Nifty Trading Strategy | After Post Budget Carnage Watch Out for Crucial 5650 Level


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Nifty Futures, post budget presentation of the Finance Minister experienced one of the biggest crashes in recent times. However to us this fall was not unexpected and if you had been reading our previous post we did expect the markets to come down to 5600 levels. After the huge fall all the perma-bulls have been frozen and  bears are sniffing around having tasted fresh blood after many months. However, we have reason to believe that the markets may find support around the 5650 levels and this is going to be a very strong barrier for the bears to overcome before further bear hammering could be initiated.

Technical factors indicate strong support levels around the 5650 levels

If one were to take a look at the chart below its almost magical how the Nifty Futures fall was arrested at the confluence of a number of trend lines, technical patterns and fibonacci retracement levels. Of course this analysis is only in hindsight but the evidence of support is amazingly copy book style.

Nifty-futures-march-4-2013-short-term-support-at-5650

Multiple support levels arrest fall in Nifty Futures

  • Downward sloping Xx trendline
  • Upward sloping trendline Yy
  • The horizontal trend line C drawn from the previous top of 5700(not shown in chart)
  • The parallel channel line MT
  • 5848 is a 33% retracement of the entire rally from the 4700 levels 9again not shown in the chart)
  • And the lower parallel (to the major thick black trendline) passing through T
  • Head and shoulder target shown by the pink arrows

All these together have created a strong energy point around the lows and only if markets are able to sell off below these levels then a further fall would emanate.

Our proprietary short term oscillators are also indicating oversold conditions and the markets should put in a bounce or at least meander till Monday March 11, 2013 which is our energy cycle point for converting price to time. (Please note the vertical blue lines they were draw on the day of the fall and projected backwards in time to test the cycle and it has a margin of error of only 1 day for pin pointing the cycle high and lows !)

If the markets react upwards how will the trend unfold ?

So from all the above we can conclude that markets could recoil until the next energy date which is March 11. As long as the price stays within the channel and does not rally out of the N-O trend line, markets can safely be assumed to be in a downtrend. However if prices were to break this trend line then Nifty Futures has potential to travel to the parallel line drawn from P. Further price should also stay below the  50% retracement level which comes around  5850 levels. In case the rally has legs it could also travel all the way towards the 62% level of 5900.

We will explore this trend projection further in our future posts.

What if the markets were to continue the bear market without correcting upwards.

It is true that we are in a vicious downtrend and going by the price damage that we have seen in the broader market it is quite likely that further down side cannot be ruled out. In fact in one of our previous post we had maintained that prices could go as low as 5500 before end of February.

While our time target was not achieved we still believe, based on Elliot Wave Theory, a terminal impulse is in the offing and should retrace all the way below 5500 latest by March 6, 2013. This scenario is still open and on the break of 5650 we could experience a free fall to 5550 levels. This would mean two days of triple digit losses. Lets see how the next couple of days play out.

What is going to be our trading strategy on Nifty Futures

Since the overall trend is down, we would refrain from buying any calls. Our strategy in case the up move plays out is to write  5900 calls. In case markets break below 5650 then we would initiate a bear put spread by buying 5600 puts and writing 5500 puts.

The spread could be initiated in a staggered manner. So if the markets start selling off, buy the 5600 put and when , if you monitor intraday hourly charts, markets look oversold initiate the put writing for 5500.

Globally along with other BRIC nations, the Indian market was the ugly duckling with the most losses

Despite continued heavy buying by FIIs and successful completion of many IPOs, the broader market has suffered heavy losses and since February 13, 2013 Nifty Futures have fallen very sharply

world-markets-total-returns-chart-march-4-2013

Nifty Futures one of the worst performing global markets

Despite the heavy losses we continue to be one of the most expensive markets

global-market-2-year-earnings-growth-versus-2-year-forward-pe

Nifty valuations in comparison to global continue to remain expensive despite deep cuts

Fundamental expectations fro the market also stand lowered post budget

Analyst consensus earnings estimates on Nifty have also been marginally lowered to 383 (earlier 380) and  435 (440) for CY13 and CY14 respectively.

nifty-earnings-growth-revised-downwards

Nifty earnings revised downwards post budget

nifty-1-year-forward-pe-bands

Nifty fails at mean P/E level could test lower band in the medium term

The 1 Year Forward P/E chart shows that Nifty has a tendency to move from one band to another and the green band of 12.6 FY13 earnings would suggest a Nifty Futures price of 4825. While the number is difficult to digest, who would have thought in the begining of February, when the markets were at 6100 odd levels and bulls were cheering for 6500 – 7000 levels, that the markets would reverse on a dime. We at Winning Trades were the few who successfully forecasted this sell off. In fact we have further bear designs on the future of price of Nifty which we will explore through our blog posts. Stay tuned

What is your view on the market direction? Do you expect the sell off  to continue or you expect consolidation around  present levels? We would love to hear your opinion on the same.

If you enjoyed reading this post  click this to tweet —–> Awesome blogpost!

For daily updates on our trading view on Nifty Futures & Options  please send us an email at bolinjkar.vinit@gmail.com or  SMS / WhatsApp on 9730836363. We would be more than happy to oblige our community of investors / traders.

Disclaimer: The opinions expressed here in are strictly for education purpose only. Before investing please make your own thorough analysis or speak to a qualified Certified Financial Planner / Advisor. We are not in any which way responsible for trading losses arising out of  trading decisions taken based on the above. 

This blog is the personal blog of Vinit Bolinjkar. The views expressed in this article are entirely my own and do not reflect the views of my employer. This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither http://winningtrades1.com or myself accepts any liability arising out of the above information/articles.

logo Vinit Bolinjkar Head of Research, Ventura Securities Ltd
Vinit Bolinjkar
Winning Trades
| Mobile: +91- 9730836363

http://winningtrades1.com http://in.linkedin.com/in/vinitbolinjkar

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Silver price in preparation for a big rise


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Silver may be setting up for a sharp price rise and  though I did not report the recent spike, it is never unexpected. Though silver clearly is a low risk high yielding investment opportunity, before jumping to give a BUY call I would like to see silver close above the $29 level. This breakout has a target  of $31, which is the next immediate resistance level. Once $31 is cleared then all over head resistance would have been taken out and would put Silver  firmly in a bull grip.

The following two charts for the long term and short term clearly enumerate our above stand.

Long term silver is a low risk high yield opportunity with a confirmed uptrend above $31 with a stop loss of $26

Silver price all set for a big rise

Short term silver above $29 is all set to rally to $31

Short term silver is a low risk buying opportunity with a rally target of $31

COMEX inventory reduction favorable for bull case justifying low risk entry

Having examined the charts we now look for supporting evidence to examine the probable causes why silver would rally. Already the physical inventories at the exchanges are declining. Silver inventories during the sharp take down in the price of silver to $26 levels had seen inventories peak. Typically silver prices follow an inverse correlation to these inventories and hence declining inventories is a good sign for an up move.

Geopolitical risks affecting the already acute supply clearly spelling high gains on investments ahead albeit with low risk

Also on the supply side a lot of geo-political events are taking place which could be a set up for the the long term bull market. We already know that silver supplies mainly come from the the Latin American countries-mainly Peru and Mexico. Both these countries have been subject to violence amongst the miners and this could adversely affect supply lines in an already tight silver market.

Further resurgence of nationalization in these countries is also having an untold impact on the investment mood among global silver producers and they are now hesitant to invest in these countries given this uncertainty. Already Pan American Silver has suspended its investments in its flagship project Navidad due to these very fears. Bolivia another major silver mining country is also considering nationalization of one of the reportedly largest undeveloped silver deposits. Cumulatively these countries of Peru, Mexico, Argentina and Bolivia contribute almost 43% of the tiny silver market and can wreak havoc with supply lines.

This combined with the rising global political uncertainty, potential conflagration of the Iran war and the global debt situation creates for a potential gigantic spike in the price of silver. Further with the possibility of gold being included as a Tier 1 asset it is possible that the former glory of silver would also be restored in sentiment to the increased importance to gold.

Considering all the above it is very evident that there exists  extremely low risk and high gain potential for investment in silver and  one may consider buying physical silver with a technical break out above $ 31 and keeping a far stop of $26.

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Disclaimer: The views expressed in this article are entirely my own and do not reflect the views of my employer. This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither http://winningtrades1.com or myself accepts any liability arising out of the above information/articles.

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Vinit Bolinjkar Head of Research, Ventura Securities Ltd
Tel: | Mobile: 0 9730836363

http://winningtrades1.com

http://in.linkedin.com/in/vinitbolinjkar

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