Are we heading down soon?

Attached are 3 month daily chart of the 2 primary indices.



While Sensex did follow-through on 26th Nov, nifty (^NSEI) hasnt. And there are already 2-3 distribution days. There is no leadership either.
Also, I am counting day 1 of rally as Nov 21, although we didnt make a new low since Oct 27 - reason is we had 7 continuous down days and we had a new lower close in sensex, though not a lower low.
Some days - like today - NSEI ended marginally in red, while SENSEX ended marginally in green - but I am counting in both the indices this as a distribution day - since volume was much higher, so it seems to be more of churning going on.

Only 31 stocks (including 3 GOLD ETFs) out of 1300 stocks on NSE exchange satisfy the following property:

• They have relaive strength (calculated over the last 1 month *AND* over the last 6 months above 80.
• They closed above 50 day SMA. (In most of these cases, 150 / 200 SMA is above 50 SMA and in most cases, these SMA are moving downwards.)

Only yesterday 298 scripts out of 1230 scripts traded on NSE (24%) made a new 52-week low while only 1 made a new high. Today 166 scripts (13.5%) made new year lows, while 2 made a new high.

I am computing Marty Zweig indicator tool too (whether avg of advancing stocks ratio and up_volume is above 90% or below 10%).
Since October 1st, this number was below 10 on 4 occasions: 3.005 on 6th Oct, 6.23 on 10th Oct, 8.55 on 15th oct followed by 3.26 on 24th oct.
The only 90+ day was the shortened trading day of Diwali 28th Oct (trading was on for only 1 hour that day, so I am not counting that.)

Infact, we have NOT had a single >90 or <10>This will change at some point - I think it will change in the next 5-7 days and I think that would be on the downside since we have no leadership and no accumulation days. Distribution days however are adding on.

Meanwhile, US has logged on a weak-ish follow-through-day. Lets hope no distribution day shows up today or in the next week. Also note that the FTD in US came right after a 9% down day - and the volume was only 6-10% higher than previous day.

-Sumeet

US in recession for a year already!

Ya, as I had said to some of you in my private talks - that we will soon hear - after US elections - that USA has been in recession for a year. And now that information is officially out. Politics!!

On the same note - now that Chidamabaram is out of Finance Ministry in India, we may soon hear some revalations here too. Or we may have to wait all the way until a new government.

-SS

We had a weak follow through day and now a distribution day on Sensex

Sorry for not being regular and not updating the site for the past few months. Was caught on the wrong side in the July rally, but have made very good amends since then and I am now almost up YTD from April now (its really tough to be counting exactly!).
Anyways, back to my take on markets:
I didnt have a really strong view for the last 10-15 days. We overdid the rally from October lows by bouncing as much as 40%+ in 5-6 days on not so great volume. So, at that point, it was tempting everyone to short and then we overdid on the down side by falling for 7 days continuously. So, we have been range-bound for most of November.
Back to december, I still dont have a very clear view, but I will state some of my observations.
The original rally started from Oct 28. It gave a follow through day (FTD) on Nov 4th. The sad thing was a distribution day immediately followed the FTD and so the rally immediately became weak. Besides that, it had already come up 40%+ in 5-6 days.
On 14th november, the 3rd distribution day on nifty, i counted the market rally as over. Since then, we have neither gone up much nor down much.
A new rally started from 21st Nov. (Note that we didnt really break the previous Oct lows and so some people may say that the previous rally from Oct is still on.) It has NOT YET given a FTD day. Counting the 1st day and until now, we have had 1 accumulation and 1 distribution day - clearly no trend whatsoever on low volumes.
On the Sensex however, we have had 1 FTD on 26 Nov 08 and so that makes it 2 accumulation days (including FTD) and 1 distribution day. However, the FTD only had 7% more volume than previous day.

This rally looks more likely to fail than succeed - but a clear direction can appear only on breaking 2500 on closing basis and in that case, there is a STRONG chance of going to my final targets for the indian markets - 1800-2000 range on NIFTY.

Few stocks have meanwhile looked strong, but not too strong yet: NTPC is one of them.
I have reshorted all original shorts about 10 days back and they are giving me minor profits at this time - we probably will have another 1-3 distribution days before we break 2500.

Based on analysis of previous bear markets, I believe we will make it to 3500-3700 range atleast once (maybe twice) in the next year (2009). But, we will not cross 3700-3730 in 2009, no matter what. Ofcourse the market view is so bearish that not a single person agrees with me that we will goto 3700.

DONT GO LONG yet. Market is too weak right now.

Mutual Funds: I reviewed many of them and they are all very well placed. High cash levels. Stay invested in the good funds. Continue SIP. In addition, I am planning to buy a bit extra below 2500 nifty (only mutual funds), and then average down with higher amounts to invest until 1600.

Futures: I hope to go long in nifty futures from 2000 and average down (pyramid) until 1600 (no SL) and will then hold for 3500-3700. Very risky, and it is indeed going to be very rewarding if it works.

US and India comparisons

US - World's earliest democracy. India - World's biggest democracy.
US - there is a housing reform bill. India - there is a banking/insurance reform bill
US - tax rebate package - to boost economy........ India - farmers relief
US - elections. India - elections
US - Fed not raising rates as expected........ India - RBI raising rates, but slower than expected / inflation rise.
US - real int rates -ve ... India - real int rates -ve
US - markets still not recuperating much... India - market is 20% up from the recent lows

Vote of Confidence and Market?

I continue to be bearish and am very suspicious of the current upmove - triggered by global rally, oil fall, expectations of UPA winning vote of confidence.
Long Term: bearish: will change only if nifty can go above 5200 or when it forms a longer consolidation base. Or when New High vs New low ratio changes to +ve.
Intermediate Term: bearish: can change if nifty goes above 4360-4400. This acted as temporary support before markets fell 10-15% (and some stocks, as much as 30-40%). This should act as a resistance zone and as a good SL. So far, market has not even attempted to go close to this number. It recently made a top @4180-4220. So, that will also act as a resistance zone and it will be difficult to break above it.
Short Term: bullish. Short term the market has already bounced up 300-400 nifty points and it still appears to be bullish due to oil cooling off and govt. probability of winning vote of confidence without the LEFT. However, oil cool off - whether it is only short term is a question and $130/bbl is not really low. Also elections in 4 months or 8 months should nt matter much. Infact, I think earlier elections are better for the markets - as there will be a clear direction sooner in that case. So, i think govt winning VOC may be bad for the market - but I am an amateur in this area.

Stocks showing great strength: SBI, ICICI, RELCAP, BHARTI (I am shorting these with the view that they will fall much more as the underlying fundamentals have not improved any bit and the deterioration is yet to even stabilize)
Stocks showing weakness: ALL stocks in all sectors, including the erstwhile leading sectors IT, Metals.

Targets:
Nifty futures: 2500 or lower - long term
Nifty futures: 3500 intermediate term (+/-50)
Nifty futures: 4200 immediate short term (+/- 20) and max seems to be upto 4400 (+/-50).

I am still 80% cash: 20% equity.
All my equity holdings have now been hedged - since I am new, my hedging may not be so good. But I am learning this.

short covering bounceback?

I cant see todays bounceback any other way.
The stocks that had fallen the most - banks, realties - bounced up today.
Pharma kept leading up - Ranbaxy news showed up - which is very interesting and too much for a newbie like me to fathom. I own a lot of ranbaxy.
Too many people had told me that oil has topped - i dont like that view, yeah - that means - we are definitely in a bear mkt. Retail cant get it right so much on a top. :)
It will top someday soon - maybe another $10 single day gain will kill the rally.
My PMS - ASK and Religare - relationship managers told me that we are going to go up. No ways guys! I have asked for full redemption from ASK PMS now and not just the 70% cash I had there so far.
The bounce got perfect resistance at 4530-4550 - this area was a major support area and not being able to break it tells me bad things lie ahead.
More news have followed - RBI hiked repo rate ahead of scheduled meeting. Oil is back up 5$, so much for calling it a top. US indices are down 1.5%.
All this implies gap down and horrible day ahead. Looking forward to IIP data on thursday and Inflation data on friday - if we do bounce, and if we can break 4550 - highly unlikely with a gap down, we will meet resistance at 4620 and then at 4730. HIGHLY doubt the current rally to go past it.
Downside - I expect 4200 very soon - maybe even tomorrow or friday. Sorry for being such a sadistic guy, but too many people think they are smarter than the market and can ride agianst the trend. That is risky and injurious to your financial health.
The gap down will do no good to my order of redemption in ASK PMS, but I am going to force them to sell since they expect the "growth" folio of P/E of 4 (its not 4, but thats what they told me) to go up by 60% - ridiculuous!
I was going through a lot of charts and 90% (subjective ratio) of them are in horrible shape.
Short term target: 4200.
Intermediate term target: 4000 and then 3800-3850
Long term: 3500.

Jan and March lows broken! Mayhem!!!

US market tanked 3% on friday and euphoria set in over indian markets.

Views:
short-term: bearish, but expect (and hoping for) a small bounce back to 4650-4720 range.
intermediate-term: bearish, likely target 4000 in 1 month.
long-term: bearish, likely target 3500 (+/- 100) in 3-4 months.
Gold: bullish: might reach all time highs soon.
Oil: bull run is on, but looks toppy. may set in a climax top soon - this is not a level to enter long.

Sectors:
IT: I was very surprised to see NSE IT index down by 4%+. IT stocks were outperforming so far, but today profit-booking seemed to have happened. hoping for consolidation in IT, while the main indices fall further.
Pharma: bullish action continues.
FMCG:
Banks: Still bearish, but it seems banks are not falling much any more. They used to fall more than the indices, but have shown some resilience now - keep watching.
Oil: still bullish, but this might looks like it might top out anytime soon. It maybe that oil group continues its bullish run since too many people are also calling for a top here.
Realty: definitely bearish. infact, its so bearish that its not even giving a chance to short again after i covered my shorts mid last week. Damn!

Sectors to start tracking for me: Auto, Construction, Cement, Metals, Infrastructure sector overall

Stocks showing surprise dramatic weakness: IDFC

Disclaimer: I am 75% invested in debt and 25% in equity - my equity folio has not been modified yet to be overweight in the sectors on which my view is overweight on. Still learning!

Bullish Reversals on thursday and follow through couldnt last long

Thursday's late rally in Indian stocks had me believe for a while that the previous lows of 4500-4550 nifty will provide some strong support and the downside will halt temporarily.
In addition, the follow through day in US S&P600 tempted me to think there is a glitter of hope in the markets.
However, in just 24 hours, both markets failed miserably and proved again how the best strategy in a bear market is 1) to be in cash and 2) to NOT cut the shorts too soon and not do any LONGs. It also proved how the 200 day averages are very strong resistances for the market indices and stocks.
I had cut most of my shorts yesterday seeing the powerful short-covering rally end-of-day - in DLF, HDIL, Kotak, REL, RELCAP and I was quite sad today to see the hammering they got again today - the sadder thing would be I don't get a chance to short these again at those levels.
The only bullish signs are: extremely high short interest ratios and advisory reports, supposedly high cash levels in investors in US. (not 100% sure about these things either!)
I think the US follow through has been nullified by todays BIG downturn.
My view on OIL and GOLD (based on the support they were getting at lower levels) has proved out to be damn accurate - as in 36 hours, OIL is $15 up and GOLD is $25-$30 up. I wish I had acted on my views more boldly.
For Indian market - I still think 4450-4550 nifty range will not be breached in a hurry - primarily since most advisors and people believe that they will break and lot of people are short already (I have no indicators, so this is just my view!). A rally to 4730 and maybe (small possibility) even 4820 might happen next week. This could be due to gains in OIL stocks, IT stocks and Pharma stocks - along with possible bounces in heavily oversold sectors of realties and banks. Playing for this bounce will however be very difficult and not advisable.
It would be better, instead, to let the market rally and accumulate shorting positions.
Outperforming groups: IT, Pharma, Chemicals
Underperforming groups: Realties, PSU Banks, Private Banks,

Long-Term view: bearish
Intermediate-Term: bearish
Short-Term: neutral to bearish

View on Market as on 5th June 2008

Today was quite an interesting day in the market - just like the past 10 odd sessions after the intermediate top.

Long Term view (6 months+) - bearish. Needs to break above 5250 and sustain above it for this to change.

Intermediate Term view (1 month) - bearish. Needs to break 4930 for this to change. Or it needs to consolidate in a tight range for few weeks. 4450-4500 support is the last hope here.

Short Term view (1 week) - neutral to mildly bullish. Today's action (5th June) has changed this from neutral to mildly bullish - primarily because we are in oversold region and with everyone talking of market reaching lower levels. Also the big players need to sell off their stuff - and for this they need to take the stocks up.
4550 nifty spot support.

View on Gold: Bullish.
Buy around 1200 levels or lower with 1165 as trading SL and 1090 as investing SL.

View on Oil: Neutral. The last run up was parabolic and toppy in nature. If it consolidates for a few days in a range, it might resume its upward journey again. Downside likely to be until $120 only.

View on Interest Rates: Definitely UP for India. With rate of inflation hovering in 8-10% range, RBI will have to hike the rates sooner than later. Just keeping them at the current value may not prove to be enough.