Nifty range may be shifting from 5200-5600 to 5400-5800

Friday Indian markets witnessed almost 2.5% gain in their both leading indicators Sensex and Nifty crossing their immediate individual resistance levels. Today's mint headline reads, Sensex gaining 1000 points in this week, and thats way, I think Indian markets are reacting because of being laggard through out the this year after witnessing sharp rallies in September and November 2010.

Indian markets have priced in Middle east crisis, In turn causing oil spikes (which I believe is temporary as it is not in synchronized with the world recovery. Since almost oil price jumped an average of $70 to more than $100, which is more than 40% rise.) Japanese earthquake effect and RBI's recent rate hike.

If you go by the pure technical charts which is as given below from mid February Nifty is trying to make higher bottoms and higher tops, which is according to Dow theory is a positive sign.


Exponential moving average (which are better indicators of the recent trend as compared with Simple Moving Average) of 50 and 200 days indicate possible reversal in the trend due to possible crossovers.

The one of the major oscillator, RSI (Relative Strength Indicator) is also indicating consolidated upward movement strength in the recent trend from March 2nd week.

Now coming to base formation before jumping to next range, the market looks like it formed the base at 5200 as it bounced back twice and after that it formed intermediate support at 5400 as it was trading in the range of that 5400-5600.

Now coming to upper band of the new range, that is the resistance level for the market would be the 5800 levels. That is the level when Nifty was having support when it was falling in November and December months.

Now finally coming to options, 5400 Put option has seen the more than 11 million contracts open interest and more than 1 million contracts change in the open interest (highest for any PUT option) indicating the PUT option sellers feel the base for the market is at 5400 levels. From CALL option perspective both 5700 and 5800 contracts witnessed highest levels of open interest and 5800 CALL option has seen maximum change in the open interest, indicating option writers feeling resistance at 5800 levels.

mint Article:Dear MBA Class of 2011

I read a good article in mint today about MBA. So thought of sharing with you guys...

"Ladies and gentleman of the MBA class of 2011,

If I could offer you only one tip for the future, a good USB memory stick would be it. The long-term benefits of a USB stick have been proved by the number of times people lose laptops, or are suddenly asked to submit resumes on a plane or at a conference. The rest of my advice has no basis more reliable than my meandering work experience.

Enjoy your last few days in business school. Chances are you’ve already cynically dismissed the whole bloody place. But trust me, in five years you’ll attend an alumni reunion and realize that business school was perhaps the last place you were both truly intellectually challenged and emotionally excited. Both will happen again. But rarely together.

You are not as smart, or stupid, as you think. Don’t worry about the future; or worry, but know that worrying is as effective as trying to make investments based on research reports that will, one day, be written by that same clueless idiot sitting next to you in the canteen right now. The real troubles in your life will never be solved by a presentation or spreadsheet, and will always involve other people. And people are unpredictable sons of bitches.

Spend a little time every day doing nothing.

Listen.

Don’t expect organizations to be as committed to you as you are to them. They don’t work that way. If you do find one that is as committed, never leave.

Jog. (Or walk briskly, or cycle, or do yoga.)

Don’t judge yourself by how much money you make. (And no good comes from knowing who this is.)

Record all the feedback you ever get in your career. Especially the inaccurate, pointless, biased and vague bits that drove you nuts. This will help you when you eventually give feedback to somebody yourself.

Keep a copy of all your old resumes. When you are struck by bouts of existential crisis, flip through them in chronological order. Do the same with resignation letters.

Shave.

Not a lot of people are “meant” to do something. They just say that to sell bad books. Salman Rushdie might make an excellent, and content, supply chain management consultant. Who knows? You will find various amounts of meaning and satisfaction in various things. Choose your compromises wisely.

You’ll like the job a little better if you like the dress code.

Take chances when you’re young, single and don’t have loans to repay. You’ll take larger chances. Large chances are more fun than small ones.

Be nice to people for the heck of it.

Maybe you’ll retire when you’re 45, maybe you won’t, maybe you’ll get an Awesome Alumnus Award, maybe you won’t, maybe you will marry your school sweetheart, maybe you won’t. Whatever happens, do not forget those probability lessons they taught you in school. Things tend to even out.

Dance. But keep it classy.

Avoid reading business books. However feel free to write them.

Travel light.

You will most certainly face difficult choices. In most cases it helps to think of what choice maximizes gain, instead of agonizing over what minimizes loss.

Invest in a good suit, pair of shoes and get a shave. Thanks to society’s shallowness, the returns will be considerable.

Calm down.

Let people give you advice. Develop the art of looking interested even if you are not. Pay attention to advice from people who have a stake in your happiness, and not a stake in your success.

Please stop listening to Pink Floyd.

But forget everything else. Quickly go buy that USB stick.

Best of luck."

RBI bites the bullet by increasing both repo and reverse repo by 25 BPS

Reserve Bank of India on Thursday in its Mid-quarter review increased the repo rate, the rate at which RBI lends to banks and reverse repo rate, the rate at which banks lend to (or rate at which banks keep excess amount with) RBI by 25 basis point (1 basis point is hundredth of 1 percentage) each.

Repo rate is increased from 6.5% to 6.75 and reverse repo rate is increased from 5.5% to 5.75% with immediate effect.

This move from RBI was expected due consistent high inflation was worrying the government and central banker. Even though high inflation was mainly due to higher price of basic food articles, some analysts believe that higher food price was spilling over to the other parts of the economy causing manufacturing and wage inflation.

But the move was not easy for the RBI as it is following worries...

1. In this financial year RBI has increased the rates 7 times before this

2. Consistent low IIP numbers in recent months

3. Middle east crisis causing oil spike leading to increase in commodity prices which intern may replicate downgrading of the earnings and ultimately slowing down the economy from recovery mode.

RBI has also mentioned the following points in its observation...

"Continuing uncertainty about energy and commodity prices may vitiate the investment climate, posing a threat to the current growth trajectory. In particular, the weak performance of capital goods in the IIP suggests that investment momentum may be slowing down"

"The March 2011 WPI inflation is now revised its estimation to around 8 per cent from earlier forecast of 7%"

"While the budgeted level of fiscal deficit for 2011-12 gives some comfort on the demand front, a potential increase in the subsidies on petroleum products and fertilizers as a result of high crude prices could put pressure on expenditure. It is critical, therefore, to focus on the quality of expenditure, keeping the aggregate under control without compromising on the delivery of services. Only by doing this can the fiscal situation contribute to demand-side inflation management."

"CAD (Current Account Deficit) for 2010-11 is now estimated to come lower than earlier expected, at around 2.5 per cent of GDP"

"The policy action in this Review is expected to:

• continue to rein in demand-side inflationary pressures while minimising risks to growth; and

• manage inflationary expectations and contain the spillover of food and commodity prices into more generalised inflation."

Working Committee of RBI wants Repo rate as policy rate

Report of the Working Group on Operating Procedure of Monetary Policy headed by Deepak Mohanty recommended the RBI following points...

The liquidity adjustment facility (LAF) with some modifications should be the key element in the operating framework of the Reserve Bank.

The modified LAF should operate in a deficit liquidity mode and the liquidity level should be contained around (+)/(-) one per cent of net demand and time liabilities (NDTL) of banks for optimal monetary transmission

The repo rate should be the single policy rate to unambiguously signal the stance of monetary policy to achieve macroeconomic objectives of growth with price stability. It will operate within a corridor set by the Bank Rate and the reverse repo rate. As the repo rate changes, the Bank Rate and the reverse repo rate should change automatically.

The Reserve Bank at its discretion could conduct simultaneous auctions for longer period if the liquidity situation so warrants. However, such actions should be at variable prices as they will be purely for liquidity management rather than for signalling the policy rate.

The Bank Rate should be reactivated as a discount rate as envisaged in the Reserve Bank of India Act, 1934. It will be the rate at which the Reserve Bank will provide liquidity under a new collateralised Exceptional Standing Facility (ESF) up to one per cent of NDTL of banks to be carved out of the required statutory liquidity ratio (SLR) portfolio. The Bank Rate will constitute the upper bound of the corridor.

The reverse repo rate will have a negative spread on the repo rate and it will be the rate at which the Reserve Bank will absorb liquidity under the LAF. The reverse repo rate will constitute the lower bound of the corridor.

The optimal width of the policy corridor should be fixed at 150 basis points and should not be changed in the normal circumstance. The corridor should be asymmetric with the spread between the policy repo rate and reverse repo rate be twice as much as the spread between the repo rate and the Bank Rate. With a corridor of 150 basis points, the Bank Rate should be fixed at repo rate plus 50 basis points and the reverse repo rate at repo rate minus 100 basis points.

The weighted average overnight call money rate should be the operating target of the Reserve Bank. The operating objective should be to contain this rate around the repo rate within the corridor.

The Reserve Bank should conduct second LAF (SLAF) on a regular basis.

Persistent liquidity in excess of (+) / (-) one per cent of the NDTL should be managed through other instruments.

Banks should be incentivised to progressively mark-to-market their SLR portfolio to improve the effectiveness of open market operations (OMO) as an instrument of liquidity management. The Working Group recognises that in due course, the accounting standard would get aligned with the international financial reporting standards (IFRS).

To improve liquidity management, a scheme of auctioning of government surplus cash balance at the discretion of the Reserve Bank be put in place in consultation with the Government.

Collateral pool for reverse repo operation under the LAF could be extended to include oil bonds.

The methodology for the Reserve Bank’s internal liquidity forecast should be strengthened. Information on government cash balances should be put in public domain with minimum time lag for better liquidity assessment by market participants.

The minimum level of reserves to be maintained on any day by banks with the Reserve Bank during a fortnight should be raised from the present level of 70 per cent to 80 per cent of the required cash reserve ratio (CRR).

The T+0 transactions for short-term money market segments (collateralised borrowing and lending obligations (CBLO) and market repo) should be extended up to the cut-off timing (i.e., 4.30 PM) for customers in real time gross settlement (RTGS) so that the banking system could square off their CRR position efficiently.

Bloodbath in Asian Markets due to fear of Japanese nuke leakage

Articles on Budget

I desperately wanted write on Budget but due to non-accessibility of internet (I went home for a week), I couldn't do that. And now its too late to write about that. After coming back, I read lot of articles in News papers, net and saw many discussions in TV. But I thought following two articles are best analysed the budget...

Article from Jehangir Aziz, JP Morgan Chase, click here to read full article.

Article from Surjit Bhalla, click here to read full article

Range-bound Nifty

As I mentioned in my February posts, Nifty has been trading in the range bound (5200-5600) after that correction from 5700/5800 levels to 5200. The same is shown in the below charts...

As we believe in Technical analysis all the news in the market will reflect in the price of the market, that means no need to look out for anything else like recent Libya crisis, Oil rally, Budget, Egyptian crisis, governance issues and etc.

Going by the above statement, that is Price reflecting everything, consider the moving averages of different time frames like 21, 50 and 200 day moving averages. 21 day SMA is at 5400 and is acting as immediate support to the market, and 50 day SMA and 200 day SMA are almost 5650 levels which will act as resistance as of now. And one more conclusion we can draw from the below chart 50 DMA (or SMA) goes on below 200 DMA then it will be considered as negative for the markets.

If you see the below chart, the trend lines attaching recent tops of the market has immediate supply zone/resistance at 5600 where it made double tops (marked in circles) and 5980 at resistance at higher levels.

And going by options data, 5400 Put option and 5700 call option have seen maximum change in the open interest according to NSE website, indicating possible ranges for the market for this series.