Cash The Chaos

Nifty(5168.85): The shortened week for Indian markets brought the second successive week of negative close for the Nifty. A small gap was registered in last week's price action and an ability to fill this zone of 5200-5211 today will mean a strong downtrend is in place.

Nifty intraday charts

Considering the weekend movements in western bourses this seems less likely. If our labeling of the short-term moves are correct, Nifty cannot exceed 5256. (Nifty is unlikely to overlap into the teal dotted line shown on chart which passes at 5256 as this would violate Elliott wave rules). Also, the 61.8%  Fibonacci retracement level of blue iii (5317 to 5142) falls at 5250. Hence if we see Nifty hover slightly below 5250, it will be a  very low risk selling opportunity. Hence sell with a 5 point stop above 5256 cash nifty level. However, if Nifty pauses much lower, we have to evaluate the intraday movements and then act. If this push stretches all the way to 5250, the minimum drop in blue wave v will definitely be 5179 if not 5138 or 5065.

Petronet:

Petronet - Daily Charts

Yes, Berlusconi will go and with him the 1.9 trillion euros of oustanding debts too will go away and lenders are going to fall over each other to lend money for free to Italy. Ok, lets get back to reality.

Nifty (5289.35): Markets opened higher only to come down lower, make a small false break below friday's low and then head back higher.  These small false breakouts are small clues that market leaves us, typical of B waves, that market is itching to go down.

Nifty intraday charts

So, potentially we have one more leg up in the short-term that is likely to end around 5334-5356 (we noted this as the ideal level since  Friday). Watch out India Vix has dropped from 39 to 23, nearing the levels it was before the August decline. A little more of complacency is likely to push markets to danger zone.

If markets do exceed 5356, watch out for the 200 DMA at 5395 (and falling). State bank the biggie reports today. May be this could hold some surprise, positive or negative.  The technical structure for SBI says its undergoing correction but we are unable to take a stand here, the possibility of a strong drop to 1800 or a mild 3-4% upmove are 50-50, so we are not able get much clues through this stock.

Keep side-counters like Voltas, Petronet on screen we will try to do a small futures trade here under ideal conditions.

Nifty(5284.20): On friday, we saw some supply around 5325, which was one of the projected resistance. As can be seen from the chart below either this has completed the pullback we were looking for or there is one last push that takes Nifty to somewhere between 5334-5356.

Nifty intraday chart

A drop below Friday's low would be an opportunity to short but this is a very aggressive trade.Do not risk more than 35 points on Nifty. (If this happens in the first 5mins avoid). The important short-term supports are at 5190 and 5165

We saw some weakness come through for Reliance on Friday. Weakness here is going to be very critical for the bearish case. If we project the first leg of the decline of Nifty from the November highs to November lows to the January high's the low of 4720 on Nifty is just a few points over 225%. At the August low, it is exactly the same for Reliance, just a few points over 225% projection. Though, ONGC and BHEL were the first to top out in October,  it was felt that banks were the main drags since last year, Nifty seems to have moved in lock-step with Reliance!! A sustained move below 872, the low of Friday would help the bearish case and a close below 855 would probably seal the bearish case.

In the global markets, there is a broad divergence between the bond markets and the equity markets. When they diverge, trust the bond markets. You see the headlines are moving from Greece to Italy. Next it would be Spain and later on France. Remember, the bond yield spreads for France are the same level it was just before Britain went crashing out of the ERM in 1992.

Italian-German Bond yield spreads at a EURO ERA HIGH

Also, over the last few weeks Silver has been under-performing Gold by a margin. When speculative energy or the risk taking appetite is back, you will see Silver out-perform Gold. So there are enough warning signs out there. Stay safe.

Nifty(5257.95): Nifty has so far partially filled the gap that was above 5169 and from the early morning SGX Nifty quote does look like there is going to be a further push down. Next significant supports for the short-term supports are at 5190-95 and 5150-40. IF there is a gap down beyond 1% on the Nifty it would be prudent not to short. The best place to buy or sell is always at the first reaction to a move. We have seen Nifty drop from 5400 to low 5200's, now we will wait for the reaction come and through and see to it that the dip buyers have spent their energy.

The most important take away from yesterday's move was from Reliance.

Reliance - Daily Charts

It was indicated in yesterday's note that Reliance was showing early signs of weakness and here is the confirmation from Mr Market. If the rise from August low was the start of a fresh uptrend Reliance should not have overlapped into 858 but it did and hence the rise is corrective. If your know a bit of Elliot wave you know why but what is important is the implication. Also, notice the October low for Reliance was way above the August low and this strength was the reason why we did not see a breach of 4720 on Nifty. I expect Reliance to trade around 842-848 at open and provide a relief rally. It is this rally we would interested in selling into. Like Reliance's overlap we should also see Nifty overlap into 5215 to eliminate the bullish case (though 5170 would more ideal). Be patient and let the opportunity fall on our lap.

Nifty(5326.6): The levels of 5220-5320 remain an untouched zone on the way down and as well as on the way up. Expect some gap-filling exercise over the next couple of sessions.

Nifty-Daily Charts

While this need not be a complete fill of the gap. The key for eliminating the the bullish case is an overlap into the former high of 5160 on the Nifty. The market's breadth so far has been bad, to say the least. While this may improve over the next few sessions, so far this is not a very encouraging case for the bulls.

The key as I said yesterday, is the European bond markets. The Italian spreads to German bunds have hit a new high yesterday. Higher than they were before the EFSF announcement. Now why is this important? The bond markets are telling us that the EFSF programme has done nothing to soften bond yields and when the Europeans go out to borrow next time, they are going to pay higher rates. And every country Ireland, Greece, Iceland before they went off the cliff, the bond yields started to widen in the same fashion.

The Euro also has delivered an important price action.

Euro Spot- Daily Charts

The single currency has started cave in sharply exactly off the 61.8% fibonacci retracement of the May-Oct decline. If the next push higher stops under the 61.8% level or if we see a straight drop below 1.3790 on euro spot, the christmas party for Europe has come 2 months ahead and there is going to be no party during christmas.

Reliance: Keep a watch on Reliance, if we see a negative close this week ending Friday, the possibility this is going to 700 would be a reasonable event.