Anyone care to short the market? If the answer to this question is, Yes then please don’t !! The kind of money the FIIs have been pouring in i.e. Rs. 1000crore a day it seems very unlikely that the markets are going to crash soon. If anything we believe that this Diwali might be the most festive season for the Bulls. We believe that if the FIIs keep dumping Rs. 100crore daily then we will see the 21K mark on the Sensex by the end of next week. A close on the Nifty above the 5880 level is terrific for the week and could see it go higher on its northward trajectory.
However, I will stress the same fact I have been stressing since the 5600 level on the Nifty i.e. CAUTION. The kind of rally we are witnessing in the market i.e. 1% everyday, I will not be surprised if we see the market fall as rapidly.
Gold and silver seem to be going really strong in the commodity markets with them going up by 1% daily. I believe that we are yet to see a strong rally for Gold if the $1300 level is taken out. Silver too seems strong if the $21.5 gets taken out. However we are witnessing that some bearish patterns on silver which might take it to the $19 mark which cannot be ruled out.
As far as the Dow Jones industrial average is concerned we believe that that it too might have broken out and can head to levels as high as 11000 very quickly if the 10600 level if taken out. However with all 3 supporting indicators i.e. RSI, MACD &the stochastic oscillator in the overbought zone we might see some new shorts come in the system which will take the DOW to levels of 10000 from its current 10607 levels. I have attached the chart for the same below:
Having said that, I would also like to mention that the DOW has shown a price and volume breakout in the second last candle confirmed by higher price on the next day’s candle (close in the green on Friday) and the MACD can show some significant upside.
Some charts I was looking at were the price to book value ratio, price to earnings ratio, BSE 30 yield chart etc. and all of them throw a very interesting chart. The price to book and the price to earnings chart very clearly have seen a strong run up and are in their overbought zones and the yield chart is oversold. In simple terms the PEs have run up strongly and are in the overbought zone signaling that the fundamentals no longer support the prices of the companies and that the stocks are very expensive. The best times to buy in the stock market is when the yields are at their record highs and the PEs at the record lows. If any of you want to see the charts for the same just drop an email and I will send them over.
With the festive season in India around the corner, I have attached 2 charts i.e. Gold and silver herewith. I believe that it might be a good time to accumulate both these precious metals and they might actually give a decent 5% - 10% run up in the near term. However all supporting indicators are overbought and hence if the downside starts then both these commodities will fall strongly and a significant downside could be seen on both these precious metals.
View on Indices - Weekly Outlook
1. Bank Nifty
a. This index is on the top end of the Bollinger bands and the RSI along with the stochastic oscillator indicated that this index is in its overbought zone. However the momentum is clearly on the upside and can take this index higher. On the upside we could see this index which is trading at 12104 top out at 12500. However the downside supports come in from 11500 to 11800.
2. CNX 100
a. This index too is trading on the top end of the Bollinger bands the RSI along with the stochastic oscillator indicated that this index is in its overbought zone. However if the trend is to stay with the momentum them the upside for this index could take it to levels of 6000 from its current level of 5855. Downside support comes in at 5750 – 5800 levels.
3. CNX IT
a. This index has formed the first patterns of a top out but the rise of Infosys and TCS this week signals that it might be a false breakdown. Upside for this index is capped at 6600 / 6650. Downside support comes in at 6375 – 6450.
4. Nifty Midcap 50
a. This index is trading at 3004 and we believe that the upward trend will continue as predicted last week. This index will now facing resistance at 3050 levels where it could top out. Downside support for this index comes in at 2950 -2975 levels.
5. S&P CNX Nifty
a. This index is trading at 5884 and I believe that if the FIIs keep pouring money in then this index could soon test levels as high as 5986 – 6000 without a correction. If however you do get a chance to short the Nifty at these levels then it would be a prudent short.
Trading Stocks Ideas
1. EIH Ltd
a. This stock can be bought at 138.15 for a target of 145. Stop loss can be kept at 135 (5% gain)
2. Infosys Technologies
a. This stock can be sold at 2974 for a target of 2928. Stop loss can be kept at 3015. (2% gain)
3. Petronet LNG
a. This stock can be bought at 111.15 for a target of 115. Stop loss can be kept at 110. (4% gain)
As far as your mutual fund investments are concerned, I advise you’ll to book profits on Monday and let the rest of your investment run. I personally believe that the markets are overbought and all long term investors should slowly start booking profits. We have also started providing stock ideas for intraday / short term via SMS and if you want to avail the same then you can send us an email for the same and we will add you to our list.
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