Market Update

•Nifty has broken down below the 5700-6200 range after testing 5700 a few times in the past. Also in doing so it has created a new lower bottom and thus has given a Sell signal as per Dow Theory.
•FIIs continue to sell.
•Irony is Western, European and Asian Indices all continue to be in uptrends so the global scenario is positive. Dow Jones has support at 11000, S&P at 1230, FTSE at 5800, Nasadaq at 2650, Dollar index in downtrend…resistance at 81.5 and 83.5
•We are near the 200 DMA which is a zone where there is massive fight between bulls and the bears to decide the next direction. So it is choppy and expected to be choppy for the next few weeks
•For long term investors it is best to be on the sidelines till we get some direction for the market.
•Bank Nifty is now clearly making lower tops and lower bottoms. Every rally is being sold into and is a great shorting opportunity for traders.
•IT Index continues to show the highest relative strength
•Realty continues to remain very bearish

Strong counters in the current market – HCl Tech, Sun Pharma, TCS, Hindalco

Nifty bullish

Nifty has been rangebound between 5950 and 6180 on the upside for the last few weeks. It has crossed 6180 (Nifty Futures) today intraday. This is bullish. Its a very high probability that we should see lifetime high soon. The street is waiting for the Fed announcement on QE2. Hopefully it should be positive and the bull run should continue. The Euphoria around Coal India, Diwali and also sustained FII buying are all positive and unless there is some adverse news from the Fed we should see Nifty at a lifetime high soon.

Nifty Futures - 5950 key support

5950-5970 is a very key support zone for Nifty Futures. Going below that would imply short term weakness for the market. It would set off a pattern of lower tops and lower bottoms for the short term. Keep a close watch on this zone.

Also yesterday FIIs sold approx 950cr in the cash market. Keep watching FII activity closely.

Market Update

The trend remains UP. There is a high probability that Nifty sees new highs once we break above 5550.

Auto, Banking, IT, Consumer Durables remain bullish
Telecom and Real Estate have just turned bullish
Metals has the potential of turning bullish in the near term.
ADAG continues to underperform.

Dow Theorist Richard Russell: Sell Everything, You Won't Recognize America By The End Of The Year

Richard Russell, the famous writer of the Dow Theory Letters, has a chilling line in today's note:

Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know -- who told him?" Tell them the stock market told him.

The entire story can be read here:

http://finance.yahoo.com/tech-ticker/dow-theorist-richard-russell-sell-everything-liquid-487564.html?tickers=dia,spy,xlf,%5Edji,%5Egspc,%5Eixic

S&P closes below 1040

The S&P500 closed below 1040 yesterday. So why is 1040 such an important number?

1040 has been tested four times since the rally which started in March 2009. A number which is so crucial a support once broken becomes a crucial resistance.

Also the charts of S&P500 are now forming a pattern of lower tops and lower bottoms which is bearish based on Classic Dow Theory.

If this 1040 level is not broken on the upside for the S&P, things could get further bearish for global indices in the coming weeks/months.

Soros: European recession next year "almost inevitable"

Europe faces almost inevitable recession next year and years of stagnation as policymakers' response to the euro zone crisis causes a downward spiral, according to billionaire investor George Soros.

Flaws built into the euro from the start had become acute, Soros told a seminar, warning that the euro crisis could have the potential to destroy the 27-nation European Union.

"The commercial paper market, for instance, in America is now refusing to lend to European banks so there is even a funding crisis and the ECB (European Central Bank) has to step in and the banks are unwilling to lend to each other," he said.

The entire post can be read here:


http://www.reuters.com/article/idUSTRE65E5K520100615?loomia_ow=t0:s0:a49:g43:r2:c0.108588:b34914706:z0

FELIX ZULAUF: THE MARCH 2009 LOW WON’T HOLD

Felix Zulauf is a respected market forecaster who has had a great last few years. Zulauf is terribly bearish and believes the debt deflation environment is far from running its course. He believes we are currently at a major turning point in the markets where investors are beginning to realize that government spending is not the solution to all our problems. He says the fiscal austerity measures will only increase deflationary pressures and that the pain is inevitable and unavoidable:

“The world is at a major crossroads. Some countries are at the end of a dead-end street. Greece has hit the wall. Spain and Hungary probably will be next. The Greek debt crisis was the beginning of markets refusing to finance irresponsible public-sector indebtedness. It will travel from the periphery to the center in coming years. The common denominator in the housing crisis, the euro crisis and the banking crisis is that industrialized economies carry too much debt. These crises show that we have to rewrite our system. We have been living a fiction for the past 20 years in order to enjoy a greater standard of living. Hard times are ahead, and the steps that Europe has announced to contain its crisis are only the beginning. Governments must cut spending and promises, such as entitlement programs, and raise taxes. At best this means stagnation for some years, but it could be much worse. Deflationary pressures will increase.”

The entire article can be read here:
http://pragcap.com/felix-zulauf-the-march-2009-low-wont-hold

Nifty breaks out of range

• We have come out of the range 4900-5200

• FIIs have been buyers for the past 7-10 days

• Nifty VIX has declined from 35 to 23…so there is less fear in the market


If traders are looking at playing the short term momentum the trend is clearly UP and they can look at going long with 5150 as SL

5398 which we reached on 7 April has to be taken out to confirm intermediate trend of higher tops and higher bottoms

5150-5200 which acted as a strong resistance should now act as a support

George Soros: Financial Crisis Entering Act Two

George Soros one of the most savvy bears around has predicted that we are entering Act II of the Bear Market.


What does Soros see that makes him so bearish? For one thing he believes that the financial crisis in Europe will worsen and attempts to cut budget deficits will push the global economy back into a recession.

According the Bank of America (BAC), Europe's debt ridden nations will need to raise 2 trillion euros within the next three years. Already the crisis has wiped out $4 trillion from global stock markets.



The entire post can be read here:

http://www.bloggingstocks.com/2010/06/11/george-soros-act-ii/

Google's Latest Launch: Its Own Trading Floor

While prop trading in wall street banks is looking at being banned other firms seem to be starting the same.

Google, it turns out, has launched a trading floor to manage its $26.5 billion in cash and short-term investments.

The entire story can be read here:
http://www.businessweek.com/magazine/content/10_23/b4181033582670.htm

Nifty Update

Volatility continues in the Nifty

We are still around the region of the 200 DMA. Its normal to be volatile around this region for a bit before the bears take charge. There is a huge fight between bulls and bears at this region. Ultimately which camp wins remains to be seen but the bias is downwards.

Globally there is a lot happening:
1. Euro continues to get hammered
2. China remains very bearish
3. Korea uncertainty
4. PIIGS joined by Hungary
5. US - The Dow has broken the psychological barrier of 10000

Market has been in this region of 4900 to 5150 and the next big explosive move is going to happen once we move out of this broad range. As mentioned earlier this morning on NDTV Profit, the bias is on the downside below 5200. Above 5200+ I would look at going long.

Housing risk in China greater than US, UK

An interview with the Financial Times by Li Daokui, who serves on the Chinese central bank’s monetary policy committee, included an uncharacteristically candid comments on the state of China’s housing market and by implication, the direction of Chinese interest rate movements. From the Financial Times:

“The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,” he said in an interview. “It is more than [just] a bubble problem.”…

The entire post can be read here:

http://www.nakedcapitalism.com/2010/06/chinese-monetary-official-housing-risk-greater-than-in-us-uk-pre-crisis.html

US subprime $2 trillion vs Europe $9 trillion debt

The European financial crisis is worse than the sub-prime crash of 2008 because the sums are so much bigger and it is governments that are in dire straits.

Mervyn King, the Bank of England Governor, summed it up best: "Dealing with a banking crisis was difficult enough," he said the other week, "but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there's no backstop."

The sub-prime property market in the US, together with its slightly less toxic relatives, represented a $2 trillion mound of debt. The combined public and private debt of the most troubled European countries – Greece, Portugal, Spain and so on – is closer to $9 trillion.

The entire story can be read here

http://www.telegraph.co.uk/finance/comment/edmundconway/7770265/Is-Europe-heading-for-a-meltdown.html

Nifty at its volatile best

We are seeing the Nifty at its volatile best. We are still around the region of the 200 DMA. Its normal to hover around this region for a bit before the bears take charge. Also these kind of spikes are very common for a bear market. The old saying goes “ bull markets roar, bear markets spike”. Tops are built on greed and greed takes a long time to let go. Bottoms are driven by fear and so they happen fast.

FIIs are still selling in a big way. Yesterday they sold 533 cr. To put things in perspective FIIs have sold 13000 cr till now in May. This is similar to the number they sold in Nov 2007 before the crash happened in Jan 2008.

We have seen a pattern of higher tops and higher bottoms from March 2009
To me 4667 which we hit on 8 February 2010 is a very crucial level to be broken on the downside to confirm we are actually having lower bottoms. On the upside if we break 5398 which is the recent high on 7 April 2010, this move is further confirmed as we will still be aiming higher tops.

Nifty Update

Let us take a step back and look at things from a longer timeframe based on Elliott wave analysis. The 1st wave lasted from 2003 to 2008 January which took the Nifty from 1000 to 6350. The 2nd corrective wave bottomed in October 2008 around 2250 levels. We are now part of a larger 3rd wave which should take the Nifty to 14000 in the next 4-5 years.

We have seen a pattern of higher tops and higher bottoms from March 2009
As long as we don’t break 4667 which we hit on 8 February 2010 this bull move is intact. On the upside when we break 5398 which is the recent high on 7 April 2010, this move is further confirmed and we will hit fresh highs

The 200 DMA is at 4987. If the Nifty closes below this level for 2-3 days in a row then it is a critical point as if this is broken lot of Long only players like pension funds and trusts etc will exit which could easily give a 300-400 point drop.

For the shorter timeframe, traders can go short with a Stop Loss of 5200

Europe Debt

The real scenario in Europe - mind boggling numbers!

Diagram Source - NYT

Nifty testing 200 DMA

Nifty is very close to its 200 Day Moving Average aqround 4964 levels. A close below the 200 DMA for 2 or more days is a bearish sign. Let us see how the scenario unfolds.

If the bear market unfolds in India, expect to see days like last week where Dow crashed 10% intraday and CAC closed 6.4% lower in a single day.

China, Greece and UK

We are now at a ery important juncture...China appears to be a bubble with so much of China growth dependant on housing and govt stimulus...China has corrected significantly in the last 6 months and like 2008 it might prove to be the predecessor of a crash in india

Greece has been bailed out..But the problem is if the govt cuts spending, its revenues are also going to be cut as there is lots of black money there...

If Greece defaults, most banks will be in a BIG problem and also neighbouring Euro countries...

UK is in high risk of a sovereign default....that will be BIG news..

Overall the trend is in favour of the bears now...Till we cross 5300+ on the nifty it is safe to exit longs and look at going short...

Nifty breaks down

Nifty has broken down below 5200 and 5162...this is bearish for the short term...time will tell how this move materialises...Traders can look at existing longs and remaining short as long as we are below 5300...globally things are looking weak...if this move materialises the next support is at 4850