One more Nifty chart

Bull market corrections

Yesterday when I read about Bull market corrections in one of the blog which I follow; I also thought of writing about it in my blog for my readers. In fact I wrote about Bull market corrections two times in my blog in August 2010. Click here 1, 2 for details...

First talking about bull market, the technical definition (according to Dow theory) of the bull market in simple terms is higher highs and higher lows. This means market will make new highs and bottoms after each corrections will be new lows without breaching previous correction's lows.

For your information I have collected some details from this present bull trend (you may call it as market also!) which started from March 2009. First one is above graph in I have shown 5 corrections. For each correction I have collected some more information which is as below...

Peak level	Bottom level	Correction(Absolute)	Correction(Percentage)
4600	4000	600	13.04
5120	4580	540	10.55
5275	4725	550	10.43
5375	4820	555	10.33
6310	5750	560	8.87

If you see the above table & graph there are some resemblances in each corrections like

1. Each part of bull lasted fro 2 months
2. Following correction from each bull lasted for one month
3. Average correction in Nifty in absolute terms is in the range of 540-600 points
4. Each time Nifty faced correction of 10% to 13% at max
5. Each correction bottomed around either @ 100 day EMA or @ 200 day EMA
6. For each correction RSI had shown oversold point (touching level of 30) each time

Now coming to present correction, Nifty on closing basis started correcting from 6310 levels and closed on Friday at 5750 levels, that is of 560 points fall which is in the range of previous falls. But here there are some differences like

--> In percentage terms it is almost 9% percent, so couple of more percentage fall might be there for Nifty to bottom out and consolidate
--> If you see the RSI, still it is not in oversold zone, that is it is yet to touch 30 levels in the oscillator
--> 200 day EMA is @ 5523 and 100 day EMA is @ 5800 which is already broken on closing basis for 2 days. So I feel Nifty may bottom out and consolidate in the range of 5650 (considering global & country's news flow may not averse) which is another 100 points fall from present level and also 10% fall from the peak which will be in line with the previous falls and within the broad trend.

Nifty movement

Will Nifty hold onto October lows of 5940-5950? A big question mark after today's fall. On Ireland debt and China's possible monetary action triggered Asian markets sell off. Whatever may be the reason, charts are predicting the similar patterns what happened during 4800-5500 levels of Nifty between February and May.

Coming to present present fall, Nifty witnessed successive fall forming large "BEARISH ENGULFING" patterns. Nifty for time being should find support at 596o levels, if that level breaks this CORRECTIVE PATTERN should find the 5880-5860 which is also a 100 day moving average support and trend line ending point. Even RSI is also not showing overbought condition in its oscillation. If that breaks then I feel there will be a lot of selling pressure and fresh shorts may be created in the market.

Another possible breakout in Hanung Toys

The stock which I found out at Rs. 120 odd levels around 6 months back now trading at Rs. 400. Now question is not about the finding the stock or price discovery or for that matter stock discovery. Question is price movement along with other technical indicators like volume, MACD Moving Average Convergence & Divergence), RSI (Relative Strength Index) & etc.

As I marked in above graph, every time stock breaks out of consolidation range it moves with large volume with movement in MACD or RSI or Stochastics. So you need to look at all possible angles before you jump into or out of the stock not just by looking at stock price movement.

Nifty could find demand zone around 5980-6000

Ultra low interest rates in certain regions may cause global imbalance

To avoid present financial crisis developed countries like US, Japan, UK and European Countries are keeping ultra low interest rates [0.1% of Japan, 0.25% of US, 0.5% of UK and 0.25% of ECB (deposit) ] and more over governments & central banks of these countries flooding the their respective economies with lot of Quantitative Easing (QE) by printing more money as that is the last resort in monetary policy to boost the economy.

Countries opt for QE which are facing the problem of low inflation or threat of deflation and they might have already substantially lowered the interest rate nearer to Zero. So to boost the money supply in the economy central banks are compelled to print more money and purchase government bonds from different financial institutes like banks and NBFC (Non Banking Financial Services), in turn flooding these financial institutes with lot of cheap money.

Most of the economist and policy makers provide Keynes theory of "General Theory of Employment, Interest and Money" basis for their move towards monetary easing and QE.

But Sir John Maynard Keynes proposed this theory in 1930s then world was not so globalized as it is today and world was facing double dip recession or popularly known as The Great Depression mainly due to some bad moves like liquidity tightening by FED and protectionism by global leaders.

Where as now world is more globalized than ever and we are era of "BUTTERFLY EFFECT" of Chaos theory. No country is no longer 100 percent closed economy, so no country can say it is totally delinked from rest of the world. Ultra low interest rates in these countries and QE is flooding their banks with cheap money. And this cheap money is leaking to emerging markets. This "HOT MONEY" is creating its ripple effects in commodity market, emerging country's stock markets and their macro economy.

Commodities like Copper, Silver are trading at their peaks in last 2-3 decades and Gold is trading at all time high.

And hot money from these countries is flowing to emerging markets like there is no tomorrow. For example Indian markets witnessed highest ever inflow of FIIs in September month in last 17 years, from the day FIIs allowed. More than 5 billion dollar hot money flooded in Indian markets boosting Indian markets 13% rise in September. Srilankan stock exchange "Colombo Stock Exchange" has given more than 100% return in one year from sub 7000 levels to 16000 odd levels.

Brazilian currency "Real" is appreciated a whopping 30% from March 2009. Indian currency appreciated almost 7% in last 6 months and currency appreciation is common problem to all emerging markets. Already US-China currency war is on and Brazil is shouting at its full strength.

Due to this their respective central banks will (or would have already started) intervene in forex markets by selling their own currencies leaving their local banks with lot of liquidity. This liquidity is in turn creating a pressure on inflation which is already high in certain countries like China and India.

Ultimately its a "ZERO SUM GAME". In past also lower interest rates in initial parts of 2000 (to avoid ill effects of dot com bubble burst) lead to asset bubble in US which caused present crisis.

Nifty correction may take it to 5875/5820/5670

Is there a threat of liquidity trap and "W" shape recovery part 2

Continuing from last week's my posting of liquidity trap and W shape recovery, I am of the opinion that every region, state or country undergoes a broad macroeconomic cycle of different time frame depending on their structural issues in terms of age, gender, income/saving/spending nature, export/import oriented, regulations in financial systems and etc.

Here I would like to give comparison between US and Japan because they are World's largest economies (except China overtaking Japan recently) and almost they are in same position now.

Japan experienced rapid growth from 1960s to 1990s, helped by post 2nd world war massive US investment, high savings led to high investment in their own country due to currency appreciation, low interest rates & etc. Japan witnessed an average GDP growth of 10% in 1960s, 5% in 1970s & 4% in 1980 indicating a slowdown in real growth after 1980s. It experienced asset price bubble in late 1980s followed by Bank of Japan's sudden increase in interest rate & crash of Nikkie in 1989 when it was around 39000.

Many economists feel, after crisis Japan didn't act quickly, it took 5 years to boost money supply in real economy, which was definitely very late reaction. Out of ten years from 1990 to 2000 Japan witnessed 9 times deflation measured by WPI, Nikkie has given 4 times negative annual return, 4 times less than 10% and just 2 times positive.

Now coming to US, it witnessed the Great Depression in 1930s which produced great economists like Sir John Maynard Keynes and in turn the great Keynesianism theory. From 1945 to 1970s US witnessed higher growth helped household income increased 55% or 1.6% annually but since 1973 household income growth rate fell to 10% or 0.3% annually due to various reasons like fall of Bretton Woods System(Nixon Shock) in 1971, followed by Oil shock or crisis in 1973, Recessions in 1981-1982 and after that several economical cycles of recessions in successive intervals.

In 1980, the US Debt was equal to 33.3% of America's GDP, by 1990 it became 56% of GDP. Debt levels rose quickly in the following decade and based on the 2010 US Budget, total national debt will grow to nearly 100% of GDP, versus a level of approximately 80% in early 2009.

Present financial crisis caused by sub prime mortgage, securitization structures and financial engineering along with FED's low interest rate policy to avoid the 2001 dot com bubble effects. Between 1997 and 2006, the price of the typical American house increased by 124% and at same time household debt v/s annual disposal income was 127% at the end of 2007, versus 77% in 1990.

So both the countries experienced rapid growth for 2-3 decades and after that they are feeling the heat of slowdown in their respective economies due to different reasons, which is nothing but natural economical cycle.

Prof. Raghuram Rajan, economic adviser to Prime Minister Mr. Manmohan Singh, in an interview about Currency conflicts mentioned same structural issues in US which I pointed above. Click here to read the full interview. I read an article in mint on similar note (about Japan & US similarities & differences of crisis, advise of Mr. Bernanke to Japan in late 1990s and he being at top job at present crisis!) its good article, click here to read. The paper presented in late 1990s from present FED chairman Ben Bernanke to Japan about its crisis. It contains lot of important data & structural issues with good explanation, click here to read that.

Black Monday in Karnataka's politics

Monday was worst day in Indian politics history. In fact its not only Monday, but from last 10-15 days the things happened here in Karnataka, never happened in Indian history I think. Here one thing I want to clear that I am not taking anybody's side even though I am from a political background family. From the day BJP government came to power, the crisis started within the BJP party and outside also. Three times government came under threat due to these crises within 2.5 years.

But this present one is worst in the history Indian politics in terms of

1. HORSE TRADING...
2. CHANGING OPINIONS OF MLA...
3. KIND OF MONEY SPENT ON RESORTS/TRAVELING...
4. NON-PARLIAMENTARY LANGUAGE USED ON MONDAY/OTHER DAYS...
5. THINGS HAPPENED IN VIDHANA SOUDHA...
6. BEHAVIOR OF OPPOSITION LEADERS WITH POLICE COMMISSIONER MR. SHANKAR BIDARI.

In Indian politics, I have never seen/heard of horse trading of MLAs for 35 crores - 50 crores even more (to each MLAs) according to some unbelievable source.

And coming to changing their opinions, most of the present MLAs, I think they don't have moral ground on which they fight election or their party fights. They are changing colors faster than chameleon, for the sake of power. They are behaving like, there no tomorrow and want to die in power!

Now talking about the money spent on resorts/their traveling & etc who is paying for all these. How can a SEEDHA SADHA politician/party can afford this kind lavish spending for group of horses(MLAs).

Monday morning when I was getting ready to office I was watching the final day drama. The way MLAs were behaving/using slangs to their colleagues and poor Marshals, I never felt they are representing Karnataka people & elected by people like me. Now I am ashamed that I voted for one of them. I think because of this kind behavior only makes most of us not to vote. One MLA went ahead of all this tore his shirt & was standing on the table in VIDHANA SOUDHA. What an example they are setting, at least they should think of their children in their home will be watching TV!

Bottom line:

Couple of the senior MLAs who spent their more than half of their life in politics were seen KICKING ONE OF VIDHANA SOUDHA'S DOORS, where as it is written as GOVERNMENT WORK IS GOD'S WORK! on front portion of VIDHANA SOUDHA.

Is there a threat of liquidity trap and "W" shape recovery

If you look at the recent developments in the world, I feel there is threat of liquidity trap. (Liquidity trap is a condition where in country or state's economy is unable to stimulus by monetary policy easing.) On 5th of this month, Japan decreased its interest rates from 0.1% to 0 or in other words Japan's interest rate is between 0 to 0.1%. And its not over, Bank of Japan is planning to infuse 35 trillion yen to its economy by means purchasing sovereign assets. For brief details click here.

This is not the only case, United states is also thinking of quantitative monetary easing to improve its struggling economy. US is facing problem of unemployment which is almost 10%. The Fed rate is already 0.25% so considering this, Fed may think of fiscal measures by purchasing of some sovereign funds from government.

These are two major countries (except China recently over-passing Japan) which are struggling to improve their economy happened due to recent financial crisis. Apart from these there are issues going on with European countries & recent currency war between US, China (Pegging Yuan), Japan & Euro currencies to protect

Now the biggest question is whether monetary and fiscal policies will influence the economy EVERY TIME & EVERY PART OF THE WORLD, IRRESPECTIVE STRUCTURAL ISSUES!!!

Because in this recent financial crisis, it originated in US because of its social structure & policies influencing that structure. After 3 years of crisis; and after all the possible steps taken by US & FED, but still its economy is struggling.

Same is the case with Japan, it is in the stagnation from last two decades and had been doing all possible steps (like keeping interest rates "0" from 2001 to 2005 and again keeping it "0" now & jumping into currency war) still its index Nikkie is not able to touch its all time high 40000 plus in 1989.

Whereas India, China, Brazil & other developing countries witnessed slowdown in this crisis but giving signals for achieving new highs in their respective economies as time passed.

Will continue in next post...

Biggest inflow of September rallies market to 13% in a month

September month, Indian markets witnesses highest ever inflow from Foreign Institutional Investor (FII)s in one month ever since they are allowed in India from1992-93.

Till now in this India witnessed 18 billion dollar inflow and out of that 5 billion came in this September month alone, giving 13% gain in this month out of 17%-18% gain in this year.

From last 3-4 month market was trading in the narrow range of 5350-5450, but this September inflow helps the Nifty to break the range & surge.

Yes! COMMON MAN is getting benefits from FASTEST GROWING economy

Guys this month beginning we had a discussion about the above mentioned topic. And I kept the topic for open discussion, which never happened after couple of responses from Uday & Richa! never mind. Today I read an article in Sunday Times of India by Swaminathan Aiyar.
I advise all my readers to go through that article. For those who cant, for them I am presenting some of the numbers from the article here.

The below numbers from a survey covered all dalit households in two blocks in UP, one in the relatively prosperous west (Khurja) and one in the backward east (Bilariaganj), between 1990 and 2008.

• Pucca houses rose from 18.1% to 64.4% in the east & from 38.4% to 94.6% in the west.
• TV ownership improved from virtually zero to 22.2% and 45% respectively.
• Cellphone ownership increased from almost nothing to 36.3% and 32.5% respectively.
• Fan ownership, curbed by electricity shortages, rose to 36.7% and 61.4% respectively.
• Bicycle ownership up from 46.6% to 84.1% in the east and from 37.7 to 83.7% in the west.
• Ownership of two-wheelers improved from almost zero to 7.6% and 12.3% respectively.
• In times of distress, dalits historically mortgaged jewelery to upper caste lenders. The proportion that does so has dropped from 75.8% to 29.3% in the east and from 64.6% to 21.2% in the west.
• The proportion eating roti-chutney for lunch, socially viewed as low-class food, has fallen from 82% to just 2% and 9% in the two zones.
• The proportion of kids eating the previous night’s leftovers plummeted from 95.9% to just 16.2% in the east.
  
• The proportion eating broken rice fell from 54% to 2.6% in the east, and from 22.7% to 1.1% in the west.
• Per capita availability of dal in India has been falling. So it’s heartening that dalits consuming dal are up from 31% to 90% in the east, and from 60.1% to 96.9% in the west. This may be one cause for rising dal prices.
• Traditionally, dalits were mainly agricultural labourers. In the reform era, they have diversified into non-traditional work. The dalit proportion benefiting from migrant relatives is up from 14% to 50.5% in the east, and from 6.1% to 28.6% in the west.
• The proportion running their own business is up from 4.2% to 11% in the east and from 6% to 36.7% in the west.
• The proportion in agricultural labour has plummeted from 76% to 45.6% in the east and from 46.1 to just 20.5% in the west.
• Per capita income is growing almost 10 times faster than in the Nehru-Indira era, and dalits are sharing the new prosperity.

Here one common thing you can notice in all above mentioned bullet points and that is private sector participation and competitiveness between them. For example from first bullet point, you can notice TV, Cell phone, Fan, Bicycle, Motor cycle, Mortgage (Banking services), Availability of non agricultural avenues are improving common man's status directly and indirectly.

So all this happened last 10-15 years helped by LPG (Liberalization, Privatization & Privatization) which is initiated by then Government in 1992 (Manmohan Singh) & 1997 (P Chidambaram)

The point is, after 1997 we haven't seen any revolutionary reform from the government due to various reasons. So when we are thinking about achieving double digit GDP growth next decade, we cant be complacent thinking history & past reforms, we need to take certain bold steps.

And once government does its part then comes turn of Private sector & common man of contributing to their share.

In today's same STOI, I read an article from Chetan Bhagat. Its also good article, you can have look at it also...

Opportunity Cost Is Too Much Part 2

So continuing from my yesterday's point, I am trying to tell that traders will always be looking out another best opportunity in the market. So basically they want to churn their portfolio. But in this churning process they end up doing many things like...

1. Paying more brokerage
2. May not able to buy back the shares which they sold after booking some small profit. Take a example if I buy Axis Bank shares @ 250 and sells them at 300 or 350 thinking that 20% to 40% profit booking. But if starts moving beyond 300 or 350 what a common feeling will be is if it comes below that we will buy it back but most of the time we will not buy back it.
3. Meanwhile they try to find one more stock which is going up & may end up in buying over bought stock.

If you would have invested 1 lakh in each of the following stocks which I mentioned in the table in 2009 March of total 4 lakh. Now it would have become around 19 lakh like 7 Lakh from Axis Bank, 3.5 Lakh from Aban (Even though Aban went upto 1600 & presently trading around 800 odd), 5 Lakh from Tata motors & 3 from SBI. Which is almost 5 times your principle in Just 2.5 years. But this kind of return you will get only in recovery from recession bull markets.

So what I want to say that, if you believe in any idea/stock please hold onto it with proper trailing stop loss, sector watch & overall market movement.

And before concluding some updates from economy...

1. Monthly inflation data released recently is 8.5% according to new WPI series which is reconstructed by changing base year from 1993-94 to 2003-04

2. Today, I mean yesterday Reserve Bank of India (RBI) increased Repo & Reverse Repo by 25 & 50 basis point.

3. IIP data which released recently was 13.5% was way beyond the analyst's expectation.

Opportunity Cost Is Too Much

So you may ask first question itself that what is opportunity cost? Opportunity cost is the cost of an 2nd alternative that must be forgone to pursue 1st one. In more layman term, by opting for one choice (out of two/multiple choices) what is the loss that we are incurring for not opting for another one.

You may remember, in last couple of trading sessions Sensex has regained its 19000 mark from January 2008. And market bottomed in March 2009 around 8000 levels in Sensex. From that level present level Sensex return is 137% considering 1900 levels in Sensex.

When market was bottoming out around 8000-9000 levels, I (in the sense many people would) have identified certain well known company's stocks like Axis Bank, Aban Offshore, SBI, Tata Motors.

Now if you take these kind of stocks' returns over the same period, from March 2009 to till now, you can see the kind of return Market has given over the same year & above mentioned individual stocks

Stock Name	March 2009 Price	Present Price	% Return
Axis Bank	200	1400	600
Aban offshore	250	850	240
Tata motors	200	1000	400
Stae Bank of India	900	3000	233
Market	8000	19000	138

will continue tomorrow because I am feeling sleepy...

Comments for previous posting & My Response

uday said...

The irony is - Inspite of India being a Agricultural country, inspite of the fact that India is believed to 'Live in the villages' - these idiot rural indian masses are at the mercy of urban India. Why should they need any government to solve their problems. All the intelligent and capable masses from rural india migrate to metro with greed of big salaries - only waste bodies stay back. Most rural population is good for nothing people thinking that it is responsibility of the Indian govt to take care of them.

September 8, 2010 2:19 PM

Richa said...

Very true, Naveen. These are words of common man....U Me n everyone..
BUT blaming govt. is it always correct? What are we doing to improve things?
Questions? May be we cant do anything, but why not one amongst youth gets into politics to do gud for the NATION....Again a question???

My Response:

First I would like to thank Uday & Richa for reading the article and taking trouble to comment on that. Now coming to comments part I don't buy some of the comments of Uday & Richa, of course they may be correct in their own way.

Because there are structural issues which only government can handle. For example we are now enjoying the benefit of LPG (Liberalization, Privatization & Globalization) which is again started by then government in 1992 by Mr. Manmohan Singh. So government should take the initiative to do the things better, allow the private players in some of the specific areas step by step to participate & then we can argue that government cant do everything.

Now take the following examples...

Inflation

When world is at the door step possibility of double recession/slowdown/deflation, we Indians are facing the problem of Inflation. Food Inflation is the main culprit in that. And main problem for this is PDS (Public Distribution System) is so pathetic, corrupted & license raj.

For example government is supplying Rice @ Rs. 2 to BPL through PDS. But more than 50% of it is not reaching the targeted people, because middle men are selling same Rice in open market for market rate approximately to Rs. 20. This is just one angle for Inflation & other angle is preservation of food articles, even Supreme Court has given suggestion government that instead of wasting them & distribute to poor people.

In places like Delhi, more than 40% of water & 35% of power leakage & theft is happening, which is Capital of country & where in now we are conducting Commonwealth Games whose preparations are another disaster.

These are just a simple examples how the systems in place are working.

Today, I read an article where in Infosys Mentor Mr. Narayan Murthy is talking about India's problems.

I request to all my readers to please read that article here...

Some important points, he mentioned are as follows...

--> Even 63 years after Independence, 35 crore (350 million) Indians can't read and write.

--> Twenty-five crore (250 million) people do not have access to safe drinking water.

--> While 75 crore (750 million) have no access to sanitation facilities, Murthy said.

--> The country has the largest mass of malnourished children, and 35 per cent of (total production of) grains are allowed to rot.

--> India has an installed electricity generation capacity of 145 gigawatts but only 84 gigawatts are available, which is "sadly a shame

--> Lot of it is due to poor (public) governance. There is no doubt about it. Unfortunately, our public governance is inadequate. Whatever our public governance has touched has not made as good a progress as private governance has. While all of private governance may not be good, private governance institutions have by and large done better because of competition, entry of multinational companies and the need to compete at the global level.

And I read one more article in rediff about global competitiveness of different countries in different segments. And some important points in that are...

--> It ranks 104th in the health and primary education pillar, with high rates of communicable diseases and high infant mortality. Indeed, life expectancy in India is 10 years shorter than in Brazil and China.

--> Infrastructure (86th) is in need of upgrade, especially with respect to quality of roads, ports, and the electricity supply, with India falling 10 places in this area this year.

--> Labour markets are also in need of greater efficiency and flexibility (92nd).

--> And overall India's rank 51st

Bottm line:
Topic is open for discussion...

Does COMMON MAN getting any benefit from so called FASTEST growing economy!!!

This is the thought whenever I come home & meet people here in home town. In fact I feel they are hopeless about our country's future! This is not my one time experience, last 2-3 times when I came here & met different people from different background (Age, Income & Family background). I am mentioning all these age, income & family background because I cant draw a conclusion from any one person's thinking from his backgrounds.

So last time when I was in home, I met one of my uncle & from the discussion we had, I thought his thinking is limited so no need to give any attention. But this time when I met one my grandfather & some other people I had same kind of discussion. So from this discussion I am drawing the above statement as conclusion...

In Bangalore or for that matter in Metros we think, we as a country are progressing after seeing so many things like GDP numbers, Infrastructure (presently however may be pathetic it is!),
Private Jobs & their Income level, Stock market, English media (Paper & TV) articles & analysis (because regional TVs & Papers usually don't cover this kind of news because here also I can draw same conclusion that they don't serve this kind because their target audience are not at all bothered about all the above mentioned things). When I start discussing all these above mentioned things with my high funda data, they simply don't agree with me because they have their own concern in some of the below mentioned things like...

1. Inflation

When they say Inflation, they are not aware & worried about the percentage point. Because I also feel that Inflation measurement itself is in so much controversy, so real inflation numbers GOD ONLY KNOWS! So here when they talk about price hike not inflation (because they are not even aware that in simple terms price hike itself is inflation). Their concern is price of almost everything including food articles (even though they are producing some of these & not getting the benefit due to middle man) is increasing much faster as compared their income. Their point of argument is now everything has become purely business & above their reach, be it agriculture, health, education & etc.

2. Government Working Style/Administrative Hurdles

On this they give one whole night lecture & I can also write lot of things. But bottom line will be same, government is not doing adequate what it is supposed do for common man. Be it from giving sufficient facilities (in one article from Swaminthan's I read, government's Rs. 1 worth of facility to common man is costing around Rs. 3.5 crores!!! I was shocked to read this), corruption, bureaucracy, fighting for power, no intentions at all for development & etc.

3. Legal Issues

As we all know how fast we are getting judgments from judiciary system for all variety of cases be it red handed captured terrorist case, be it simple accident cases, domestic violence cases, be it a cop molesting a woman/girl, be it murder case of bar girl by influence people & etc. And even if you get verdict from court also there will always be higher court to re-appeal your case. And surprisingly if you get verdict from highest court also people will go for President's mercy petition! In addition to all these, there are people called as human rights organizations...

4. Other issues like

--> Inter state issues regarding territory, river & dams building to those rivers, current sharing, language, non residents of their state issue & etc.
--> Basic infrastructure needed in rural areas like connectivity in terms of roads & schools, health related medical centers @ etc
--> Naxalism
--> Terrorism
--> Caste ism & related problems
--> Strikes & etc


So Bottom line is:
Anybody's guess!!!

Is market leading to bull market correction

Guys I am back with market gyan again...
Couple of times I wrote in last postings that in last one year market has witnessed...

--> 2Months Bull Run
--> 1 Months Bear Run

Now coming to today's topic, I am calling this correction as Bull market correction instead of just a profit booking. Just have look at below 2 charts...



So from these two charts you can notice following points...

--> Market closed below 20 DMA & just above 50 DMA
--> Market closed below psychological level of 5450 & 5420
--> RSI is in downtrend & not yet touched oversold zone.
--> Market has corrected more than 100 points in this correction. In 2nd chart you can see, 3 times profit booking has taken place. And all these time market has corrected exactly or less than 100 points. And also all these times market correction had found support @ 21DMA levels. But this time market has corrected more than 150 points in & also didn't found support @ 21/20 DMA level support.
--> And from world market perspective, our market is resilient in correction & is lagging the trend.

So looking at all these points, I feel market may find supports at 5250 levels & if corrects/breaks this level also then 5000 levels on Nifty would be ideal point for demand side. And also this 500 points correction leads to 10% correction which same as our previous 3-4 correction in this year.

Smallcaps & Midcaps outperforming broad market

Guys on August 1st I wrote about Market leading to consolidation & in bottom line I specifically mentioned that coming days "SMALL CAPS & MID CAPS will outperform"

And if you see the last 2 months chart

--> Broad market (BSE) has given 2% return on an average.

--> Whereas Small caps (BSE) & Mid caps (BSE) 9%-10% return.


And in August month you can see that

--> Market has not given any return & in fact it is down.

--> Small & Mid caps have given an average of 2.5% - 3%

Thanks to my friends & blog!!!

Hi guys,

I started my this blog because, some of my friends forced me to share market updates & other economic activities on common platform. So I started my blog & initially it was meant for some of my close friends only. But after some time I also got interest in updating it regularly & readers also increased. So it has become my habit from hobby...

Today I FEEL because of my this blog, I got an offer from Thomson Reuters for the role of

"News Analyst in Reuters Editorials Dept."

So thanks to all my friends who encouraged me, given feedback/comments & etc.

So keep reading, commenting & encouraging.

Paul Krugman: Why Is Deflation Bad?

Couple of days back I was reading Paul Krugman's blog. He wrote about Deflation & thought it is very good. So here are the points what he has proposed...

There are actually three different reasons to worry about deflation, two on the demand side and one on the supply side.

So first of all: when people expect falling prices, they become less willing to spend, and in particular less willing to borrow. After all, when prices are falling, just sitting on cash becomes an investment with a positive real yield – Japanese bank deposits are a really good deal compared with those in America — and anyone considering borrowing, even for a productive investment, has to take account of the fact that the loan will have to repaid in dollars that are worth more than the dollars you borrowed. If the economy is doing well, all this can be offset by just keeping interest rates low; but if the economy isn’t doing well, even a zero rate may not be low enough to achieve full employment.

And when that happens, the economy may stay depressed because people expect deflation, and deflation may continue because the economy remains depressed. That’s the deflationary trap we keep worrying about.

A second effect: even aside from expectations of future deflation, falling prices worsen the position of debtors, by increasing the real burden of their debts. Now, you might think this is a zero-sum affair, since creditors experience a corresponding gain. But as Irving Fisher pointed out long ago (pdf), debtors are likely to be forced to cut their spending when their debt burden rises, while creditors aren’t likely to increase their spending by the same amount. So deflation exerts a depressing effect on spending by raising debt burdens – which, as Fisher also points out, can lead to another kind of vicious circle, in which depressed spending because of rising real debt leads to further deflation.

Finally, in a deflationary economy, wages as well as prices often have to fall – and it’s a fact of life that it’s very hard to cut nominal wages — there’s downward nominal wage rigidity. What this means is that in general economies don’t manage to have falling wages unless they also have mass unemployment, so that workers are desperate enough to accept those wage declines. See Estonia and Latvia, cases of.

Now, alert readers will have noticed that none of these arguments abruptly kicks in when the inflation rate goes from +0.1% to -0.1%. Even with low but positive inflation the zero lower bound may be binding; inflation that comes in lower than borrowers expected leaves them with a worse debt burden than they were counting on, even if the inflation is positive; and since relative wages are shifting around all the time, some nominal wages will have to fall even if the overall rate of inflation is a bit above zero. So the argument that deflation is a bad thing is also an argument saying that some economic problems get worse as inflation falls, and that too low an inflation rate may actually be economically damaging. That’s why the fact that inflation, while still positive, is below the Fed’s target is bad news; and it’s why respectable people like Olivier Blanchard (pdf) have suggested that a higher target, something like 4 percent inflation, might make sense.

CNBC: Experts see Nifty hovering below 5500 till year end

Guys two days back I wrote post named "Is market leading to consolidation in near term".

Today there is an interview of experts in CNBC stating that "Experts see Nifty hovering below 5500 till year end"

Couple of interesting articles about inflation

Today I read couple articles related to Inflation in Business Standard & thought of sharing with you guys.

There is a very good article by name "Some inflation is good" by A V Rajwade

He has given very good instances like

--> Controlled inflation is good for long term growth, about which I was proposing many times as "if you are expecting growth then be ready for some kind of inflation"

--> Hyperinflation in Germany in 1920s, Stagflation in 1970s, Japan's Zero growth over two decades even after excessive liquidity.

--> One more imported phrase is "Certain minimum unemployment is necessary if inflation is to remain low & stable that is, policy should be aimed at keeping few millions unemployed for the benefit of rest of us"

and many more... I thought its very interesting article, so please go through the link provided above.

One more article by name "Politics of inflation" by Sanjay Baru...

Author has connected "Inflation & Manmohan Singh" very beautifully in many instances like

--> 1972-74 situation after Pakistan war & first oil shock
--> 1992 situation after devaluation & commodity price hike
--> 2006-07 situation due oil price hike
--> 2009-10 situation due to food articles price hike

in all these cases Manmohan Singh was & is one of the major positions (chief economic adviser, Finance minister & Prime minister) who can decide on monetary & fiscal polices...

Is market leading to consolidation in near term?

This question came to my mind due to various reasons, both technical & fundamental point of view.

Fundamental point of view we can discuss later, coming to technical aspect which is my favorite section we will see how it is spanning!

You might remember my last but one posting about markets (I posted it on 11th July), where in I have given information about market leading to

-->Two months bull run
-->One month bear correction

from last one year.


From August 2009 to October market has moved from 4400 to 5200 which is almost 18% & then almost 11% correction from top 5200 level to 4600.

And then from November 2009 to January 2010 market has moved from 4600 to 5300 which is 15-16%% and from then again it corrected to level of 4700 which is 12-13% from top.

Then from February 2010 to April 2010 market moved from 4700 to 5400 levels which is 15% gain & corrected to 4800 levels which is 13% from top.

And from that level market moved to 5450 level which is again 13% gain.
So now correction is expected? May be, but I am not sure!!!

But couple things you can notice from above details are

1. Bottoms are getting better...
2. But tops are not getting better as compared to bottoms

So I feel tops & bottoms are converging & leading to short to medium term consolidation around 5250-5300 level.

So same thing will reflect in large caps & best example is Reliance which is biggest company by market cap, has not performed from last 3-4 quarters.

So traders & investors can look into some small cap & mid caps.

Will RBI target inflation or growth

Tomorrow is quarterly review of RBI monetary policy & it is expected to target inflation according majority of analysts.

Most analysts are expecting RBI to increase repo as well as reverse repo rate by 25 basis points & keeping CRR unchanged as liquidity is already tight in economy.

Some analysts are expecting repo & reverse repo to be increased by 25 basis points from present 5.5% to 5.75 & 4% to 4.25% maintaining present corridor (difference between repo & reverse repo) of 1.5%.

But Some analysts are expecting interests rate corridor to reduce by increase in repo by 25 basis points & reverse repo by 50 basis points there by reducing corridor to 1.25% from present 1.5%. to reduce the volatility in the interest rate.

If you see the following link

First graph you can see that credit is growing where as deposit growth is constant may be because of lack of increase in interest rates. And if you see the credit deposit ratio it has increased to 70 levels 74 levels which is surely an indication of an increase in interest rate in future.

But is it safe to increase interest rates as already IIP numbers slowing down & its merely double digit & where as inflation is concerned its mainly because food articles & public distribution system. And I think when you expect growth, with growth inflation will come by default (because of wage growth which int run leading to per capita increase leading to more expendable income) , so we should learn to live with it.

Najeeb's comment

Najeeb IBA said...

i dont see any chance for incerse the sugar price in short to medium term,unless the deregulation of sugar sector price is allowed by the government

My response...

Ya are right. Sugar price always move in cyclical pattern. 3-4 quarters bullish & 1-2 quarters bearish. Already sugar corrected from last one quarter & I think it will continue for one more quarter. But if you see the estimates of sugar productivity including Brazil which is the leading sugar exporting country, will be less than average productivity. And according recent news, even major exporting countries are importing the sugar. And coming to India, I feel this time expected rain itself is less than last year. And being from agricultural family I know that, this time there will be definitely shortage/less productivity in sugarcane as we are already facing the heat rain god's anger!

Leave all this, Even though sugar prices have fallen from last 2-3 months & where as if you see the Sugar stocks have given the 30% - 40% return in last 2 months.

That you may call it as technical bounce also, as we call Dead Cat Bounce Back! But I don't think technical bounce will be of that much magnitude (30%-40%). So I think its good time accumulate sugar stocks.

And keep reading & keep commenting...

Market Update With Some Scrips To Invest

Will market touch this years new high or not? This is every person thinking in Dalal Street & which is very difficult to answer also!

If you see the above chart you can very easily make following repeated patterns

1. Two months bull run
2. One month bear correction

For example Aug 2009 rally ended in Oct 2009 & correction till Nov 2009 and this pattern is repeated again in November as fresh rally started in November and ended in mid Jan 2010 and correction till mid Feb.

Again fresh bottom in Feb 2010 and one more rally till April & leading one more correction till May end.

So from last one year we are making news higher highs & lower lows which is very good sign.

But Nifty is going to face stiff resistance @5400/5420 & if it able to cross that level it can touch 5480 /5500. From that level we can say that fresh breakout in trend patterns.

Now coming to some individual stocks...

Tech Mahindra

It touched rock solid bottom in recent free fall from 1100 level to 600 levels & has consolidated around 720 levels. So its safe to initiate the long call for long term investor for first target of 900 & if it crosses that level 1000 levels which is almost 40% return from present level

Aban offshore

Aban is one stock which will surely give multi bagger return only if you are in right side @ right time. I am saying because if you see below chart


if you purchase it at 15oo level in Jan or 1600 levels in December, till now you would have faced 50% erosion in capital or notional loss. It has fallen like a never ending bottom from that level & it has history like that. Moves up rapidly giving multiplier returns & falls more faster than that for any bad news. Because I have seen it moving from from sub 200 level to 1600 level in one year time.

Now coming present it has fallen because one of it rig has sunk & made a consolidated bottom around 600 levels & going up from that level. I will tell you again it will touch 1200 & 1600 so be smart to catch it right time & right level.

Sugar stocks like Bajaj Hindustan, Renuks & etc.

Because of international & domestic sugar price fall all sugar stocks corrected more than 50% from their recent highs in January. I feel they all made bottom & consolidated. So long term players can bet up on Bajaj Hindustan & Shree Renuka for at least 50% returns.

Warren Buffet's Advice

I got this from one of my colleague & thought of sharing with all my readers. I am sure some of you have would already read it, but people who haven't they can go through.

Even though this advice came in 2009, I think these thoughts are applicable all time...

We begin this New Year with dampened enthusiasm and dented optimism. Our happiness is diluted and our peace is threatened by the financial illness that has infected our families, organizations and nations. Everyone is desperate to find a remedy that will cure their financial illness and help them recover their financial health. They expect the financial experts to provide them with remedies, forgetting the fact that it is these experts who created this financial mess.

Every new year, I adopt a couple of old maxims as my beacons to guide my future. This self-prescribed therapy has ensured that with each passing year, I grow wiser and not older. *

This year, I invite you to tap into the financial wisdom of our elders along with me, and become financially wiser.

* Hard work: *

All hard work **bring **a profit, but mere talk leads only to poverty.

* Laziness: *

A sleeping lobster is carried away by the water current.

* Earnings: *

Never depend on a single source of income.

At least make your Investments get you second earning)

* Spending: *

If you buy things you don't need, you'll soon sell things you need.

* Savings: *

Don't save what is left after spending;

Spend what is left after saving.

* Borrowings: *

The borrower becomes the lender's slave.

* Accounting: *

It's no use carrying an umbrella, If your shoes are leaking.

* Auditing: *

Beware of little expenses;

A small leak can sink a large ship.

* Risk-taking: *

Never test the depth of the river with both feet.

Have an alternate plan ready

* Investment: *

Don't put all your eggs in one basket.

I'm certain that those who have already been practicing these principles remain financially healthy. I'm equally confident that those who resolve to start practicing these principles will quickly regain their financial health.

Let us become wiser and lead a happy, healthy, prosperous and peaceful life

Historic Move From Government In Oil Price Deregulation

Today EGoM (Empowered Group of Ministers) headed by Mr. Pranab Minister agreed(Partially) for Kirit Parikh recommendations of oil price deregulations.

Today EGoM decided that, Petrol price will be fully decided by the market forces & other petroleum products like Diesel, Kerosene & LPG prices by partially depending on international oil price movement.

Today during market hours only this news came in & all oil marketing stocks closed very high even though market closed in negative.

According this deregulation,

1. Petrol will cost around Rs 3.5 more
2. Diesel price will be hiked by Rs. 2
3. Kerosene by Rs. 3
4. LPG by Rs. 35

This is one of best move as compared to longer time future of the country's economy, even though in short term it will leads to inflationary pressure as present inflation itself is very high as compared to RBI's comfort level. One more advantage is in shorter term, fiscal deficit of the country will be reduced due to less subsidizers to oil companies.

Now coming to stock market point of view, this move is good for longer term as ratings of the companies & country will be stronger as compared to past & present ones. And as I told earlier, almost all oil marketing companies closed with more 5% jump to their previous closes. But at same time stocks from Auto, Banks, Shipping & etc started falling as in the anticipation of oil price hike leads to

1. Less demand for auto sales
2. RBI's interest rate policy team may increase rates anytime sooner than later
3. Increase in the cost of shipping & transportation & etc.

Markets Moving In Trendlines

If you see the markets from 2009 October - September markets (Almost all world markets) are trading in the trend line pattern . Nifty after hitting low of 2700 & consolidating from September 2008 to march 2009, it has given almost 90% return, Nifty touching sub 5200 levels.

But if you see from 6-8 months market is moving in the trend line only...

For example May 2010 market moved in negative trend & after that is moving in +ve trend. This trend will face strong resistance at 5380-5400 levels and may continue till 5500 levels. But above 5500 level this trend line will break so psychologically Nifty may not cross it easily. Breaking that level leads fresh bull rally in markets but which may require global support as well strong quarterly results...


If you see the above chart it has support level at 5250 according to trend line & as well as Exponential Moving Average @5190-5200 levels. If you see recent stochastic its leading to little correction which is supported by high volume.

And at the same time if you see broader trend from October 2009 to till now market is the range of 4600 to 5550 levels. Market is not able break this trend & leading to a long consolidating for coming days.


Bottom line:

So I think instead of focusing on market returns investors should spot some mid caps & small caps to good returns as compared to consolidating broader markets.

Range bound trading market

I am back guys... I know now a days my comebacks are more than the postings. But what to do, now we are no more in college (IBA!!!), we are in competitive & exhaustive corporate world, in addition to all this changing house & again getting internet(BSNL) is biggest challenge in metros.

Now coming to today's posting, from last two weeks world markets have seen greater turbulence. Our markets from last 15-20 days were so volatile, intra day trader & short term traders almost lost their track because European Crisis. Started with Greece crisis, spread to Spain & now Hungary. All these incidents are leading to slow recovery if not double dip recession in world economy.

Now coming to our market if you remember, in last posting about Sensex (12th April to be exact) I have given a broad range for sensex from 16000 to 19000. And in this short correction & pull back, market almost bounced back from 16000 levels.


If you see the graph carefully drawing the lower lows & higher highs, now also market has the range of 16000 to 18400 to be precise. Once this range breaks then only we can say market will take either bullish or bearish direction. So until then it is better to book profit when market reaches to these levels whatever may be the positions (Long/Shorts) we are holding.

And if you see later part of the graph I have drawn couple of more trend line which are indicating Symmetric Triangle around 17000 levels. So from 17000 levels will be Doji state where in market may reverse itself from current trend or continue but with lot of momentum. So traders should be very careful @ this level.

Interesting articles on Monetary Policy

Tuesday, 20th April RBI is going to announce its monetary policy review. Regarding same there are lot of articles coming now a days.

Out of that I read some & found them interesting, so you can also go through..

Mr. Shankar Achrya's article in BS

Mr. Jagannathan's article in DNA

Ila Patnaik's article in Indian Express

Sensex Ranges

Target/Resistance 1: 18200
Target/Resistance 2: 18500
Target/Resistance 3: 19000

Support 1: 17600
Support2: 16800
Support3: 1600

From quite few days I was giving Nifty ranges from technical point of view. That is because in our profession Nifty is more important than the Sensex because derivatives (Futures & Options) traded in NSE.

Anyway coming to Sensex ranges, I plotted 2-3 years graph month wise with RSI (Relative Strength Index) and some trend lines (by joining higher highs & lower lows).

So according to that, when Sensex touched 21000 in 2007/08 that time RSI was trading around 80 levels which is considered as overbought region. Whereas now RSI is trading below 70 levels which is also pretty equal to overbought region by comparing then & now macro economic conditions.

Now if you see last 3-4 months charts Sensex has tried twice to cross 17800 levels before present one. So according to that its a breakout from Double Top concept which is also an indication higher levels in sensex.

If you clearly observe the world markets & economy, overall positive news coming except some shocks like Dubai & Greece crisis. Foreign funds started flowing to developing countries like Brazil, India, China & etc & widely tracked US market Dow Jones is almost touching 11000 mark according Friday's closing.

And now coming to domestic number game, 4th quarter results are expected come to better because various reasons like Base effect, increase in employment/expenditure, confidence in people about their future & etc.

Anyway all these are fundamental concept, talking about Technical point of view: "What is more important than the why". So according to charts the range (resistance & support) for sensex is as mentioned above.

Market may face resistance @5420 & 5450

Will market breakout of range of 5200-5300?

Value Investing

Guys I saw a very good discussion on Value Investing between some experts in CNBC. I felt it was very good from investor point of view & there are some very good lessons to learn from our experts' mistakes.

So below is the link, please do visit if you really interested in stock market & process of valuation...

LINK

There are some 4-5 videos linked to this, so see all those...

Arun's Comments

Good information Naveen, but the RBI base interest hike, will make commerial banks to raise the mortgage and will impact the real estate sector. Over all does this help stock market ? May be yes, as banks may do good, isn't it catch 22?

My Response:

Well I believe RBI was in pressure from all the quarters due to reasons like Inflation, Recovery in economy like IIP data, good auto sales numbers in Jan & Feb (so auto stocks soared) & etc.

But I don't think Banks will immediately rise the lending rates as they are falling short of RBI minimum requirement of credit & from other end they have to take care NPAs(Non Performing Assets) which have increased due to recession.

And coming to stock market obviously you know better than me that market is not only dependent on RBI policy, of course due to RBI action market (Nifty) opened some 80 points down with a gap down. But obviously market is more dependent on world markets now & how the European economy will shape up from CDS problems & what China will do for its interest rate & export policy (currency pegging) & etc.

So as usual rate sensitive stocks(like real estate, banking stocks & auto stocks) have been beaten down on Monday because of sentiments.

But what I feel is if RBI is increasing repo & reverse repo only because of inflation, then it may not be correct decision? Because I feel(most analysts feel) inflation is due to spike in primary food articles which is supply side problem & distribution problem. And if you see the last year February inflation which is acting as base now, there is a sharp dip in Feb. So there is also BASE EFFECT in this inflation numbers. And also I think nobody will stop eating due to increase in interest rate!

If RBI is seeing food price hike is spreading to manufacturing side (IIP data) then their action can be substantiated, because monetary policy action will take some time to slow down the things in the overall economy. And also of course RBI cant allow formation of new bubbles in the economy by cheap credit what US did in Dot com bubble burst in 2000-01 (kept interest rate very low) & ultimately lead to real estate bubble which in turn lead to sub prime lending & following problems.

RBI's Exit Policy

As market expected, before monetary policy review (which is scheduled in 20th April) RBI has raised the short term lending/borrowing rates.

RBI has raised repo & reverse repo rate by 25 basis points from 4.75% to 5% & 3.25% to 3.5% respectively.

Repo is the rate at which RBI lends money to banks & reverse rate is the rate which banks deposit(or rate at which RBI borrows from banks).

This move was expected because,

1. RBI has raised CRR by 75 basis points Jan 2010 monetary policy

2. Headline inflation measured by WPI has reached 9.89% for February 2010 which above RBI's comfortable zone

3. And most important thing IIP (Index of Industrial Production) is clocking 16% for last couple of months which is an early sign of recovery

4. To avoid the over heating of the economy due to cheap money.

But is this move is inevitable? Does RBI hurriedly took the decision? That time will only say.

But yesterday I read an article in Indian Express by Ila Patnaik which says

"Money supply growth is an important indicator of monetary conditions. This has come down from levels of more than 21 percent in July 2009 to nearly 16 percent in February 2010. Traditionally, reserve money grew because RBI was focused on the exchange rate and continually buying dollars. From 26 March 2007 onwards, RBI's behaviour on the currency market has shifted towards greater exchange rate flexibility. In the last year, RBI's purchase of foreign exchange has dropped to near-zero levels. Under this flexible exchange rate regime, the rupee has appreciated from Rs.50 to Rs.45.50. This shift in RBI's behaviour has reduced the pace of injection of rupees into the economy. Another element of the story is low demand for credit, giving slow growth in non-food credit. Putting these elements together, money supply growth has decelerated sharply over 6 months.

In summary, there are two important mistakes in the Indian inflation discourse. The first is the use of year-on-year inflation measurement, which yields information about inflation pressures in the economy with a lag of roughly six months. The second is the notion that RBI can influence inflation by raising rates. What mainstream central banks worldwide can do -- given a well functioning bond market and banking system -- is not feasible for RBI given the crippled bond market and banking system. Mechanically raising rates when inflation goes up is not particularly useful, given the malfunctioning monetary policy transmission.

A more nuanced approach, reflecting an empirical understanding of relationships visible in Indian data, is required. RBI's communications on this subject need to improve, combining a better analytical framework, and an honest treatment of its trading activities on the currency market. Thus for example, if the RBI chooses not to raise interest rates, as they are unlikely have a direct impact on inflation, it should say so clearly, and explain why, describe how a quiet tightening has been taking place and what policy options are being chosen and why. Not doing so results, in general, in a situation like the present one where expectations of rate hikes build up, and RBI comes under pressure from various quarters on its conduct of monetary policy"