“Sell in May and go away” adage held true for the 3rd straight year!! With the D-Street experiencing a major sell-off after infusion of a record high hot money (FII) in the Jan-March quarter, May has rather been a dull month for equities with the BSE losing nearly 1000-odd points in this month alone.
It would be a difficult call to predict the bottoming out of markets which is stung by twin deficits, weak government, a burgeoning Euro zone crisis, and warning signals from the Chinese Economy!
Some of the trigger points for the coming months and their probable impacts:
RBI Policy: With the RBI Policy in the coming month, despite the increment of the Govt. to increment the Petrol prices, the possibility of an Interest rate cut remains low, due to a low weight-age of Petrol in the consumer basket. The impact of the hawkish 50bps cut in the rates, and other policy effectiveness will be visible once the Economic growth data for the Jan-Mar quarter is available on May 31st. Also, the investor sentiment in the rate sensitive sectors like real Estate has been marred by other issues like delayed real-estate approvals, etc. Also, the deposit rates have not been picking up as per RBI`s expectations. So, probability of a further Interest cut stands at 25%. The second option available to the RBI is to announce a CRR cut of around 50bps, injecting approx. 30,000cr in the system. This seems to be a more feasible policy stance, considering the liquidity crunch in the system, with the bank borrowings remaining above RBI comfort zone (in tune of 60,000cr) at over 1lakh crore. Also, this has been further propelled by the RBI selling dollars to control the greenback from inching towards the 56-57mark against the Rupee. The OMO of 12,000cr by the RBI concluded today is an indication of its stance in the coming policy meet. However, the eyes would be more on the RBI`s activity to cool off the $ bulls. Also, the Govt. policy to revise the Diesel and CNG prices may be cheered by the Investors with a 273 point rally. However, don`t expect any strong policy decisions from the UPA stable.
Greece Elections: On the Global front, the Greece elections to be held on the 17th of June will have a lot of volatility as well as panic selling, based on the various voices coming out of the EU. Although the attempts would be have Greece continue to be a part of the EU. If cues are taken from the French elections, which chose growth over austerity, we might see a similar Greece outcome, with the blooming Syriza`s support, we may see the Holland- Syriza duo forcing the Merkel dominated austerity measure traversed towards a more growth oriented measure.
Also, the slowly improving growth of the US coupled with the warning signals from China, may result the FED to announce a relatively smaller and ultimate round of QE3
All the above positive outcomes may materialize only after mid-June. Till then, the markets may wear a gloomy look. The following charts will help us to understand the future course of the markets:
The breakout post the Descending Triangle Pattern, after a subsequent rally from the highs in Jan & Feb confirms the May sell-off (had tweeted about this pattern earlier) . Although this breakout from the descending triangle has been taken out, we now fast a stiff resistance from the downward sloping trend linejoining the tops of the rallies of 2010, 2011, 2012. This lower top, lower bottom formation, confirms a bearish long term trend with strong resistances at the levels of 4950-5000. Nifty also has a strong support formation, thus, we could see Nifty having a strong support at 4800-4775levels. Therefore, we expect the Nifty to trade in a range from 4775 – 4975, until there is a clear breakout on the either side.
Sensex:
Trend lines and Fibonacci retracements indicates a correction to the extent of 15300-14800. A close below the 23.8% retracement level, at 16220 of Sensex, further confirms our bearish view on the markets with immediate retracements to 15400 levels. Weekly closing above 16300 would falsify the bearishness of the downward sloping trend line, and offer a chance rally till 16900. On a daily basis, we might see a rally up to the 16400 levels, which offer a good opportunity to sell. If the PCR of the NIFTY Jun expiry is to be considered, it would confirm our bearishsentiment.
For the coming week, we expect the markets to adopt a cautious approach, it may be range bound at 15653-16600 levels.
Commodity:
On the commodity front, Gold/$ may rally to 1583-1585 levels, where it may face resistance, thereby retracing to 1565levels, and a drop below that leading it to 1520 levels.
That`s all for the time being, will try and add a follow up post or tweets depending on time availability.
Happy Investing!
Happy Investing!
