Shaila
This is one of the finest write ups I read in recent times
Thanks
SModerator
--- In sharetrading@
>
> *MARKET OUTLOOK*
>
> * *
>
> *Dear Investor**,*
>
>
>
> *Perception is Everything
>
> *
> "When the fist of fundamentals meets the face of technicals, the patient
> usually falls down," I announced in my typically hyperbolic fashion as were
> trading live in our chat room on Friday. The IIP, growth rate numbers had
> printed much hotter than individual company industry news and the market
> moved sharply higher taking Sensex from near 16,000 to 17,000 levels in 3
> trading sessions. The key question facing the investors in the last one
> month was - trade it or fade it? as the markets were range bound between
> 15,000 – 17,000 for the last 7 months. Markets started taking cues from
> global markets in its movement on daily basis, which started experiencing
> bad news after 11-month rally. Also supported by the history of Sensex, markets
> always experienced pre-budget rallies and went down post-budget. Though
> technically, charts shows a clear bounce in the immediate term, but decision
> to go ahead was sting by analysts short-term bearish call on the media. Some
> analysts stated that price had hit technical resistance and was unlikely to
> go much higher. I had already taken out a quick 10 stocks out to trade. In
> the first few minutes of budgetary session, there started some action in all
> of stocks, and many started to take fresh positions on my picks. I took the
> opposite point of view believing that Sensex could rally more as d-day came
> nearer. In the end I turned out to be right as markets rallied for 1000
> points in 3-sessions and ironically enough retracing almost all fall in the
> last one month. I share this little vignette not to gloat about my
> forecasting skills, but rather to point out a trading truth I've learned the
> hard way - price is not everything. In a world of charts and indicators and
> support and resistance levels we tend to venerate price activity above all
> else. But price is often not the master, but rather the slave to news.
> Technicians love to point out the multitude of times when news fails to move
> the price in the expected direction. Certainly news well anticipated will
> have minimal impact on price, as market will often adjust ahead of time to
> the data. However, when the news is unexpected it tends to have a
> meaningful impact on price action that does not get captured in the first
> five minutes of trade.
>
> Financial markets are vast and it takes some time to change people's
> attitudes. As traders that's all we do - we trade perception. Ironically
> enough there are plenty of intelligent, well reasoned voices that argue that
> budgetary outcome were suspect. And they may ultimately they may be proven
> correct. In stock markets we trade perception and perception is driven by
> newflows and priceflow. That's why as traders we try to be complete
> mercenaries, holding allegiance to neither technicals nor fundamentals and
> only act when we see an alignment in both.
>
> * * *
>
> * *
>
> *In my last outlook, "Technically, markets went into oversold position and
> should retrace to atleast 5000 levels on Nifty…Though the rally in IT & Auto
> sector that started in early March'09 has ended, there are rallies in other
> sector like CD, Banks, Power, which can put the index in range bound or even
> above 5000 for sometime to come."*
>
> * *
>
> Just as expected markets bounced back after touching low at 15650. Since
> then markets moved between a narrow range of 15800-16300 for 4 weeks, but
> later pushed to above 17000 levels on positive budget.
>
>
>
> Though markets entered * into overbought position with this week's rally,
> its unconfirmed to call peak of the rally. *
>
> * *
>
> *Technically, there exists a divergence between a/d ratio and market
> movement, which only indicates that market cannot sustain at these levels.
> Markets could be range bound for some more time atmost till the first week
> of next month, and should experience the much awaited correction. *
>
> * *
>
> *Alternatively, Sensex might rally further in line with foreign
> markets(explained below) for some more time and form a new high since 2008
> crash.*
>
> * *
>
> Either of the alternatives, sensex is in the last stages of extended
> pullback rally or end of the rally that started at 8000 levels. We recommend
> investors to maintain caution and trade stock specific.
>
>
>
> *In my last outlook, we recommended, "*Short term investors can buy in
> defensive sectors like Pharma & FMCG. Buy Index stocks for short term
> profits during pullback rallies." The strategy has paid off with a return
> of 5-15% in Pharma & Index stocks.
>
>
>
>
>
>
>
> Markets started its rally from 8047 levels on March 6th, and made the peak at
> 17790 level i.e., a rise of 9743 points or 121.08% rise. *The target levels
> for correction is placed between 12000-13000 levels and would take few
> months to bottom out. *
>
> * *
>
> Investors should take the opportunity to build up positions for the
> longterm. The rally that follows the correction will be intense and large,
> which would recover the most losses that incurred in 2008. Till then retail
> investors and longterm investors are advised to wait on the sidelines.
>
>
>
> Let us take a look at some of the key issues.
>
> * *
>
> * *
>
> *CURRENCY- Rupee/Dollar*
>
> In my last outlook, "*The rupee is expected to weaken further."*
>
> * *
>
> Rupee made its top at 45.20(intraday) in January'10 and rallied in the next
> four weeks to 46.8, which is the beginning of the longtterm rally(rupee
> weakness/depreciati
>
>
>
> Though rupee has moved back to 45.45, it is only a short term correction,
> before a major upside swing.
>
>
>
> We assume that the correction in dollar has ended and started its rally
> against the global currencies. As shown in my previous outlooks, we assume
> that the multi-year rally towards Rs. 60/dollar has just begun.
>
> * *
>
> *Bottomline: The rupee is expected to weaken further. *
>
> * *
>
> * *
>
> *GOLD *
>
>
>
> Bottomline: *Our downside target towards $680 remains intact. *
>
> * *
>
> *Gold *started its downtrend on 3rd Dec'09, when prices turned down after
> pushing to $1227.20. It made its first leg of interim low at $1043.8/ounce
> on 5th Feb'10. As in last few outlooks, we have been saying that, *Gold
> continues to be inversely correlated with Dollar. Gold bounced back to
> $1145.25 on 3rd March, *it is when Dollar moved sideways.
>
>
>
> If our assessment is correct, markets are experiencing "All-the-Same market
> scenario" (this type of scenario prevailed between Oct, 2008 – Mar,2009),
> suggests that all markets are on the verge of another phase of decline,
> including gold and silver. Most markets should start accelerating lower
> after few trading sessions.
>
>
>
> A break of 5th February's $1043.80 low basis spot will indicate that the
> next phase lower is underway in gold too, with the $950-$970 as next short
> term support levels, or a close beneath $1080 confirms that the Gold trend
> to a new low is already underway.
>
>
>
> Bottomline: *Our downside target towards $680 remains intact. *
>
> * *
>
> * *
>
> * *
>
> * *
>
> * *
> USA MARKETS
>
>
>
> In my last outlook, "If a bounce develops in 2-3 days it should be good
> opportunity to get out ahead of larger decline.*.*"
>
>
>
> Dow took support at 8877.9 levels moved to 9544 levels which met our minimum
> target levels from March lows. Dow continued its pullback rally and made its
> top at 10729.9 on 19th Jan'10 and pulled down thereafter erasing the some
> of the gains.
>
>
>
> In Dec,2008 outlook, *"**On the crisis front, months ahead from now, we
> would witness few hundreds of banks falling into clutches of
> bankruptcy"*
> th March'10, 185 banks in US have recorded bankruptcy.* We firmly believe
> few more hundreds will follow the suit.
>
> Dow made is double top formation in its previous bear market rallies
> Jan-Mar'2000 & July-Oct'2007, with NASDAQ outperforming Dow and S&P 500. The
> previous double tops led to declines of 51% & 58% respectively. We think
> this current decline will be even bigger.
>
>
>
> If the market continues to rise, the upper target lies at 11600-11700
> levels. Though the upper target is another 900 points from the current
> level, anyone going long on the market should be ahead of the time and place
> strict stop-loss and the such level if achieved should be used to place
> short positions.
>
>
>
> *I think our strategy- buying or selling at perceived extremes – is the best
> approach.*
>
>
>
> *Investors holding positions should exit all long positions and enter into
> short positions on every rise. The safest of all would be going short on
> markets or buy Inverse Index Funds.*
>
> * *
>
> *Bottomline: "Though there might be some more upside from the current
> levels, we recommend traders to play cautiously and investors to exit on
> every rise"*
>
> * *
>
> *INDIAN MARKETS*
>
> However, given that markets tend to experience fall for few more weeks &
> months to come, it should be used as an opportunity to build longterm
> positions in sectors like Infrastructure, Banking, Automobile & Pharma.
>
>
> Since the markets entered into correction phase ending the 12-month rally
> that started on 6th March, its highly recommended investors to move out of
> aggressive stocks and readjust the portfolio in defensive *like Pharma,
> FMCG, Agri-based & consumer durables. Fresh investors should desist from
> entering the markets at current levels. *
>
> * *
>
> *Inflation moved to 10%+ levels, which might push RBI to hike interest
> rates. Any such move would only impact bond yields. If the yields rise,
> return falls in GILT/ Income Funds. Hence we recommend investors to avoid
> investments in Long term Debt funds for the timebeing. *
>
> * *
>
> *OUTLOOK*
>
> *The market's current rally looks shaky and might take trigger from global
> markets for correction. Try to exit long positions by 20% of portfolio on
> every rise of 100 points on Nifty or 300 points on Sensex. *
>
> * *
> STRATEGY
>
> * *
>
> Longterm investors are recommended not build fresh positions until the
> markets go below 13000 level. Short term investors can buy in defensive
> sectors like Pharma & FMCG.
>
>
>
> *The ideal portfolio would be 90% in short term Debt funds & 10% in
> Equity(30%- Largecap, 30%- Banking & Pharma, 40% -Mid& Small cap stocks).*
>
> * *
> *Disclaimer: The above said comments & recommendations are of my personal
> opinion and *
>
Happy Trading,
United we grow!!!
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