Saturday, July 25, 2009

Weekly Technical View by Tanmay G Purohit:
Nifty (4568) rose 194 points or 4.43% this week on the back of recovery in Monsoon and strong corporate performance from companies like MARUTI, DR REDDY, UNIPHOS, ACC, ULTRATECH. Nifty trades close to 2009-high level of 4693 but has closed above 4500 this week which has negated the bearish H&S formation. Now it is well-placed inside an up-channel and going past 4693 next technical target at 4790 is possible; which is also a 61.8% retracement of fall from 6357 to 2252. Next week will have RBI Policy Meeting on Tuesday, F&O Expiry on Thursday and the results season will be almost over until weekend to get a clearer picture of corporate scorecard for Apr-June quarter. Markets normally turn volatile near important tops and as we trade close to 2009-high levels with important events next week, traders may experience a lot of volatility. Nifty moving below 4490 will break the rhythm of up channel and below 4380 panic selling is not ruled out. Still caution is advised and investors are advised to remain light for time being. Stocks looking positive - SINTEX, MCDOWELL, UNIPHOS

Support 4480/4420/4375
Resistance 4635/4700/4790

Last Week Recap Of Technical View:
Nifty (4375) rose for 4 days on trot after Monday to close up by 9.27% this week and recouped almost all of the previous week losses. 3900-3930 was minimum target for downmove and Nifty took U-turn from that place. Sustained move past 4500 will negate the bearish H&S formation and we will have to assume that the trend is still up, but for now it is trading in a broadening triangle which indicates large swings on both sides. Nifty breaking 4200 this week will be negative and caution is advised if 4100 is taken out. Because I had a cautious view, we could not catch the 400+ point move on Nifty this week but market is always supreme and we have to obey its orders as no one can dictate terms here. Many ask when Nifty will correct to 3600 so that we can buy - the point is one should not worry much about index movement. When there are opportunities, we should buy. Buying value gives us margin of safety and caution is being advised because a bit of risk management will only improve the total returns of the portfolio.

Contrarian View:-
Nifty has formed an inverse head & shoulders formation in Weekly graph which suggests if Nifty breaks out above 4700, the next target will be in the region of 6500-6600 which will be new AllTimeHigh for the index. A chart is attached here for a better view. But taking into consideration various other factors, I still feel some caution is needed as the risk-reward ratio doesn't favour the buyer in a great way. We have capitalized on a large swing of nearly 2500 Nifty to current levels of 4500 because at that time the risk was minimal and rewards were optimal, current circumstances and valuations don't have such an attractive payout at this juncture. For long term investors, Sensex target of 20000 is maintained by Dec 2011 and 35000 by 2016.

Positives for long-term growth:-

  • India remains in quite safe positions as far as global recession is concerned, we have had only a slowdown effect and India GDP grew 6.7% in 2008-09 which was the most severe year in recent times for global economy.
  • Young population: India has one of the lowest Median-age of population, living a big working class which doesn’t have to serve a lot of ageing population. Many other country nationals will be getting older as Indian youth will blossom in the boom once the recession recedes. Major benefit is that many can speak English easily. English is a world language and China still hasn’t developed well in this aspect but they are coping with it.
  • Global Auto companies have faced a lot of brunt of recession and some have even faced bankruptcy. But Indian Auto sector continues to grow and in future India is likely to be a global auto hub.
  • Indian economy is sustained by one of the highest remittances from Indians living abroad, improving outsourcing and talent-led export growth can make the economy recover quickly
  • Stable government at the center confides about stress on growth and continuation of reforms.
  • Reliance's KG-D6 gas and other capacities from CAIRN, ONGC coming on stream can save India around $19bn through savings in imports and savings for Indian consumers through the approved price. Subsidy burden from fertilizer companies is expected to reduce as import costs will go down.

Negative Factors:-

  • High Fiscal Deficit widened to 6.8% in recent Union Budget, any rise in this deficit can degrade India ratings.
  • High government borrowing can impact interest rates and rising interest rates may disturb the consumption-led growth.
  • Tax collection took a hit last year on the back of stimulus packages and any roll-back in terms of rise in excise duty and other tax rates will contain the fiscal deficit but can hamper demand for the related products as prices will rise after rise in taxes.
  • Failure of Monsoon is still a worry and already food prices are shooting up in the sky. Inflation can be a factor to watch out if food prices sustain their rising trend.

Clustering of important events:-

  • Nifty trades above 20 P/E which makes many positive factors built into the prices.
  • Sensex/Nifty have completed 89 days of rally on Tuesday, 21Jul2009, 21 weeks of up trend will be complete this week - Both are important fibonacci numbers in technical parlance. 
  • Sensex has created 8 up gaps during its journey in the last 5 months of rally, also on weekly graph we are having 3 up gaps open. It is not necessary that we close these gaps always, but closing these gaps can give us a comfortable entry point which is needed for future safety of returns. If Sensex tries to feel even 2 gaps from the 9 open, we may see 13460 levels. If 2 of the 3 weekly gaps are to be closed, we may see even 12250.
  • 61.8% retracement of Sensex fall from 21206 to 7697 will complete at 16045 which can be a place where good supply can be seen.

1 comment:

zain khan said...

u described the week in detail. i thak for posting technicals of the week.