Forget Fed... its all happening in India

Friday evening, Government of India made some bold announcements. There was nothing new or radical but these announcements came at a totally unexpected time and pace. Following up the Diesel hike and subsidized LPG cap, GoI cleared FDI in Retail, Aviation and Cable. Government also cleared divestment in four companies. PM statement that, 'If we have to go down, we will go down fighting' makes one think that GoI may be serious this time in pushing these steps through. Mamata tried (as usual) to play the spoil-sport by giving 72 hour ultimatum for rollback which will be ending tomorrow evening. There will be a meeting of TMC on Tuesday to decide further course of action. Been tweeting about it and I hope you guys are reading those tweets on the blog.

But focusing on the positive part as of now; what these announcements did is more than the symbolic value of their benefits (which is huge). Suddenly there is a sense of hope and a sense of purpose or direction within the UPA Government. These moves may well serve two big purpose in the immediate term. First, it may just save us from the shame of becoming the first BRIC economy to loose investment grade rating. Now this again may or may not be a big deal for India but it would have badly affected the already in trouble Private Sector. Maintenance of the rating will help Indian companies to keep cost of overseas borrowing in check (though it is already bad due to change in INR/$ equation)

Secondly, it may just give RBI some room on Monday to start thinking about cutting rates. There is more than just whispers by Pundits that RBI may continue what GoI has started. There is widespread belief that RBI may join the party and cut the rates today. If you remember the last policy statement by RBI it was clear that RBI wanted some policy actions from Government before any rate cuts. Though the Inflation (around 7.55%) is hardly anywhere near the comfort zone of RBI but slippage in growth may just prompt them to take some risk,

Till Friday, I was thinking that 'QE Unlimited' would be a big thing but all these developments have pushed it in the background at least for India. Make no bones that QE3 will have far reaching and good/bad consequences not only for India but for the entire World in the long run but in the immediate term, I think events unfolding back home will have a much larger impact on NIFTY. I did not want to post any chart as there is hardly any change from when I last posted one but still here it is. Looking better and better.

I have given some Fibonacci levels for the correction from 6300+ levels to around 4500 level on NIFTY. We have 61.8% of this fall (which is pretty important) at around 5650 and we are about 75 points from that level. I am very much sure that this level is pretty much in sight and reach.

However, I think the Euphoria on QE3 as well as all these positive steps will take Markets up to a level which may be more than it deserves. Also we have seen some pretty impressive moves and profit taking is due and also as a consequence of rubber band effect, I expect correction in second half of the week (it may happen as early as Tuesday). I probably (if I get time) will take a contrarian view and open a small PUT position for NIFTY tomorrow at around 5645-5650 with strict stop loss of 30-40 points. Beware, sometimes I trade only on hunch.

I am back in Pune just today and was catching up on many things hence cannot write more. Have to take your leave as another week starts now and have to prepare for it. This will be a wonderful week with Ganeshotsav starting on Wednesday. I pray and hope that Lord Ganesh will bring best of health, wealth, wisdom, peace and prosperity in the lives of all readers. Happy Trading.

A Positive Move...

Government finally bit the bullet...

Hiked Diesel price by Rs 5 a Liter and limited subsidized LPG cylinder to 6 per family per year. Now this is very very long overdue step and one surely in positive direction. For, first, Diesel subsidy is hardly useful to poor people (apart from lower transportation costs) and it is mostly used by affluent middle class for their SUVs. Second, the poor people for whom the LPG subsidy is intended will usually never use more than 4 cylinders in a year. They have probably single stove and make simple food (hopefully) twice a day and for that 6 cylinders are usually more than sufficient. It was always the best way to  solve the wrongly directed LPG subsidy. I have to say, got a pleasant surprise with the news.

NIFTY today made a doji and Bulls and Bears were really fighting hard for an upper hand but given this development, I do not think that we will have a reversal tomorrow (with the rider that US Markets don't spoil the party).

US Markets as of this moment are in positive territory and if they close like that (or even stay flat) we should see positive opening tomorrow. We are not in any danger area as far as RSI or MACD are concerned and I am pretty sure that had it been otherwise... even then Markets would have cheered this move emphatically.

I can only hope that Mamata Di or someone similar do not start some political vote bank drama and push for rollback by blackmailing the Government. Lets hope GoI shows some spine this time.

As for my end, then I am stuck in 'Aamchi Mumbai' for some conference and usually having working dinners everyday. Will be back in Pune on Sunday and should be able to chill out a little then. Sorry for repeated  delay in tutorial post. Thanks for your comments, mails and wishes for 100th post. Happy Trading.

Addition:
I am modifying this post a little as just reading the news that Fed has decided to formally announce that they will continue with Quantitative Easing and this time it will be open ended. This is very very interesting. Fed has never committed itself to such a degree before. Will have to read between the lines and see what prompted this.

It says it will continue with policy action till it sees 'substantial' improvement in employment conditions. I am too tired to go through the Fed statement fully but can sense that it can actually start a short term rally afresh (as if we are not in it already). Very interesting times and I am ruing the fact that I am short of energy to grasp everything right now. Guess, will have to write about it during the weekend if I observe something unusual. Please blame Fed not me if tutorial post gets delayed again... I know you won't mind it though.

Fed says no QE3... Really?

I am sorry for this abstract post in between. Actually idea of this post appealed to me so much that I postponed the idea of technical tutorial post for the time being.

Last week I was listening to recent speech of Federal Reserve's Bernanke where in he was saying that he is ready to start next round of Quantitative Easing (QE) if economic conditions need it. Now as readers will recall that we have had two rounds of these QEs already where Fed has printed (not literally) more than $1.5 Trillion to infuse liquidity and stabilize the markets. Europe followed it with a fancy name of LTRO and even China also played on with some heavy infrastructure investments. (If you really want to know how much is $1 Trillion, I really recommend looking at this) This money cannot be really printed and it stays in existence only in the form of Treasury Bills which the Fed buys. One common thing about QEs in the past has been increase in price of commodities and equities that they result into. We have seen rallies in almost all asset classes every time QE has been announced with the periods of higher inflation in developing markets.

Anyways, that is not what we want to discuss here. What prompted me to write this post is my doubt about the validity of Bernanke's statement that he WILL start QE3 if needed. Now we all know that Fed is not an institute who has taken an oath of speaking truth all the time. All the data they publish has to be taken with a pinch of salt and many time their data have been published selectively, with a lag or not at all (caution: these are unsubstantiated statements... obviously). So I have my own doubts that QE3 is already in play.

Why do I say that? Just look all around us... every asset class is suddenly on fire.

1. Gold

Gold has broken out of its long consolidation and gone up by more $100 in a very short time. This is when very few analyst were expecting it. Also see the improved volume.

2. S&P 500

S&P has recently made 4 year high. Care to tell me some fundamentals reasons that may have prompted this?

3. Crude

I am posting Brent Crude chart as it is more relevant to India. In spite of all issues in Europe, slowdown in China, Crude has seen some handsome rally.

Not all asset classes see positive movement with QE. Obviously if you print more dollars you will see its value going down. Let us see the Dollar Index.

4. US Dollar

Dollar which was inching up nicely till June and even in July and August suddenly lost all the steam and is now below its 200MA also.

If all this was happening in expectation of QE3, we should have seen a sharp reversal after Bernanke's statement. All these assets would have shown the shock over Feds decision not to start QE3 immediately. Did not happen...

Apart from above, just look at the interest rates, bond yields and everything seems to be supporting this hypothesis. This post is also not about discussing whether QE is a good thing or bad thing in the long term (we can have that some other time in a separate post) but what is more important is what does it mean for our markets and our trade strategies. As I had said in last few posts that I would have expected markets to go down in this week and start (slow) recovery sometime next week or so... BUT if QE3 is in play, then all our prediction go out the window.

We do not know if QE3 is actually in progress and it is just a guess. If our guess is right, then we do not know how much money is being printed, how it will be spent and how and when exactly it will be deployed. There are too many ifs and buts and in such case I advice weak hearts to stay away or bite only what you can chew. It is very difficult to predict how long and how far this rally can and will go. At most we can wait for some indecision or reversal signal. I will be on a lookout for same (not 24 hours) and will let you guys know if I find something.

I am happy to be finally able to complete this post and I can now actually look to pick up the technical tutorial post from where I left it. Hope to complete it and make it available to you guys during the weekend itself if possible. Please let me know what do you think of this abstract post and whether you will like more such posts in between.

One more thing, I just realized that this post happens to be our 100th published post. Now that is some milestone to feel good about. Honestly, I never thought that I will be able to continue to write for so long (its over a year) and will reach 100 posts someday. This is your comments that have prodded me into writing more without any doubt. Keep them coming and I will keep writing. Happy Trading.