Cash The Chaos

Nifty(4934.75): Once the important support at 4985 gave way, markets got rattled and a quick swoon followed. It was a combination of stop triggering and put writers of 5000 strike stepping in to cover their positions. What we had labelled as blue wave V turns out to be an extended blue wave iii. And only now the blue wave v of the red 3 seems to be in progress.

The supports for the markets are likely to be found around 4860 and 4830 the former gap left post the October 4th low. One fibonacci relationship ratio between blue wave iii and blue wave v also exists around this level. On the hourly charts, there is a fair amount of positive divergence developing and this is normally a precursor to a relief rally. Needless to say we will look to sell into it and the former target area of 5150 ballpark still holds good. But that is a few sessions away. If you are trying to create short positions, keep your position size small.

Open positions:

Long USDINR from Oct 21st revised stop 50.05 (November fut) -(partially booked day before yesterday)

Short Onmobile Global tgt 52 and beyond stop 62 at close

Silver Stop $35.7, revised stop $34.2

Silver had a big drop last night and this morning went below $31 in the asian session (currently at 31.5)

Nifty(5068.5): It was highlighted here yesterday, that 5115 would offer some temporary relief to the market and a breach of that level would signal a further fall to 5045. Nifty opened lower paused at 5120, bounced gently, consolidated in a small range above between 5120 and 5160 and broke through the morning to clock a low of 5053 for the day.

Nifty Intraday charts

Yesterday's price action as greatly reduced the dip from 5400 being a corrective drop and hence we are labeling them as 1,2,3. First things first, if you are short, today's open or the first one hour might be a good opportunity to take profits, either fully or partially (We nearly got our 5045). The red 4 shown on chart has either started or about to start and it is going to be a bit tricky to  nail the end of this wave (most corrective waves are). Here is the broad idea - once again it looks unlikely that we will see a move beyond 5220. BUT, there is a small possibility that during this corrective rise, we might see a path as shown in the chart, with a small dip below 5000.  OR the morning session takes Nifty to either 5011 or 4985 and the red wave 4 starts from there. We all wish there was an easy way to nail the exact low 🙂 Don't we?

Open positions:

Long Reliance Nov 2011 840 put from 12

Silver Short with stop at $35.7 from $34.2

Hindustan Zinc Nov Fut Short from 122.5

Nifty Short from Monday morning ( close this today during the first 15mins or 5035-45 whichever comes first)

USDINR Long from 20-Oct-2011 stop 48.3

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.