Cash The Chaos

Nifty(5607):

Nifty weekly charts

The above chart is the 'case 2' we had outlined several days back in this month's morning note. Beyond 5975 Nifty it would be 'case 3'. We are very close to getting some very important clues as to what the Indian Nifty is going to do. USDINR - cross above 49.8 will be the first clue that USDINR will stretch to potentially 52 and as a consequence will indicate a corrective phase for Indian equities.

Sorry for the very short update - not fully recovered but will be able to respond to questions you might have on this chart.

Nifty(5416): Markets despite being overbought, continues go up on receding momentum. The move from early February is like an automobile coasting  on residual inertia of motion even though the vehicle has run out of gas.

Nifty(Left) and Bank Nifty (right) - Daily Chart

While this is very unhealthy and the markets will sooner or later drop vertically once the residual inertia is over, prudent risk management and patience is an absolute must. The retracement will completely erase the last leg of this short-term move. That leg started at 5077 and that will be some sort of guaranteed level we are going to see once the correction sets in. We will watch for a big one day reversal pattern or 5325 for confirmation - do not know which will be the case.

Having said that this move is clearly a powerful wave in the short term. What does it mean in the higher time frame? Is it a sucker rally that is correcting the entire decline from Nov 10 to Dec 2011 as I'm assuming it to be? OR is it the beginning of something bigger? The answers for that will come through ONLY when the correction starts. Stay tuned.

Nifty support : 5325, 5210 and 5077. Resistance: 5440 and 5495

Open Position: Long Coal India @326-328 Tgt 360 Upgraded stop 320 at close

Nifty(5335) - Resistance 5415 and Support 5300 and 5240

USDINR has found support at previous 4th wave of 48.5

INR daily charts

INR should weaken to 50.2-50.6 but we need further evidence from the movement here to signal that a bigger move is beginning for INR. There is a small possibility of one more leg  of strength for INR .

New position: Chambal Fert Short @ 86.5-87 Target of 77 stop 92

Nifty(5269): Nifty formed a 'Doji' pattern after overshooting the important resistance at 5275. We have momentum disagreeing with price rise above 5217 on hourly and daily time frame. This is normally a precursor to a drop.

Nifty - Weekly charts

On the weekly time frame, Nifty is above the weekly trendline from the Nov 2011 highs. A close above this level today would tell us that we are not in the same environment that we were in since Nov 2011. Alternately, a strong rejection from here would mean some bearishness.

Likewise for many important inter-related markets like the Dollar Index, Gold and S&P 500 the markets are poised at a critical time and price window.

Gold - 1765 is a 61.8% Fibonacci retracement level. As I write this, it is coming off slightly from the overnight high of 1761. Euro - the zone of 1.32 to 1.35 is important and the 17 nation currency has got rejected twice off this level. The US S&P - VIX is at a dangerously low level, momentum indicators are warning off lack of fire power.

Time: Feb 6th/8th happens to be an important time window for a short term peak ATLEAST for equities.

The bottom line is the risks of being long here is very high - if you are long be nimble.

Nifty support and Resistances: A drop below SUPPORT of 5225 would mean the first signs of  corrective decline to the move from 4530 to 5291. We have to evaluate if it might mean something bigger. A bare minimum correction of 4950 should come through.

In the event Nifty continues to head higher, RESISTANCE is at 5345.

Nifty(5087.3): Markets had a follow through to the hanging man pattern - throwing in a short term sell signal. However the internals of the move still remains a bit ambivalent giving an outside chance of one more rise before turning lower. If  Nifty heads higher it may either stop at 5217 or below or head slightly higher.

Two important points from yesterday. One, as pointed out only now Portugal is getting media coverage. Second, the A is to C ratio that we discussed yesterday(see yesterday's chart) needs a small explanation. If that ratio is about to play out, I will not be surprised if Nifty heads to even as low as 3900. Unfortuantely, this will be an Iron-clad confirmation only when Nifty hits 4800. Until that one has keep positions small.

So how do play the current set up? Play it through puts-  Long 4800 put around 23-26 and forget it (Fixed risk). If you are aggressive - write 5200,5300 calls and if Nifty crosses 5225 fold the trade.(The premium could double if the set up is wrong).

Support: 5065 and 4990

Resistance: 5170 and 5225