Sunday, August 7, 2011

#67 Nifty Update

Last week was slide towards 52 week low at most of the global market. NIFTY saw a low of 5116 on Friday on the fear of global weakening with US being the most feared economy. Debt ceiling bill was signed by Obama on 2cd August but he said that he wasn’t happy signing the deal because he thinks it will further worsen economic conditions. To add fuel to his concern, S&P on Friday after market hours downgraded Americas Credit Rating by one Notch to AA+ from AAA. This is was first time since 1941 that US has been discounted from its AAA Rating. S&P official said that they had already warned US government on letter dated April 18 that anything less than $4 Trillion would be insufficient and force them to downgrade rating. And same happened as US Passed on $2.4 Trillion for debt restructuring which resulted in S&P downgrading US credit rating. Now you all might be thinking what will be the effect of downgrading of Credit in US? So here’s what I understood and read…. Downgrading the US credit, consumer credit interest will increase which I think will result in economy slowing down as purchasing power will go down.. Second was that Bond yield will increase which will have two effects 1) people will start parking money in bonds rather than Banks and new business decreasing the supply of money in people hands 2) this will increase the US treasury department’s interest payment costs by $100 billion per year from last fiscal payment of $414 billion which was 2.7% of its GDP. Thirdly as per the reports of IMF, Strength of US Dollars on total currency reserves of each currency by all the country has been reduced to 60% from around 72% in the 2001 which means countries have less decreasing faith on US dollars as a asset. So in short this Degrading of credit rating will have cascading effect on US economy for long time which will affect many other countries especially Asian countries that hold the major part of Treasury bills. Now coming to Indian Economy Moody and Fitch rating agency have estimated India’s growth at 8.2% from previous around 9% so has the Finance department. But RBI has estimated only near to 8% growth. All analyst and firms expect India’s Inflation to be around 9% .As per Moody RBI is expected to Increase rates further to cool inflation. So at this week we can conclude by saying that none of the stock market has anything for investors….Investors as I have been saying should invest in gold at present.
Now technically speaking NIFTY has breached down all the short term levels which completed at 5200. Now Market has created a gap at around 5230-5330 levels which has to be filled up someday soon. But analyzing the market conditions all over the world and taking in longer picture of NIFTY I have tried to plot Elliot wave on NIFTY weekly chart. NIFTY has been in bearish channel since new high last year at 6338 as we can see. If we take initial point as the 2009 bounce back from 2252 then first wave completed at 6338 and we are currently in process of completion of Wave 2. Now as u can notice Wave 2 have 4 possibilities which is 5390 (where the gap is), 4788, 4300 and 3800 and we have respective targets of Wave 3 at 9477, 8861, 8372 and 7896.  Seeing the global condition I feel market will at least bottom out at 4788 levels and might see 4300 levels if the conditions in US and EU see the worst like 2008. 3800 level is too difficult to achieve unless something unusual occurs in the world economy. So I would suggest to stay away from the stock market unless a clear consolidation or reversal is seen in the markets. Risk takers can surely be short in derivative markets with near stop loss on NIFTY at 5390 and long SL of 5586.

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