What will make it slippery?

Dear Investors,

On last trading day ‘Fear Psychosis’ (Read the blog On Friday) gripped the markets to create ‘carnage’ on Indian Stock markets, creating a ‘Question mark?’ in trader’s and investor’s mind, about viability of ‘Bull market’?

(I think, time has come for ‘genuine investors’ and (even) ‘Traders’ to give a thought to certain fundamental considerations before making fresh allocation of funds.)

To know the answer,

One has to take various possibilities in to consideration; most of them are related to the ‘Economic Fundamentals‘, either in India or across the world economies, which might change the course of ‘Bull Market’ in ‘emerging markets’. Though technically markets in India indicate that, these are the corrections in a long term ‘Structural Bull market’, and these corrections should be bought for long term gains. Irrespective of this view, one has to consider ‘Fundamental changes’, to decide ‘period and extent’ of investments to be done or to consider periodical profit booking.

There are two scenarios to be considered before making any decision

A)    Global threat

There are early signs of ‘Developed’ economies like U.S. and Japan coming out of recession and improving gradually. The most important thing to watch is weather the policies in these nations go on track or they get derailed leading to Inflationary conditions. Rising inflation may not make quantitative easing sustainable and will lead to problems to fiscal deficit .The problem in the developed countries may affect Emerging Countries leading to falter their economic growth, leading to a whole host of problems. (This can further be elaborated in relation to, Commodity prices, Increase in Oil consumption leading to greater demand and rise in prices, Flows getting diverted from emerging countries to developed countries etc.)

B)    Domestic threat

This may be due to inability of the government to implement the policies (like capital spending on infra., power, crude and fertilizer regulations). Rising crude prices, inflationary situation, rising lending rates and credit squeeze leading  to derailment of the economic growth and reduce the margin of the industry. This will lead to slowing of the manufacturing and reduction in demand for consumables.

These two(A&B) things should be watched carefully before making any forecasts regarding markets in India and deciding the further course of ‘Structural’ bull market

Investors have to keep watch on ‘certain things’ before allocating funds to Equity markets in immediate future, Like……..

a)     Monitory policy of Indian Central Bank

b)     Budgetary allocations and political desire to implement various project i.e. ‘Capex Program’ of Indian Govt.

c)      Results of the Indian industrials in First Quarter

Though technically ‘Bull Market’ is still in place, improper handling of ‘Fundamentals’ by concerned authorities may delay the further progress of it, leading to a Long Phase of ‘Consolidation’ In such scenario investors have to make their investments in ‘phase out’ manner so as to protect capital erosion.

Technical View 

On Friday Nifty closed at 5904 after touching low of 5883 and 6051 on upper level.

Nifty is forming lower tops and lower bottoms indicating that the short-term up trend is broken. To come back to upward trend, Nifty has to close above 6004 (20 DMA) or should not close below 5883 (Friday’s low)

PIVOT FOR NIFTY IS @ 5946

R1 (First resistance) is @ 6009

R2 (Second resistance) is @ 6114

R3 (Third resistance) is @ 6177

PIVOT FOR SENSEX IS @ 19843

R1 is @ 20057

R2 is @ 20424

R3 is @ 20638

Significance

For continuation and confirmation of up trend Nifty must close above 6117.

While close below pivot will confirm the continuation of short term correction in place for next few trading sessions (In case of sensex, breaking of 18880 will indicate termination of present up move; it should act as a ‘Stop losses for long positions).

S1 (First support) is @ 5841

S2 (Second support) is @ 5778

S3 (Third support) is @ 5673

Significance

The present up trend started from Nifty 5690, which is nearer to S3 (5673), this should act as the last hope for ‘Bulls’. Bulls should watch S2,( 5778) closely, and start liquidating longs and create shorts if Nifty closes below 5770

20 DMA @ 6005
50 DMA @ 6017
200 DMA @ 5594

Significance

As long as Nifty is trading above 200 DMA, up- ward trend is intact.

Conclusion

Watch, carefully, developments in ‘House’ and in out side world.

Investors are advised to keep away from markets till the ‘Fog’ is cleared. At all higher levels try to generate ‘Cash’ till exact trend emerges (Nifty 6615 and above). Traders can create positions 
 for short term trading ‘Bounces’ and 'corrections' with strict stop losses.

FOR ADVENTROUS TRADERS and INVESTORS

Here are few ideas,

TISCO

STERLITE

ITC

RIL

MPHASIS

POLARIS

ROLTA

LUPIN

IPCA

Jyothi Lab

Tilaknagar IND.

V-GUARD

ACE (Action Const. and Eng.)

GMR Infra

Savita Oil Technology

Celestial Lab

Geodesic

Graphite India

EMCO

Elecon Eng...

Tecpro Systems (Engineering) (365)

Sector Suggestions

It is suggested to prefer following sectors for long term investment

INFRASTRUCTURE

INDUSTRIAL ENG. AND CONSTRUCTION

(CAP. GOODS)

PHARMA

Use following As Defensive sectors

IT, TELECO, FMCG

Avoid,

Auto, Banking & Finance, and, Power till valuations correct to attractive levels.

Caution

There can be bounce back from present levels; it may be a false one, use this ‘Dead cat’ bounces to create cash.

Nifty closing at and above 6115 should be looked as a probable end of the on going ‘correction’.

Investors can invest in small installments at every dip up to the level of 5690

Day and Positional traders should trade with strict stop losses. Break below 5770 should be used to create ‘Shorts’ with caution till Nifty breaks 5690.

Be cautious, it may be ‘SLIPPERY’ at any moment

Thanks

Dr. Vasant Bele

Disclaimer: views expressed are mine; take your own investment decisions.

The news letter for next days market movement is always written and posted on previous day’s evening