come. And now on Sunday evening, Monday blues are already catching up with me.

In terms of market movement too, it turned out to be a good week. The Nifty ended all three days in the green, thus ending the week with a net gain of 180.60 points. Maybe the market too likes three day weeks. We just have to wait and see how Monday goes. If it is a down day then we’ll know that ‘Monday Blues’ don’t affect only the humans.

On account of news, it was a mixed week. The inflation figures that were declared on Thursday this week instead of Friday showed that there was a slight drop. It dropped to 7.14% as compared to the 7.41% the week before that. The RBI Governor decided to increase the CRR (Cash Reserve Ratio) by 50 basis points in two steps to 8%, which is expected to suck out approximately Rs.18500 crores of liquidity. It was surprising that the decision was taken in spite of the marginal drop in inflation but, more than that, surprising was that the decision could not wait upto the credit policy announcement on 29th April. This may suggest some harsher decisions to be announced on April 29th.

While a CRR hike of 50 basis points was expected, no change in the repo rates is expected at the moment. Even though the hike was expected to some extent, the market may still react negatively. There is a view in the market that even though a repo rate hike is not expected at the moment, the CRR hike itself will have an automatic upward pressure on the interest rates. There is also a view that a CRR hike wasn’t necessary and is not likely to contain inflation to a great extent. A major part of the current increase in inflation can be attributed to the increase in the prices of metals, the prices of which are not governed by or within India and the only way to address that issue is to have restrictions in place so that the supply is increased. That explains the reason why steel exports were banned last week.

Let’s get to the technical analysis part of the newsletter. Seen above is the daily chart of Nifty. We can clearly see that at this level, the Nifty is not only finding resistance at the top of its range but also from the downtrending line which has been in place for the last 3 months. This is likely to be a strong resistance. The CRR hike has come about at an inopportune time. This will add to the pressure that the Nifty is facing at 5000 levels. Maybe the time to cross these levels has not yet come. Maybe we’ll have to wait some more.

However, all is not lost yet. Even at the top of the range the Relative Strength Index (RSI) is nowhere close to the overbought levels (above 70), which suggests that there is still some scope left for the prices to go up. Secondly, there is a positive divergence between the price and the RSI visible on the charts. Positive divergence means that while the price is making lower highs, the RSI is continuing to make higher highs. And another positive at this time seems that the RSI has broken through its upward sloping trendline. And not to forget the influence of the global markets which all looked happy and strong on Friday (except China). Maybe, after all, this may be the time to go up. Wait and watch. Above 5000, the Nifty is looking at a target of 5500.

Axis Bank has broken through the downward sloping trendline with a big spurt in volumes. One may consider buying near 800 with a stop loss of 740 for a target between 1000 and 1020.

HDFC Bank has made a pattern of fan lines. In fan lines, in the beginning, a stock finds resistance near a particular trendline. Once that trendline is crossed, it does not change its trend immediately but now starts finding resistance near another downtrending trendline. When this trendline is crossed, it yet again finds another trendline. These are called fan lines. In technical analysis, it is usually said that once a stock crosses the third fan line, it should get a good and a quick move. Notice the spurt in volumes on breakout of the third trendline, which was absent during the previous two breakouts. One may consider buying between 1360 and 1380 with a stop loss of 1270 for a target near 1650.

ITC has a history of finding resistance between 210 and 215. Notice the presence of the two doji candles (having the open and the close at almost the same levels) which signify that this maybe a top to remain for the next few days at least. Also, notice the absence of strength in the RSI because of which it is not able to decisively go through 60. This may be a good time to exit ITC.

Reliance Petro had been stuck inside a narrow range for over 3 months now and has now come out of that range on the upside. Because of the negative news of the CRR hike, a dip to 180 is possible. It might make sense to pick up this stock near 180 with a stop loss of 165 and a target of somewhere between 215 and 220.

Wipro, on its daily charts, seems to have made a bullish head and shoulders pattern. A move above 465 should confirm this pattern. While the stop loss is a little deep at 400, it could be bought above 465 for a target close to 570.

Happy investing!!!

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Renewable Energy: Stocks of the Future

Update: This article was also published on the business and investing page of Reuters.

It was another day for the Nifty within the range. Volatility of the Nifty is now very low. Now the range is only 120 points wide between 4680 and 4800. We should see a breakout soon enough. A breakout out of this contracting rectangle should take the Nifty back within the broader range of 4620-4950. A move outside this broader range will give us a real movement. There is no use of making predictions about the direction of the breakout. The market will tell us which side it will break out towards. We shall position ourselves to buy in case of a breakout on the upper side.

Since the long term trend of the Nifty remains up, we should plan to buy on every dip. A dip is a rare occasion in a bull market. Luckily, we are getting these opportunities every third day now.

Yesterday, we had discussed that the fundamentals of the economy are still strong and that the markets have essentially crashed because of low liquidity, heavy speculation and problems in the USA and not because of any fundamental reasons of our country. And as the problems in the USA settle down, we should see some recovery in our markets too.

Today we shall discuss about the energy sector. Let’s start with oil. We know that oil is present only in limited quantity and there are only finite sources of oil available. There are sources which tell us that the production of oil has already peaked out or is likely to peak out in this decade. And also that for the last several years the world oil consumption has been more than the oil production and the demand is still growing. With growing demand (approximately at the rate of 1.4% per annum) and reduced production, we are eating into our reserves and according to the NATIONAL CENTER FOR POLICY ANALYSIS (NCPA) the oil available shall only last till the year 2056, but with better conservation and the use of substitutes we may actually scrape through to the year 2100.

To protect our future generations from going back into the stone age, we shall have to look for alternative sources of energy. A lot of countries are now taking steps to shift to alternative sources so that we could reduce the consumption of oil and make it last longer. Warren Buffett once said that If a business does well, the stock eventually follows. Alternative energy is one of those concepts which will continue to do well, at least in our lifetime. So, it may make sense to buy stocks which are into renewable energy like Suzlon (wind power), NTPC (thermal power), JP Hydro (Hydro and thermal power), Neyveli Lignites, Webel SL (Solar energy) etc. Buy them today and hold for long term. Your children could become crorepatis with these stocks some day.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the article today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

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Fundamentally Strong Reasons to Buy

Today’s movement did not help the markets much except giving us a day in the green. The markets are still stuck within a range and there are concerns amongst some circles that the markets may break down below the range rather than breaking out upwards. All that is very true. The markets could break down either way. There were some positive signals in the short term charts but those too seem to have fizzled out.

Stocks, or the markets as a whole, cannot be down forever. There has to be some value buying at some level. Agreed, that the GDP growth rate is slowing but it’s still a very good rate of growth. Agreed, that the inflation is rising and that the growth may become still slower but we will be able to control the inflation and the companies will be able to show good earnings despite inflationary pressures. And then the value buying will emerge. The smart money always buys first. We have to ensure that we become smarter and buy with them, if not before them.

Presented below is an analysis of the value and the fundamentals in the Indian markets, which I had received from someone in an email. The source is unknown so cannot give credit where it is due, for the same. The last leg of the recent bull market was driven more because of excess liquidity, leveraging and rumours than because of fundamental reasons. The same situation had been last seen in Feb-Mar 2000 when the markets rose because of the dotcom bubble. After Mar 2000 we saw a huge bear market which lasted almost three years. Is it going to be the same this time too? Let us do some number crunching and look at the fundamentals then and the fundamentals now.

In 2000-01, the markets were trading at a forward P/E (price to earnings ratio) of 35 times while this time they are trading at 16 times. The savings and investments (as a percentage of GDP) which were about 24% that time are now about 35%. The GDP growth that time was 4.35% and now it is 8.73%. Inflation was growing at 7.16% in 2000-01 and is now 4.21% (and is now catching up). What is important is the earnings growth which was (on an average) 4.43% 8 years ago is now between 17-20%. The rally, which at that time was mostly in the Technology, media and telecom sector is more broad based now.

The last 10 years data reveals that while the Sensex now is only 4.1 times of the Sensex then, whereas the total earnings now are 7.5 times of the total earnings then (of the BSE 500 stocks). The EPS (Earnings Per Share) has been showing a growth of more than 30% in the last two years and an average growth of about 25% in the last 5 years. Assuming that the EPS grows by 20% in the next three years, by 17% in the three years after that, 15% in the next block of three years and then by 12% in 2018 and if the P/E ratio stays at 16 times then by 2018, the Sensex should be trading at a value of 63485 in the year 2018. The following table shows what the value of the Sensex should be in each financial year upto 2018 at various P/E levels between 12 and 22, if the EPS follows the growth pattern shown above.

Sensex at 87292 at a P/E of 22 in 2018 is unbelievable. But you never know, with the kind of growth India has been witnessing, that may be very much possible.

The above exercise just goes on to prove that the fundamentals of our country and the Sensex are still very attractive. We should now start to look for buying opportunities whenever they come. A day when there is a gap down opening or a lot of panic should be a good day to start. Buy good blue chip stocks which have excellent fundamentals but have been badly beaten down by the street. These companies, over a period of time, will definitely outperform the broader market.

I remember the time nine years ago when I was doing my MBA and I remember our Portfolio Management professor showing exuberance (and a pleasant shock) over the Dow touching 10000 the previous day. And at that moment I was wondering whether I would ever see the Sensex at 10000 in my lifetime (Sensex was only about 3800 in those days). And I thought that even if I did see Sensex at 10000 some day, Dow would probably be somewhere near 50000 at that time. I didn’t have an idea that when Sensex touched 20000, Dow would have been languishing at 14000 levels. Well, that is history. Lets see what the future holds for us.

Happy investing!!!

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Inflation Rises, Markets Fall

Friday, again turned out to be a bad day for the markets. Just when the global cues were okay and the markets were showing some signs of recovery, we were hit by another bit of negative news. This time the culprit was the inflation data (wholesale price index), which showed that it is now rising with a growth rate of 7%. Gradually, it has started picking up speed too. The markets went down because it seemed imminent that the RBI would soon have to increase the interest rates to control inflation.

Seen above is the daily chart of Nifty. We can see from that chart that between the period Jan 21st to Mar 7th, the Nifty was in a range of between 4800 and 5550. Finally it broke out of that range on Mar 7th, against all expectations and when a target of 4100 was expected, it went into another small range between 4480 and 5000. In the intermediate term, nothing can be said until this range is broken out of. The short term trend has now again changed to down. Stay away from the markets until the trend emerges clearly. Long positions taken yesterday, if any, may still be held with a stop loss of 4480.

Lately, there has been so much talk about the economics of our country. Talk that our country’s economy is growing and that the GDP of the country which was exhibiting a growth rate of 8.5% to 9% has now reduced to about 7%. Also, the inflation index (wholesale price index) which was floating below 5% for quite sometime has now increased to more than 7%. And talk about whether the interest rates should be decreased to reduce the interest rate differential between America and India. Or whether they should actually be increased to control inflation? But, how many of us really understand what all this talk is about? What really is the GDP, what is inflation, how do interest rates affect inflation/GDP? Do we really understand those things or do we leave it all for ‘Dr. Reddy’ and ‘PC Uncle’ to handle? Well, while ‘PC Uncle’ (Mr. P Chidambaram) and Dr. YV Reddy are much more knowledgeable about these things than we are, we should really be knowledgeable enough to know whether they are managing our country properly or not. Knowledgeable enough to know that what they are doing is best for the country. And knowledgeable enough to know that we are not being taken for a ride.

This post is definitely not written to explain all fundamentals of economics and is most definitely not going to go too deep into everything. It is just a very simple mail to make the readers understand a little bit about these economic matters so that they know what all this talk about GDP, inflation and interest rates really is about. At the end of the post, I’m sure a lot of you would still have a lot of unanswered questions. You can please leave all your questions and comments about this post in the comments section below and I will try and address those queries (with whatever little knowledge that I have).

There is an earlier post which has talked about what GDP really is. In layman’s language, GDP is the sum of the total consumption, investments, government spending and net exports. In simpler words, it measures the financial health of a country. When we say that GDP is showing a growth rate of 8% that means that if the GDP today is a trillion dollars, then next year it would probably be 80 billion dollars more than a trillion or $1.08 trillion. But how does the GDP grow?

When we begin to think of a starting point of an economy, we don’t know where to begin with. It’s all like the chicken and the egg story. But let’s begin anywhere. Let’s say that a country is in a deep recession, companies are not able to make profits, they have to cut down production, lay off people and everything looks bleak. Then the central bank reduces the interest rates. This makes it cheaper for the companies to borrow money. Some of the daring ones borrow more money to increase production. This needs additional workforce. The number of jobs increase, the employees start getting money and their spending (on various items like necessities, wants and luxuries – in that order) increases, which increases the sales of the companies. Additional sales means additional profits, which means more production, more jobs and more spending. And suddenly things are not looking all that bad. There are jobs available, the companies’ profits are rising and there is more consumer spending, all of which contribute towards the increase in GDP. Everything is rosy now.

Everything is rosy now? For how long? With so much money available in hand, the consumers are willing to spend on everything, even on luxuries. And they don’t mind paying a little bit additional for anything since they have additional money available. So, demand increases and supplies are not enough to meet all this demand. So, a simple law of economics comes into force and prices increase. This increase in prices leads to inflation. Inflation cannot be left untackled because soon the prices may start rising exponentially. And inflation is the worst enemy of growth.

The only way to tackle inflation is to reduce the demand, which can only be done by tightening the money supply. And to tighten the money supply, the central bank has to increase the interest rates. An increase in interest rates leads to decreased borrowing, which in turn leads to decreased production, lay offs and decreased consumer spending. That leads to lower sales, lower profits and soon the companies again start making losses.

It all starts off with the GDP growth rate coming down and down and soon there is no growth. The expenditures are more than the incomes and the country starts eating into its reserves. That period when the growth rate becomes negative is called a recession. That is what America is going towards, though unofficially people have started saying that it already is in a recession. All these things don’t happen quickly. A full cycle from a peak to a trough and back to the peak again (or vice versa) usually takes between 4-5 years.

US is moving towards a recession. India is not. India still has a growth rate above of 7%. So the rate of growth has definitely reduced from 9% and above to between 7 to 7.5%. That is not recession. Recession will come when this growth rate keeps decreasing to zero and then becomes less than zero. And that is still a long time away.

Presently, inflation is catching up with India and soon the central bank (RBI) may have to increase the interest rates. That will affect the growth rate but inflation is a bigger enemy of the country than a lower growth rate. Mr. SS Tarapore, a noted economist and a former RBI Deputy Governor, in a recent interview on CNBC mentioned that the inflation index “greatly and grossly understates” the extent of inflation which means that if the inflation index is 7% then at the grassroots level (consumer price index) it is actually much more than that and that it is a ‘sin’ to let the inflation increase because it affects the poorer section of the society more badly. He is of the view that the RBI should increase repo rates by about half a percent in one or two steps and should introduce an incremental cash reserve ratio. He says that the younger economists who argue that the rupee should be allowed to appreciate and the interest rates should be lowered are wrong because doing that would be an “unmitigated disaster”, specially for a country like India which still has a fiscal deficit to deal with. He finally ended the interview by saying that there has to be a trade off of “lower interest rates and higher inflation” with “lower inflation and higher interest rates”. According to him that definitely would cause pain but one has to learn to live with the pain.

I hope, after reading this article, things like GDP, growth rate, inflation, interest rates seem to be a lot simpler. In case you still find any difficulty, please feel free to leave your queries by clicking on comments below.

Happy investing!!!

Update: This article was also published on the business and investing page of Reuters.

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Has The Bottom Been Made?

A new feature has been introduced with effect from 3 Mar 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now you can listen to the posts even in your car while driving to work, provided you have opened the page on your laptop. The biggest advantage is to the people visiting the site from their mobile phones. They can just click the link to the audio and the post will be read out to you. Great, isn't it?

Below is the 60 minutes chart of the Nifty. As seen from the chart, the Nifty comfortably breached the downtrending line which was shown on the chart yesterday. In yesterday’s newsletter we had discussed a number of negatives visible on the chart. Excerpts from that newsletter have been pasted here:

1. The Nifty is finding resistance near the blue downward sloping trendline which is currently near 4675.
2. The last pivot high was the high of the day today which is at 4734.
3. There is a very strong trendline near 4750 on the daily charts and that is more likely to push the Nifty back than the short term uptrend pushing it up.
4. The Relative Strength Index (RSI) has made a bearish head and shoulders pattern, though it has not been confirmed as yet.

Now lets look at each of the negatives one by one.

1. The resistance line near 4675 was broken on opening itself.
2. The pivot high at 4734 was also broken on opening only.
3. The ‘so-called very strong trendline’ also was not hard to cross and was crossed in the first hour of the day.
4. The head and shoulders pattern forming in the RSI was cancelled today.

So, all the negatives ‘went for a six’ today and we are left with positives alone. Is that a good enough reason to buy? Well, maybe it is. But, first of all, a little bit of analysis is required as to why the markets recovered today. Our markets were going down because the US markets were going down. There were fears of recession, which, to some extent, are still there. Because of the sub-prime crisis, the financial stocks in US suffered a lot. So much so, that JP Morgan lost 31% of its value in a period of 10 months, Goldman Sachs lost 39% in only half the time, Lehmann Bros’ stock prices came down by 52% in a period of a month and a half and the worst affected was Bear Stearns which lost 96% of its stock price. It was so badly affected that JP Morgan agreed to purchase it at only $2 per share whereas the price in Oct 2007 was $128.

Now JP Morgan has agreed to pay $10 per share as against the $2 quoted last week. This suggests that the financial stocks may not have been as badly affected as it was expected. This news made the markets bounce back a little. But have the recession fears gone? No, not yet. They will come back to haunt us again in some time. Bad news will, probably, keep trickling in in the months to come. But, for now, there are expectations that the concerns over a possible recession have stabilized.

Another reason why the markets were going down was because of concerns of the Yen carry over trade. Till a few months back, Japan had a no interest rate regime while the interest rates in US were in the range of 4-5%. This gave a very good opportunity for people to borrow money in Japanese Yen, invest in the US markets, earn a return of about 5% per annum and then return the yens interest free. Now, the interest rates in Japan have increased to about 0.5% and interest rates in US have gone down to about 2-2.5%. And the same thing is not very profitable now and with the interest rate differential decreasing and the dollar depreciating against the yen, people were in a hurry to liquidate their positions in the US and return the yens. The situation was so bad last week that a US dollar could only fetch about 95 yens. Now with the Yen to dollar ratio going back over 100, that also seems to have stabilized. So, as far as the US markets are concerned, the worst seems to have been over.

Looking at the India story now, we have seen that the GDP growth of our country has been about 8.5% and above. Sure, there are signs of this growth rate slowing down to between 7 to 7.5%. But that is still a very good growth rate, specially for an economy of our size. No other country having an economy of such size can boast of a growth rate this high except China. That is definitely a big positive for India. And this is likely to continue for a long period of time due to the demographics of India as explained in an earlier newsletter. Talking of the interest rates, US is now down to an interest rate regime of between 2-2.5% whereas India is still in the region of 7-7.5% with no likelihood of a rate cut in the immediate future. This differential is now more than 5%, a large enough differential. Now the yen case may happen in India also that the investors may borrow money in US dollars, invest in India, earn a return of 7-8%, and return in dollars with 2% interest, thus pocketing the differential. This is another reason why the money should now start chasing India. But this is all a long term story. We are still quite confident about the long term story being good for India. But what about the short term?

Yes, the markets did rise quite a bit today and in the process kicked aside all negatives. It did confirm the start of a new short term uptrend but is this the end of the bear market? Was this the bottom? Well, that can never be said with conviction until the next bottom is made. The next bottom will tell us whether this was the bottom or there are more bottoms in store. And yes, 4750 is again the level to watch. It has now turned into a strong support. Resistance comes between 5080-5100.

Nifty calls suggested yesterday would have made very good money today. A big move above 4900 tomorrow MAY signal the end of the intermediate term downtrend too. But we need to wait and watch the movement tomorrow, and more importantly, the next dip. As of now, since the short term trend has changed to up and there are chances of a possible bottom having been made, we should be buyers on any dip with a stop loss of 4480 (the previous pivot low). But be strict about the stop loss. We would not like to get caught on the wrong side of the market.

Happy investing!!!

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Fed Rate Cut and Long Weekend to Bring Volatility

A new feature has been introduced with effect from 3 Mar 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now you can listen to the posts even in your car while driving to work, provided you have opened the page on your laptop. The biggest advantage is to the people visiting the site from their mobile phones. They can just click the link to the audio and the post will be read out to you. Great, isn't it?

The Nifty opened a few points in the green today, came down in the next hour and a half to find support between our levels of 4480-4500 and then staged a dramatic recovery to go up more than 100 points above yesterday. But in the last one hour it came across heavy selling which pushed it down to 4526 to close only about 35 points in the positive.

Seen above is the 60 minutes chart of the Nifty along with its Relative Strength Index (RSI). The bearish head and shoulders pattern seen on the RSI yesterday did not get confirmed today also and it went on to make another small shoulder today. Sometimes multiple shoulders are also possible in such a pattern. This pattern would stand cancelled if the RSI were to go above 60. The Nifty continues to trade in a short term downtrend. This trend would change to up if it were to go above 4620 (a new pivot high made today). Support is likely between 4480 and 4500.

At the time of writing of this newsletter, Dow Jones was up 285 points, Nasdaq was up 50 points and FTSE 100 was 176 points in the green. All of them are positive on expectations of a 100 basis points rate cut to be announced by the Federal Reserve in the US later tonight. This rate cut is essential to bring in more liquidity into the system which should help the US economy, which is fast slipping into a recession. This expected rate cut has helped the US markets to go up today and our markets should follow suit when they open in the morning. As suggested in yesterday’s newsletter, the Nifty should find heavy resistance between 4700 and 4720 and any rally to these levels should be used to cut long positions or to create fresh short positions.

Markets are closed on Thursday on account of Eid, on Friday on account of Good Friday and on Saturday on account of Holi, though they are always closed on Saturday and Sunday. This four day long weekend may trigger selling in the markets because a long weekend means higher uncertainty than the usual weekend. And it is a well known fact that markets do not like uncertainty, hence we should expect the markets to come down in the afternoon session tomorrow. That is all the more reason why the morning rally should be used to exit longs. The sun outage period of the markets is now over and they will be open between the regular timings from 0955 hrs to 1530 hrs from tomorrow onwards.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the markets today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!! Wish all Muslims, Christians and Hindus a happy festival weekend.

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Effects of US Recession on India

In Monday’s newsletter, we had attached a chart showing the performance of the Nifty with respect to other major world indices, which showed that the Nifty has outperformed all other major world markets in the past and is likely to do so in the future. That was the technical view-point of why the FIIs should invest in India.

Today, in this newseletter, we will discuss the fundamental factors of why it should come to India. With the events of the last few months, it has been more than evident that the largest, if not the strongest, economy in the world, i.e. that of the United States is heading towards a recession. But how does one say that? The answer is the GDP (Gross Domestic Product). A GDP, in simple terms, is used to gauge the health of an economy. Let us compare India’s GDP with the other world economies. According to 2007 data, measured at $796.1 billion, India’s economy is the tenth largest economy in the world. United States has the largest economy with a size of $13.22 trillion. The other countries between the US and the India in decreasing order of size are Japan, Germany, China, UK, France, Italy, Canada and Spain. Now let us look at the GDP growth rates. Again, according to 2007 data, India stands at number 17 with a growth rate of 8.5%, China stands at number 9 with a growth of 10.5%. Azerbaijan has shown the maximum growth of 32.5% in 2007 but has a size of only $14.05 billion. Out of the top ten countries by size the third country, after China and India, is Spain showing a growth of only 3.6%. United States stands at number 63 with a growth of only 3.4%.

You may ask – so what? Just because India is now showing 8.5% growth does not mean that it will be the same in the years to come. Well, you may be right. It may fall down. The signals are already there. But to what level and because of what reasons? Lets consider the various components of GDP. In layman’s language, GDP is the sum of the total consumption, investments, government spending and net exports. Let us look at each one of them in detail.

Consumption is the sum of expenditures by households on durable goods, non-durable goods, and services. Investment is the sum of expenditures on capital equipment, inventories, and structures. Government spending is the sum of expenditures by all government bodies on goods, services and infrastructure. And Net export is the difference between total exports and total imports.

Now that we know the components of a GDP, simple logic tells us that the GDP would go down only if either consumer spending, or companies’ investments, or government spending or exports, or all of them, go down or if the imports go up. Now let us look at the demographics of India. According to a survey done recently, about 65% of the population is between the age of 15-64. Another source also says that the working population of India is expected to remain between 60-65% till 2050 as compared to the ageing population of the western world. A higher percentage of working population means increased demands, which means increased production, which means increase in the number of jobs, which means increased salaries, which means increase in disposable income and which means increase in consumer spending. This explains that both the consumer spending and investments are set to increase in the years to come. With increase in salaries and increase in spending, it would mean increase in tax collections which would, in turn, be spent towards developing the country’s infrastructure. And with the Commonwealth Games approaching in 2010, infrastructure is now set to increase at a much faster pace than usual.

The only concern is that with recession in the US, will it affect our exports? If the exports do go down, it will have a negative impact on the GDP. But how much would a recession in US affect us? Our main concern right now is that it will affect us because in this world of international trade, we are dependent on the US also for our exports and a recession there could lead them to cut their imports and hence our exports. But how much are we really dependent on them?

For that we have to see the export figures to US. In the year 2006-07, our exports of goods were roughly 14% of our GDP while total exports of goods and services stood at 27% of the GDP. Out of the 14% (of GDP) worth of goods exported by India, 14.9% (of total exports) was exports to US, which, in turn, means that as far as export of goods is concerned, only 2.09% of our GDP is dependent on them. If 27% is total exports out of which 14% is for goods that means 13% of services were exported. Unfortunately, countrywise export data of services is not available but we do know that out of a total export figure of $119 billion, $54.6 billion (45.88%) accounted for export of software and BPO services. Since the major exports of services to US is in the form of software and BPO only, it means that exports of services to US accounts for roughly 6% (45.88% of 13%) of our GDP. So, our total exports to US is only about 8% of our GDP. Now, how does a recession in US affect us? If they are in a recession, will they stop all their imports? Obviously not. They would, at the most, reduce it to save their spendings. To reduce their costs, they may cut down on imports of manufactured goods. Another way of reducing their spendings would be to outsource some of their jobs. Since both China and India specialize in providing skilled labour at cheaper rates than America, and since India is an English speaking country, most of those outsourcing jobs should come to India. So, while the US imports of goods may go down, the import of services may actually increase. Even if they reduce their imports of goods from India by a hefty 25%, it would still affect our GDP by only between 1 and 2%. This means that the growth rate of our GDP would still be much much higher than the top ten countries of the world (except China).

The above facts coupled with the interest rate differential between India and the US leave no choice with the FIIs than to invest in India.

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Consolidation to Continue

For over a month now, the Nifty has been consolidating within this range of 4800-5500. Till the Nifty moves out of this range, a clear trend will be difficult to predict. But it has already been predicted that after such a heavy downfall, a long consolidation was to be expected. After today’s downward move, it can be observed that the Nifty has made a lower high as against the previous high that it made in the beginning of the month. The Nifty has three supports visible on its daily charts. The first one is the support around 5100 levels, where it has found support on 5 occasions within this range itself. The next is the support provided by the 200 day moving average at 5015, which happens to be quite a strong support. And last, but not the least, is the support at the lower end of the range between 4800-4900. On the upperside, resistance lies between 5400 and 5500. It is noticeable that the Nifty has again turned down after a doji day.

Shown above is the relative performance of the top 9 indices of the world starting from August last year. The topmost line in green is that of Nifty and the bottommost line is that of Nikkei. Dow Jones is the black line, which is somewhere in the middle position. It is clear from the chart that despite the heavy correction, it is clear that only the Nifty and the Hang Seng have been clear outperformers as compared to the rest of the world. I have seen the chart on various time frames and have seen that in any chart longer than a 3 month period, the Nifty has been an outperformer. This chart is also available to FIIs all over the world. Not only this, they have better research available which shows that the Nifty has been, and will be, an outperformer as compared to the rest of the world. Imagine, when the sentiment improves, and if you were supposed to invest your money, where would you invest it? Thank you, your answer says it all.

Happy investing!!! Read the Full Post Here