Sensex Short Term Movement

Outlook : Neutral

MACD: Moving up from the lows set in October. Still not in the positive territory. Till the time it does so it cannot be said that the movement has turned positive

Stochastics: Till such time the red line is above the black line it indicates short term strength. 

With the market not doing anything for some days perhaps its not such a bad thing after all. We all get to hear about periods of consolidation and markets not falling, well for some days we have experienced something like that. Interesting thing to note what exactly is happening in the Accumulation / Distribution patterns. What this means is that if the accumulation chart patterns are showing accumulation, then it means that smart money is accumulating stocks at these low levels. However this not true for all the stocks as some stocks still are showing distribution. 

It comes as a relief, that the markets did not collapse on Friday and the series went off peacefully. I had taken a punt in my post on 8th Nov, that the series might be able to hold its own for this series and thankfully it did. It did not sell off, the way it has been doing...so does it guarantee that we are out of the woods? Well not really...we still are in the negative territory,MACD is still showing negative diversion, we are still trading at below the Moving averages curve so it is still it is not happy days for the markets...

Now with the new series starting, it would be interesting to see whether the individual stocks have started to show accumulation patters, that would indicate that smart money has started to accumulate stocks...If not then we might have somewhat lower to go...But for that to happen first the lower bottoms have to be broken and that is a glimmer of hope for all of us...On the positive side if the accumulation has started to happen, then we might see another positive series, that would mean that shares would start to see positive gains and some traction would return to the markets. It is difficult to predict the movement currently for a long period, as we are in a no mans land right now...

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Sensex Bottom Levels?

Momentum chart

image courtesy indiabulls

In my previous post I had written markets might retest bottoms, and that is exactly what happened. The markets touched 8400 odd whilst last time on a closing basis they had touched 8500. The good part is that the bounce back happened from these levels, which in essence means that if we can hold this bounce back then it might spell an intermediate bottom for the markets. However if these levels are broken then its an all together different matter of markets collapsing further down. Lets hope that we can hold these levels, and bounce back from here. The closing of the markets was a positive signal with the markets closing at the highest point of the day, also the American markets provided some good news with an impressive close on the Dow Jones....

Also another interesting fact is that when we moved up from 7500 levels to 10,500 odd levels a gain of 40%, this was achieved in 6 trading days, however the fall from 10,500 to 8300 has been achieved in 10 days and the 11th day saw a bounce back. This might be an indication that the rush to the bottom is slowing down a bit!!! Although the momentum charts are trading below the positive territory still it is trading at a level of around 85, whereas in the earlier weeks it had touched levels of 75, indicating a strong negative trend. (anything below 100 shows a negative trend, with the trend gaining momentum on either side the index trends away from 100. E.g. a 60 is a very strong negative trend, whereas a 110 is a medium positive trend. 100 is flat trend).

In the meantime, the news continues to be mixed, whereas now fears of Citibank getting into trouble has started to surface, along with GM and Ford, at the same time there have been voices of a stimulus package coming from Indian Govt coming are becoming stronger...so its a mixed bag, but lets hope that this contagion does not come into Indian companies...

So where do we go from here, if the markets fall below the 8500 levels convincingly on a closing basis, would mean that we would have made a new bottom. That would mean that we would go down further, then possibly bounce back, then again would retest the new bottom, and then if that new bottom holds then the markets would start to stabilise....whew!!! now that's a long process...however if this bottom holds then it would mean that we would seen the bottom for the time being and the markets can start the rebuilding part...

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Final Capitulation, NIFTY to retest lows???

Now with Europe officially getting into a recession, Hongkong also there and USA showing the lowest ever retail sales data, the picture is not exactly perfect..With the markets rebounding from the lows of 7600, and going upto 11,000 the journey back of the markets has now started to look little scary. Although there is nothing on the charts that suggests that we are capitulating, its the individual stock prices that are nearing their 7600 lows that is begining to worry me...Also now as the stock prices are again nearing their bottoms suddenly they don't look so attractive anymore, guess its a function of their earnings also. However as stated in my previous posts, that for any bottom to happen the markets have to retest the previous lows and only once that happens do we see a recovery...markets still have to retest the bottom and stop there!

On the technicals side today's day was not particularly good as today was the day when we broke the recovery uptrend on the MACD that we had nicely established. Again from the charts its virtually impossible to predict tomorrows setup as we are not on the extremes, but the news flow is negative and that is not concerting....

Its difficult to invest in such times, specially when one knows that if one is playing in the derivatives markets its much easier to make money there by going short or by selling covered calls rather than making long investments in stocks...Lets hope for the best, that this series is able to hold its own, else we are entering troubled waters!!!

To be long or short on Nifty now?

Markets are still showing a negative MACD curve, but the good news is that the negative MACD is rising fast to come into the positive territory...Once the MACD moves into positive territory then what I have observed is that usually the stock momentum goes up and stocks start to see some meaningful gains! As I have written in myprevious posts that some of the stocks seem to have seen the worst for them. .. Also another interesting thing to note is that the recovery in NIFTY was verymeaningful...For e.g. I had bought TISCO at 152 odd and saw some 50% gains over the next one week, though its a different story that it has retraced back a bit, but still it is still at 20-25% gain!!! similar is the story with other stocks that have gained smartly in this pullback. 

Now the point to note is that how does this series go...from the indications it doesn't look like that the series is breaking away on the downside immediately. The signs are looking alright, and my punt is that the series might hold its own. However that does not take us out of the bear market that we are witnessing...so waiting and watching is the best policy with perhaps a tilt towards being cautiously optimistic for some days...

I am currently not trading in F&O for some time now, but I am sure there would be interesting opportunities like buying or selling straddles or collars to play with now, rather than taking unidirectional positions...

Sensex Bottom and Rise

image courtesy: indiabulls

(image showing the hugely negative MACD, thereby implying that the trend is still negative inspite of good rallies)

Its nice to be right ! When you predict that the markets are going to go a particular way and markets oblige ! If you see my previous posts on 27th October and 11th October, both predicting an upmove, we indeed went into an upmove from the very next day... Actually in technical analysis it is much easier to predict the short term bottoms than to predict the tops...so it was not too much rocket science predicting the bottoms...but yes it indeed feels nice, to be a good student of the markets...

If you notice that most the upmoves and downmoves are based around the series of F&O. So once the series are over on the last thursday of every month, the positions are cut and new positions are built, which I am sure have a lot of role to play how the markets behave in the next series. For e.g. once this series got over on Wednesday we have started our upmove...and this phenomenon is noticed across many series as well...a word of caution though that in many series a trend that starts at the beginning of the series gets reversed after the first 5-6 days!!! 

So is the worst over? Well its very difficult to answer it...if you read the newspapers or hear the experts on TV, all of them seem to be indicating that the worst is yet to come. However what I am worried about is some of the statements coming from the worlds leading institutes predicting that the worst might be over for the developed countries but the worst is yet to come for the emerging economies!!!

From an index perspective, we still are in a negative trend!!! and it will take a lot to get out from here...infact we cannot say that we are out of the woods till such time we test the bottoms and the bottom holds....now with the RBI's move of cutting repo rate the markets are expected to take the cue and rally for some time, however till the time we are over 3100 on the Nifty we would not be even in a small uptrend...so these small sharp rallies need to be played but played with a lot of caution...infact I think its a nice time to rejig ones portfolios and start building some nice solid portfolios, that would give long term results. For e.g. in my previous posts I had written about TISCO, which was trading at crazy valuations at 150!!! This would have meant that if one would have picked TISCO at 150, he / she would have got 11-12% risk free dividend income throughout !!! no wonder that it bounced back 40% from those levels within a couple of days (as such valuations do not last for long). So its time to enjoy the uptrend as long as it lasts, and perhaps hope that the levels of 7600 are not breached, if and when the markets come to retest the bottoms!!!