Period of Uncertainty Persists: Will Markets Witness Deep Correction?

Indian markets have confounded most investors waiting for a deep correction to invest money for long term. The rally in Nifty that began on 06 Mar 2009 from a low of 2539 has been relentless in its intensity and reach. What initially seemed like a bear market rally has turned out to be a major Bull turnaround. Most retail investors have been left out of this stupendous rally and have been waiting ever since for a correction to invest for long term.

On 08 Nov 2009 when Nifty had closed in previous session at 4796, I had written a post titled Sensex And Nifty : Expected Movement Ahead. In that post I had mentioned that Nifty will reach the selling zone of 5320-5580 before a serious correction takes place, provided we receive positive Trans Atlantic Triggers (TAT). Having received positive TAT, on 15 Nov 2009 I again reiterated my point in a post titled Trans Atlantic Triggers - Did You Receive Those Signals? by concluding that "Nifty and Sensex should reach their respective selling zones before correcting" . At that point Nifty was trading at 4999 and from there marched on to reach a high of 5311 on 06 Jan 2010. After that Nifty corrected to a low of 4675 on 08 Feb 2010, a decent correction of 636 Nifty points.

The journey upwards from 4760 has now taken Nifty to a high of 5400 on 07 Apr 2010. Remember Nifty has again entered its selling zone of 5320-5580 and should witness correction any time within this selling zone. The headroom available from Nifty closing of 5362 on 09 Apr 2010 is only 200 odd Nifty points before any correction takes place.

Now the pertinent question that begs an answer is "How much will Nifty correct from its selling zone?". In other words, where will be the first support for any correction so that buying can be initiated? Well one can expect a support for Nifty in the region of 5050/5100. Hope you make the most out of trading with expected Nifty movement.

Global Equity Markets 2010 - Highly Volatile Mood

Global equity markets have behaved like a yo-yo for the past month. Markets from China to US have all displayed great volatility, which can only be construed as harbinger for future distribution. I say distribution, and not accumulation, because at market high that is what is most expected. This definitely is not good news for die-hard bulls, because such high volatility during distribution is only indicative of very strong down move. As for traders, the present high volatility can be best described as killing, since buying or selling at technical levels is proving counter-productive. Let me bring forth the plight of traders in this highly volatile regime.

A trader enters into a buy trade after confirming with the help of price action that an up-move is in place. A scrip qualifies for buy after it trades above a particular price, prompting the trader to initiate a buy trade. Then suddenly the market reverses gear owing to its volatile characteristics and buy trades turn into losses. Similarly a scrip is considered to have become very weak below a particular price, and so the trader initiates a sell trade. No sooner that is done, there is a strong bullish surge and the sell trades are virtually pulverized.

So what is the solution to the present condition. I am listing a few suggestions for the benefit of traders and investors alike :-

• Investment decisions should be deferred for the time being, specially long term investing. That is because equity markets have yet to touch their intermediate bottom. For Nifty, intermediate bottom could be as low as 4000 while in Dow Jones we can again witness 6400 level soon. If you are a long term investor then wait for levels just discussed above, before jumping into immediate investment.

• Traders should trade strictly along an established short term trend only. And then one should take small profits off the table.

• Wait patiently for correct buy and sell levels for initiating trade, and do not enter into trade in haste.

Year 2010 will be a challenging year for traders as well as investors. So become mentally tough to take the challenges in your stride. My good wishes to all !!

Last Trading Day of Decade : Yuletide Spirit Prevails

Investors can finally look back at 2009 with awe and admiration. From a situation of gloom and doom, indices world over were sitting pretty at 18/20 months' highs on the last day of the decade gone by. There is a sense of higher expectations and a bullish tenor prevailing in all markets. As we bid goodbye to 2009 and to the decade, we acknowledge navigating two major humbling hurricanes in the financial markets - dotcom bubble and housing market bubble. We have been bruised and scathed, but we still have our spirits intact which can be judged by universal display of cautious bullish sentiments even after all that investors had suffered and endured through year 2000 to 2009.

This force of bullish sentiments will propel the markets higher for some more time. In short we have entered 2010 with a positive bias as far as stock markets are concerned. Given below are some of the reasons for bullish sentiments continuing in global markets in 2010 :-

• Dollar index which has shown strength for better part of December 2009, is likely to cool down. Continued rise of Dollar index throughout last December had shackled the equity and commodity markets, including Gold, in the last month of the last decade.
• In December 2009 Dollar Index had risen from level of 74 to 78. Going forward you can expect the index to cool down to at least 76, which is a reasonable expectation of 50% correction. Around that level of 76 the index will also find support from 50 day simple moving average. Even RSI in Dollar Index chart is indicating a fall for the index. If that happens then the existing inverse correlation will propel equity and commodity markets to climb higher in the initial trading sessions of 2010. Across all markets expect to see higher levels from closing prices of last trading day of 2009 in the near term.
• Trading volumes are set to increase with greater daily participation from players of substance. The big bosses of Fund Houses will be back from their Christmas and New Year holidays. They are expected to start the process of investing with renewed vigour. In their absence their stop-gaps were holding the fort which is why there was such thin daily volumes of trade.
• Once the big fund houses exhibit bullish sentiments then the individual investors sitting on cash will join the bandwagon.
• And finally, as the scene unfolds in this fashion, the shorts in the system will be trapped. There will be a rush of short covering which will act as a booster engine for the rocketing markets.

The long and short of this denouement is that bulls can rejoice in the initial trading days of year 2010. Global markets will be in green for the near term in 2010. Indian markets will be no exception. In fact we may witness greater traction in Indian markets as it bounces to higher grounds in the beginning of 2010. This will have added propulsion from short covering. The situation of Bear Trap arising was earlier discussed in my post titled "Nifty - Crystal Gazing For Coming Week" dated 4th Oct 2009. Check the link here for quick reference http://archana-archdeb.blogspot.com/2009/10/nifty-crystal-gazing-for-coming-week.html

After having gone through this 4th October post, you would have realized that by reaching 10500 Dow Jones has behaved exactly as was predicted, but Nifty and Sensex have still some catching up to do. In that post I had indicated that with Dow reaching 10500, Nifty will reach 5500, as the supply zone of 5137 to 5300 will be used by bulls to trap the bears. Similar sentiments were echoed in my 08 Nov 2009 post titled "Sensex and Nifty - Expected Movement Ahead". Here's the link for your reading convenience http://archana-archdeb.blogspot.com/2009/11/sensex-and-nifty-expected-movement.html

Now the million dollar question is whether in the beginning of 2010 Indian markets will play out as per my calculations of Nifty and Sensex or not. Only time will tell! However in days ahead if things pan out in Indian markets as I had outlined in October 2009 post, do let me know through your comments which I shall truly value.

A very Happy New Year to all my readers and followers. God Bless and happy trading for all of you in this crucial year of 2010.

Asian Stock Market Blues - Frequently Looking to the West

This has become a routine for Asian Stock Markets - shake like an aspen leaf at every sneeze in the US. On 17th November almost all major Asian stock markets closed nearly in red, after trading the entire day in red. This was after US markets in last trading session had made a spectacular up-move, closing at a new high of 2009. So the least one expected was a slightly positive mood in Asian markets. But that was not to be! I am told that Asian markets wore such a sullen look on 17th November because Ben Bernanke made some not very rosy comment on US economic recovery. But tell me frankly, don't we already know all that.

Not withstanding the above ramblings, the reasons why markets across the globe are exhibiting high volatility are listed below :-

• Stock markets moved up from March 2009 lows primarily driven by huge liquidity, which in turn came into existence owing to generous stimulus packages from respective nations. Now there is apprehension that since the recovery in stock markets has been spectacular, there might be a case for withdrawal of stimulus packages by most nations. But the fact is that leaders of G-20 nations have promised to keep the stimulus packages in place for some more time. Premature withdrawal of stimulus can result in a prolonged depression as was witnessed during the Great Depression of 1929.
• Weakness in Dollar is pushing the commodity prices, oil prices, gold prices and also the stock prices higher. But any short term technical strengthening of dollar from here can send the other asset prices spiraling downwards. The moot question is when and that is creating nervousness in global markets. Lets see who blinks first!

It is certain that there is correction lurking in the dark, and suddenly it will spring a surprise on all of us. I have to admit that this forthcoming correction will be quite serious. In absolute terms I will venture to say that the corrective wave will wipe off about 1500 points from Nifty. If Nifty can climb to about 5500 in the current run up as predicted in my 8th November post (http://archana-archdeb.blogspot.com/2009/11/sensex-and-nifty-expected-movement.html), then the correction can make Nifty trade at 4000 level. That is how serious the anticipated correction can be!! No wonder the market participants are getting so easily spooked by every shred of negative news.

Coming down to brass tacks, we need to apply caution after Dow reaches 10500. Similarly in Indian markets we have to watch out for the selling zone between 5320 and 5580 in Nifty, after Nifty crosses 5182.

Trans Atlantic Triggers - Did You Receive Those Signals?

Did you receive those wealth creating signals we discussed in the blog post on 08 Nov 2009. For your quick reference here's the link - http://archana-archdeb.blogspot.com/2009/11/sensex-and-nifty-expected-movement.html. In that post we had understood that Nifty and Sensex will get a boost to scale higher heights only if there were positive signals from US markets. In that scenario Dow would close above 10160. We named those signals as Trans-Atlantic Triggers or TAT in short.

On 06 Nov 2009 Nifty closed at 4796 and Sensex closed at 16164 before the weekend. After markets opened from weekend break, Dow roared across 10160 and closed at 10227. Benign signals from US markets or positive TATs have helped Sensex touch 16914. Similarly Nifty could manage to touch high of 5018. If you were able to discern those positive TATs then you would surely have made some neat profit in trade.

Now is the time which is baffling and puzzling. As discussed in the last post (http://archana-archdeb.blogspot.com/2009/11/is-dow-jones-following-rule-book.html) Dow Jones has reached its target of 10360, which means that there will be serious correction in US markets from here on. However Nifty and Sensex have yet to reach their short term targets before tipping over. Nifty should find rigorous selling pressure in the selling zone of 5320 and 5580. Sensex on other hand should experience serious selling bouts in selling zone of 18000 and 18880. All these selling zones have already been discussed in my 8th November post which can be accessed from the first link on this post. But the dilemma is that since Dow has achieved its target, will Nifty and Sensex now achieve their targets as outlined above?

Lets see what the future holds for Indian markets from here on. Nifty and Sensex should reach their respective selling zones before correcting. Whatever be the case, its time to observe some caution on the long side since Dow has reached its short term top.

Sensex And Nifty - Expected Movement Ahead

The correction in Indian markets has been swift and surgical. Now the pullback to the correction is in place. This throws up the most important question - how far will this pullback reach in Indian markets? That's a million dollar question! To find answer to this baffling question, we will resort to some calculations and some crystal ball gazing. Let us embark on this interesting voyage.

First of all we need to realize that from here on Sensex and Nifty will move in any direction as per signals received from across the Atlantic. Let us call these signals as Trans-Atlantic Triggers or TAT, which basically are triggers from US markets. In case there is absence of TAT then Indian markets will just drift sideways. This situation is of low probability. To make comprehension easier we shall deal with each situation separately as outlined below:-

• Absence of triggers from US markets will result in sideways movement in Indian markets. In such a situation you will find Dow Jones oscillating between 10150 and 9650. Likewise Sensex then could be lolling between 15000 and 16000, and Nifty could be lazying between 4700 and 5000. But if you ask my frank opinion, I will promptly label this situation as least probable.
• If there is positive TAT, then you will find Dow Jones closing above 10160 and racing towards 10360/10500 in subsequent sessions. In that situation you can expect Sensex to reach its tipping point between 18000 and 18800, and Nifty could be seen at level between 5320 and 5580.
• In case there is negative TAT, then Dow Jones will be closing below 9645 and tumbling towards 9100/9000 in subsequent sessions. In such a case Sensex could be seen trading between 14800 and 14200. Similarly Nifty could drop down between 4400 and 4200.

Whatever be the scenario, there seems to be one certainty. In next couple of sessions, Sensex will move to the zone between 16410 and 16660 and you will find Nifty trading in the zone between 4860 and 4930. After that, the story will unfold as per TAT received. Keep your antennae operational at peak performance!

Nifty - Crystal Gazing for Coming Week

Nifty still looks good for some more upside. That's little odd to say at this juncture what with Dow closing in the red for last four trading sessions. The fall in Dow has been against the back- drop of some bad data released last week. How can you expect consumption in US to rise when the unemployment rate hit 26 year high in September 2009? With confidence ebbing down, liquidity is sure to dry up. So my assessment that Nifty still has some headroom will seem a little out of place. But there are reasons for my foretelling so. Lets take a look of some of the reasons which prompts me to suggest that odds are in favour of bulls for some more time :-

• Though Dow has been falling of late, but it is likely to take support from its trend-line and expected to move up to 10500 level as discussed in my last post.
• Nifty has resistance at 5300 which it should now test.
• Nifty is presently sailing near its supply zone of 5137-5300 which could be used as a Bear-Trap by bulls.
• Such a strong move up has to culminate in a strong sell signal in majority of indicators and patterns which should also include candlestick pattern and maybe an exhaustion gap. We have yet to witness any of that in Nifty's graph.

The correction will take place but it will take place when you least expect it. If Dow despite last week's bad economic data surges towards 10500, then it will be very difficult to stop Nifty from touching 5500.

OPPORTUNITY ROUND THE CORNER - INDIAN STOCK MARKETS

Found a quote on investor psychology in a blog "Just Nifty" by Illango which to me seems so very apt for common investors. Take a moment to mull over it.

"The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes it time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight." Quote by Jesse Livermore.

Now the time is round the corner for all those who have been sitting tight after having emptied their portfolio at Nifty level of 4600. Before we move any further I guess I have some explaining to do with the help of Dow Theory. For the benefit of uninitiated to this particular school of thought, I shall be somewhat explicit in my explanation. But I would also beg some patience from those who are already familiar to the theory.

Markets, like everything else in life, goes around in cycles. There can never be eternal ups and by the same count there cannot also be eternal downs. It means that after a Bull run there will be Bear market and vice-versa. But the most important thing for long term survival is to be able to spot a long term opportunity when it presents itself. The idea is to make an informed decision , weighing various pros and cons, and spot the opportunity as it presents itself.

Dow Theory, which has stood the test of time for over 100 years, suggests that the primary trend has three phases. Bull run begins with Phase 1 where there is Revival of Confidence, then after some correction there is Phase 2 where in there is Improvement in Corporate Earnings, then some more correction, and finally there is Phase 3 or the Euphoric Phase. Euphoric Phase has maximum speculation and inflation of prices. At the culmination of Bull run there will be Bear market with three phases. The 3rd and final phase of Bear run will be characterised by panic selling. As Bear market draws the last blood on the street and completes its cycle, the 1st phase of Bull run starts. And market limps back to life, licking its wounds.

We have just witnessed Revival of Confidence since March 2009. If we consider that as 1st phase of Bull run, we may now expect some decent correction before the 2nd phase of Bull run takes over. For any investor, 2nd phase of Bull run is always the most rewarding phase because it generally is the largest phase in terms of duration and rise in prices. It is always advisable to enter market in the 2nd phase of Bull run since by then there is enough confirmation of intent of the market and correct identification of the Bull run. In contrast the 1st phase of Bull run is always difficult to identify since it could as well be a pullback rally in existing Bear market wherein one can so easily get trapped. Remember that Bull run starts just as the Bear run finishes without any formal and elaborate announcements. You can only identify the first phase of Bull run in retrospect.

Finally the question that begs an answer is this - "what would be a decent correction in Indian markets so that an investor can correctly join the bandwagon for riding the 2nd phase of the current Bull run". Here one can take the help of Fibonacci retracement levels of 38.2% or 61.8% or simply go by 50% correction. Take your pick and invest with gay abandon because 2nd phase of Bull run is round the corner. If you ask me I would suggest that 3500 in Nifty is a safe point to go long. Happy Investing!

Dow Jones - Expected Movement Mar 2009

Dow Jones is witnessing a very interesting period for traders. It had achieved its bottom target of 6460 in the first week of Mar 2009 and had to move up minimum by 38.2%. That meant a gain of 780 points from the low of 6460. In other words it should have reached minimum up to 7240, which it did. In fact on 18 Mar 2009 it touched the level of 7550. In short Dow has achieved its target and qualifies for a fall. The fall should take Dow back to its lower level of 6460 or thereabouts in a fortnight. However, if the fall is very sharp then downward slide may take Dow to the band between 5950 - 5780.

Expected Nifty Movement

Since other world markets including the Indian markets rose piggy back on American markets, the down hill journey is expected to be no different. Nifty will also witness its share of selling in coming days and will be eager to tumble down to at least 2550 level. The only saving grace will be if it takes some support at 2700 and bounces back again to 2850. But in the short term Nifty is bound to be back trading at 2550 level. Traders can make merry with this kind of situation. But a word of caution for traders : just see to it that Nifty doesn't breach 2500 on a closing basis. If that happens then be prepared for a blood bath!

STOCK MARKET BOTTOM - REVELATIONS

A new breed of hunters has arrived on the scene. The bottom hunters of 21st Century! Across the globe this breed is burning the proverbial midnight oil to fervently hunt for bottom in all markets. Here is a spot of good news for this beleaguered lot. The Bottom Has Been Found. Feast your eyes below!

Dow Jones Industrial Average
For bottom hunters of American market, the most wonderful news is that the bottom has already been reached. Dow Jones Industrial Average(DJIA) had reached the bottom at the level of 7400. Without violating this level, from here on the assured upswing will take DJIA to 9600 level. This means that short term investors can pump in money at 8000 level to reap benefits till DJIA reaches 9600. At this level it will be prudent to book profits for all shades of investors. The percentages of profit to be booked will be the differentiators between short, medium and long term investors. Short term investors should book 100% profit at 9600 level, whereas medium term investors should book 50% profit. Investors with a long term view should book at least 30% profit, if not more. But in all fairness DJIA has the potential to reach 10300. So after booking profits at 9600 one should be on the look out for clear buying signals around 8800.

The pertinent question that arises is - how have I arrived at this conclusion of the bottom? Well in DJIA charts, if we take the wave top around mid May 2008 the value is 13100 and the bottom is at 10800 around mid July 2008. That's the first leg of the wave. By that count if we apply Elliot Wave Theory, the pullback should have taken it to the level of 11700. However in actuality DJIA pulled back to 11800 in the beginning of Aug 2008. For the second leg of the wave, downturn from 11800 should have taken DJIA to level of 8100 as per calculations. In reality DJIA reached 8150 in the last week of Oct 2008. The pullback from here should have reached 9550 but on ground DJIA reached 9700 at the start of Nov 2008. As per Elliot Wave Theory the third and final leg of this wave should have culminated at 7450 , and so it did in the last week of Nov 2008. Completion of the wave starting at level of 13100 and terminating at 7450 signifies that a minimum upswing of 38.2% is guaranteed from the bottom of 7450. And that upswing should safely take DJIA to 9600.

NIFTY
Shifting focus to Indian market, one has to announce with a heavy heart that the bottom has still not been reached. The bottom will be reached around 1750 as per Elliot Wave calculations, and that is the most terrifying thought. Downhill journey of Nifty that began from the top of 6357, reached on 08 Jan 2008, has yet to see its logical bottom. If Nifty fails to conquer 3150 in the near term , then we shall see Nifty touch 1750 first. But in case Nifty manages to pullback above 3150 then it will go up to 3450. In such an eventuality the Nifty bottom will be formed at 1970. On a more simplistic note, Nifty bottom is expected to be formed in the range of 1750- 1970. The trouble is that this bottom is also not a long term bottom, but in a bear market it will be substantial enough for the Bulls to rejoice. The reason is simple. The assured pullback from such a bottom is 1400 Nifty points. This pullback has even the potential to notch up 1800 Nifty points. Reason enough for the bulls to say CHEERS!

Let me be honest with you. I have not given detailed explanations for the points in preceding paragraphs. I believe that detailed calculations on the above predictions may confuse some of my readers. However if anyone desires to seek detailed calculations on the expected movement of indices discussed, I shall only be glad to oblige. Do feel free to seek clarifications on the denouement . I shall also be unfolding the suspense on specific sectors and stocks in these pages, so do keep a look-out for the same.