Focus shifting from US; use rallies to exit for a while

Post sub-prime, US equities did well until now. Along with Dow Jones’ common stocks, US Information Technology shares also remained top performers.  Along with US, Europe, Australia and many Asian Equities outperformed other asset class. But, recently, a resistance is observed in the DJIA stocks. The Index has been resisting to cross 16600 mark.  It is true that the Index has been showing recovery after 2 weeks’ fall. The points here to look upon are i) the Volatility is higher and ii) the larger degree resistances are unbreached.

DJIA weekly chart

 

So far so, on the larger degree, the higher top –higher bottom structure is intact, but we should keep in mind that a correction of 61% of the previous rally was seen within 3 weeks, which is really sharp. It is UK’s continuation of Asset Purchase Programme which re-affirmed the Developed Nations’ affirmation towards keeping their economies doing well. UK’s announcement of continuation of Asset Purchase uplifted the global sentiment last week. More than 2% upside of British Pound, helped Euro to close at 1.36 and above. It is because of this stable Euro that the US Dollar Index remained negative for second week. But, it should not be forgotten that Dollar Index has registered a sharp reversal in the month of October 2013. That reversal is very strong in formation and it would require some more efforts before it is actually breached.

$ Index Weekly chart

The last week’s trend also indicate the global investors’ focus is shifting from US. Last week, the staller performance has come from Australian stock market. When we study the ASX Weekly chart, we can observe that the volatility is difinately high. With the strong upside, the closing was seen near the larger degree supply-line of 5350. The last week's closing indicates continuation of buying even for one more week and we could see 5 years' new high once again.

S&P ASX 200 weekly

Now, we can conclude that the equities remained positive with higher volatility but without crossing the major resistances in global markets. Hence, the current rally can be used either to book profit or exit long and short can be created if the beginning of March 2014 if higher volatility continues in equities.

After a long-time we see a precise rally in the precious metals. Last week Silver outperformed Gold. Gold closed with an upside of more than 4 percent but silver closed with more than 7% upside. Gold could cross the psychological resistance of $1300 this week and closed at 1318.48. Silver with close of 21.474 , seems to remain positive for one more week. Though, the trend in Gold is positive now, Silver seems to outperform the yellow metal for one more week. Gold can test $1346 during the week where as Silver may touch 22.7. Both these metals have exited their falling channel, at least for now and managed to close above their 21 weeks' exponential moving average. Considering the other technical parameters, we can conclude that both these metals may test their 50 weeks' exponential averages this week.

Outlook for the month closing

Nifty:

Despite lower closing on Friday, the Index managed to keep its head above water.

As we see on the above weekly chart of Nifty, the index is still in positive territory. Stockhastic and UO are definately on weaker side, but, MACD and Negative Volume Indicator are still in positive zone.

The Cup and Handle pattern on the Weekly chart is intact and still the weekly closing break-out of 6350 and above is on cards. Until, the Index breaches major averages, which as of now are placed at 6115 on weekly closing bases, the trend is considered to be positive.


For Momentum trading:

As we see on the 1 hr chart, the support can be seen at 6242 which is the lower end of Ichimoku cloud. On upside, crossing 6300 may bring fresh move.


Banknifty:
On weekly basis, 10800 is very important support. Until Banknifty spot breaches this level, the uptrend is assumed to be in continuation. On the upside, 11100 is a hurdle. The weekly charts of ICICI Bank, HDFC Bank and Axis Bank suggest the element of surprise in Banknifty.

ICICI Bank which closed at 1058, has a strong support at 1028. Axis Bank has a strong support at 1141 and HDFC Bank is having support at 666. Out of these three private Banks, ICICI remains the top bet for the FIIs. But, trading purpose HDFC Bank is the best bet.

Markets reacting Political news:
Banking, Telecom, Oil and Gas, Finance, Fertilizer - except IT and Pharma all sector are affected by Political changes. If a Telecom company applies for a 3G circle, the stock is hit badly. If a mining company has started doing better, the Government demands dividend or start selling the stake. For NBFCs, the RBI suddenly comes with guidelines about Debt-recharging. But, overall, such moves are better for long-run.

Many of the liquid stocks which were people's favorite during last bull-run are at 3 year, 5 year and in many cases at 8 years' low and the Index is at the life-time high. The stocks which are doing well are most competitive companies. Companies which continued their advances and growth during higher inflation period. HDFC, HDFC Bank, Cipla, Colpal, HCL Tech, TCS are a few such companies.


Equity business : overall
"On the top of the bull market, the business expands and on the bottom of bear market, scam surfaces."
That's the principle of mas-psychology. We had an NSEL scam and Nifty tested 5100. (On the bottom of bear market scam surfaced). The next question is "Is brokerage business expanding?"

Trend during the week

When I mentioned the "Cup and Handle" formation on the Nifty monthly chart, it is true that the larger degree trend is still positive.

But, it is also a fact that until 16th January, the trend is not so promising.

8 Hr Chart of Nifty spot

The selling pressure seen on 9th December has gained momentum nearly after a month.

The sudden reversal seen on 2nd December on foot steps of a reversal in US Dollar Index had propelled selling.

It is not only Indian market, but market across the world are facing the pressure.

US $ Index Daily

Considering the current US Bond yield, many experts were expecting a rise in US $ Index.

This move may bring the US $ Index to 81.5 or so which as on date is placed at 80.68.

The fortunate part so far is USDINR.

Despite rising US $ Index, the USDINR has managed to maintain the range. 

The important clues might be seen on 16th January.

- Sheetalpuri

Why market still not in negative zone?

Despite the benchmark 50 shares' index declining by 200 points, the market is still in positive zone. Why?

The simple answer is -

The Monthly Closing chart of Nifty

On monthly basis the market has confirmed the break-out from Cup and Handle Pattern.

Only a monthly close below (mind it - Monthly close does not mean the derivative expiry, it is about the closing of last working day of the month) 6175 will confirm the collapse of this pattern.


A recent example of Cup and Handle Pattern is "TECH Mahindra".

So, until this pattern collapses for Nifty, the trend is positive.

Important trend indicating date as of now: 16th January.

-Sheetalpuri Goswami