Sunday, May 3, 2009

Of Bulls and Bears… Update for 04 May 09

There has been news over the weekend and there is important news to come in coming weeks – that ranges from our election results to the jobless data from the US. A lot has also happened while we were logged on to the bullish two straight months. There have been results coming in – mixed to say the least – as per expectations some and below expectations others. The technicals have been indicating the bullish makeover for a fairly long time. Now we are standing at another crossroads that can take us either way. All those retail investors who are yet to make up their minds and take positions in the markets would do well to wait some more time. These cross roads can show us new highs or new lows. We are trailing a very strong support on the bottom and fairly strong resistance on the top. The markets have to show the direction and whichever way it swings may show some strong move. The 30% or so correction we have had is purely bear rally and we are no way out of the woods now. So hold on to your horses while we decide where to head off next.

Okay before boring you more let me start with the global cues. Asia was positive with Nikkei gaining 1.69%, Hang Seng gaining a good 3.77%. Europe was mixed due to FTSE closing red 0.01% but Dax and CAC closed up 1.38% in green – both. And incidentally this was not the closing at the best levels for both of them. US opened flat and then went red – finally to make and attempt to recover good into green but finally finishing just above the flat line. DOW was in 0.54% in green, Nasdaq was 0.11% in green and S&P 0.54% in green. Internationally the Swine Flu has caused a lot of anxiety with US Homeland security secretary declaring a “Public Health Emergency”. The main industries coming under pressure because of this is Pork, Travel, Hotels, Airlines and Cruise operators.

On the candles front There seems to be a unsaid resistance at the present level that the markets may have to break forcefully to go any further up.Trend and resistance See the chart – we seem to have now tested this top multiple times. This top is at around 3500 + levels. The second is that if we draw a trend line and call it trend line No 1 (as shown in the chart) we will see that it did lend support to the market twice – then markets violated it once – bounced back above that – but unfortunately even with the white candle on Wednesday we are trailing below that trend line as of now. Second is if we take the Trend line 2 – then though we may be getting support here but the fact remains that this is the first time the line has tested this level so the trend cannot be substantiated. This is the reason that I say that the markets are in a confused state and we should wait a bit more before taking sides.

Now the rest of the candles. We seems to be static with the Bollinger bands moving up slowly so the mid point too seems to be moving up. As of now we are comfortably above any moving average we can think of. We are above 5,20,50,100,200… EMAs so the bullish trend cannot be challenged on this ground at all.Daily 01 May 09 The volumes are again petering out and that seems bad. The ADX is bullish but the strength has been reducing since last week or so. The MACD has a negative divergence – is bearish. RSI Bearish and Slow Stochastic is bearish. So as far as the technicals I read are concerned – the tilt seems to weigh towards the Bears. However as always the markets will decide and tell what they feel about the technicals. And – one of the forward looking indicator that I trust is TRIX and it is definitely looking down. So be very very cautious should you decide to be bullish.

Put call ratio 29 Apr 09

As the old month

has gone by I feel it is important that we see how the Options data shapes up. The put call ratio is >1 as seen from the chart and the Option smile show 3300 as of now. Check out the charts. Options Pain 29 Apr 09

That crazed Put build up has however finished and we are down to more saner levels so now if the markets go down we may see call build up with the ratio going in favour of calls and that should give bears a reason to rejoice. I have nothing left now. Best of luck for the day tomorrow.