2011 March » Cash The Chaos

What next for the Nifty?

Mar 282011

The 2.3% bump UP for the Nifty on Friday was quite smooth and brought a lot of cheer on the streets but the CRITICAL 5690 level still remains unconquered. Given the smart rise of the previous week, it may not seem formidable after all. Nevertheless, we will have to wait and see what the market does. So, let us do a what if scenario.

a) What if 5690 is taken out - the bullish case. The market structure that we thought was unravelling in this post would not be the case and markets would continue to head higher. The problem here is, the market has spent more days between 5600 and 5200 than it took to decline from 6182 to 5177. So it is looking more like a short-term bullish picture. And the question - How much higher? It could be around the region of 5900 but may not be much higher.

b) What if 5690 is not taken out - the bearish case. Obviously the old targets would still be alive while we may still have to see if we need to slightly review the market structure. But the markets need a quick decline - the longer Nifty holds above 5600, the odds of the bears losing advantage would increase.

A couple of things that needs to pointed out here. Firstly the volume of the short-term breakout did expand slightly, it was nothing exceptional as the media is projecting it to be (see the horizontal blue line on charts).

Nifty - Daily Charts

Secondly, while the small caps and mid-caps tend to follow the large caps, they are yet to clock higher highs - risk taking is not yet back, at-least so far.

Bulls surrender their last frontier

Indian Market/Stocks 14 Responses »

Mar 202011

If you thought the key price action of last week's trading activity in the Indian bourses was Reliance's drop on Friday, that is not entirely true. The CNX IT index's steady price erosion over the last week is actually more important.

CNX IT Index - Daily Chart

All through the corrective declines since the March 09 bottom, not once did this index drop below the 200 DMA. Yet another, sign that this is not a mere correction.

Infosys, the technology heavy weight has an interesting price chart.

Infosys - Daily Chart

The stock gapped below its 200 day moving average on Thursday and ended the week firmly below this level.

Reliance the stock on which the hope's of the bulls are pinned, established a firm downward sloping trendline and the stock has started to drop strongly.

Reliance - Daily Chart

While the talk of the week was the apparent resilience of the Indian market during a crisis , it was actually the bears who were scoring. This is the first time since 2008 that all the sectoral indices are trading below their respective 200 DMA!!

Disaster’s and Market Trend

World Markets 3 Responses »

Mar 142011

When earthquake/tsunami struck Japan on Friday, I'm sure you would have heard in the media how this was affecting the sentiments of the markets. Here are few things one must know :

Let us take a look at the powerful Kobe Earthquake that struck Japan in 1995 and caused $102.5 billion damage:

Nikkei - during Kobe Earthquake

It is obvious from the chart that the Earthquake occurred during the down trend and did not create any reversal on its own.

Now let us a look at the Latur Earthquake that left nearly 8000 dead in India and its impact on Sensex.

Sensex and Latur Earthquake

What about the Tsunami of 2004 that left 230,000 dead in Asia?

Nifty during Tsunami04

Looking at the charts, if one were to think no natural disaster occurred on Dec 26th 2004, he/she can be excused!!

The picture is similar even if one looked at the man-made disasters like Bomb blasts and terrorist attacks!

The infamous WTC attack:

While the reaction may have been pronounced, would it have mattered had it occured when the market trend was up?

So let us look at markets reaction to mumbai serial blasts of August 2005:

Nifty during the Aug 03 Serial blast

So, the next time you hear someone on media say that such and such exogenous events is causing the markets to decline you might want give these charts a thought. While there might be initial knee jerk reactions, these events do not even cause short term reversals!!! All one has to know is, what is the trend.

Dr Copper’s gift to the bulls on 2nd Anniversary – Bear Claws

Commodities 2 Responses »

Mar 102011

Copper, which is often considered a proxy for the global growth, dropped through some important support levels.

Copper Futures - Daily Chart

The intermediate term trendline from June lows, which was holding up this market, gave way along with expanding volumes. The move from June lows to the November highs is a clear 5 wave pattern and the 5th wave is also related to the 1st wave by a Fibonacci ratio - a normal ending wave relationship. Also noticeable on the charts is the volume expansion as the red metal declined from its February highs.

The blue dotted line shown on the charts could be considered as a Head and Shoulders top and the breach of 424 price level would become the breach of the neckline that completes this pattern.

Considering all the above evidences, it does look like the metallic professor is saying the winds of change are here for the global economy. Expect the S&P 500 to drop below 1294 swing low in the immediate future which in turn is likely to result in a larger decline.

Dollar Index and Crude

Commodities, US Markets 12 Responses »

Mar 082011

The Dollar index has been on a steady decline since mid-February and is currently one of the least loved asset. While price has drifted lower, the momentum readings have not matched the price lows.

Dollar Index - Daily Charts

If we went back to the 7th Feb blog post on the Dollar Index (from where there was a small bounce), the Index is trading SLIGTHLY below that medium term trendline. All these line up well for a bear trap. If the currency basket closes above 77.25, I will be brave to venture a long here.

It is also time to have a look at the charts of crude given the amount coverage it has been getting over the last few weeks.

Crude - Daily Charts

While there are no visible signs of exhaustion or reversal here, there are some early warning signs. The volume for these contracts has been dropping over the last few days. If we have a higher close for one or two sessions and then a mild/sharp sell off day, one of my synthetic indicators is likely to flash a sell signal at least for the short-term. The most important signal, I see here is that there is hardly anyone who is NOT BULLISH or does not expect $150-$200 crude. In fact, one famous author of a commodities book, who had been bearish on many commodities including crude is expecting $200 crude now!!!! Let me warn you here. I'm not trying to say it is time to short crude here. In fact,It is suicidal to out guess the market. A good trade practice is to be prepared around important pressure points, wait for the reversal and if we have one, evaluate the risk-reward and then pull trigger.