Monthly Market Update – 8/1/2016

Monthly Market Update – 8/1/2016

July highlights were, unabated rally in equity market started after Brexit continues and there is no end in sight. It was very eventful month with BOJ ( Bank of Japan ) in Forex space which helped us accumulate whopping 1700 pips in a month. On commodities front, Gold and Silver remain buoyant and Oil is also marching on its own beat and life above 50 is not something oil is comfortable with right now.

INDIAN Stock Market Outlook

After Brexit, Global equity markets bolted higher and Indian market also benefited from the enthusiasm.  Currency mayhem scenario was put on back burner and that helped stabilize the markets too. In recent times, following is the general market mechanism,

– After ebullient period, some sort of worries start mounting

– Initially Traders hesitate but then data and direction point to the lower side

– When everybody is on a short train, some US or EU skewed data point gives market renewed enthusiasm about never ending free money and suddenly indices resurrect.

– Broad short covering in short time puts market in next orbit where it stagnates

– Then rise and repeat the same cycle.

To trade this market we need to understand that fundamentals matter very less or doesn’t matter at all. All that matters is what will be the next move of the central bank.  If you get the pulse right then no needed to read the fine print and you can jump on the wagon.

NIFTY – Back To 9000 ?! – 7/11/2016

What’s Next?

Short term direction is pointing upward with a room to run for couple of hundred points on NIFTY but as soon as 8750 / 8800 is reached, equation will start favoring the downside more.  Selling the rallies cautiously will be the most rewarding at that point targeting 8500 and 8000. Let’s make a list of what will favor the stock market up and what will push it down so that we can have a checklist to make our bias against and can trade objectively.

UP If..

– US data is lackluster. Falling in a sweet spot of not too high not too low. e.g. recent GDP. Not a 3 – 4 percent economy where Fed can hike comfortably,  nor negative contraction where everybody freaks out.  ( You can check out here why knowing the direction of US S&P 500 is more important in trading NIFTY )

NIFTY – Not A Domestic Market Index You Know About – 6/30/2016

 RBI gets a government puppet and brandishes rate cutting sword

–  Better monsoon feeling ( one up for weatherman 😉 )

Down If…

–  Strong US Data and Fed touch the hike button. That action will at least put markets in tailspin for short term.

–  US dollar starts strengthening again against Rupee.  ( That will happen if not today then tomorrow but can’t put the exact time on the event . This is not a political blog otherwise we can continue with reasons 😉 )

– Market will face technical challenge if near all time highs.

Here you can see that domestic reasons matter less and US is all over the radar ! So no wonder it is difficult to understand rollercoaster ride of Indian stock market for domestic retail investor who is not well versed in understanding global developments.

Index trading was again illusive and yielded us nothing because we couldn’t find good risk reward opportunities to advise our clients to get long in futures market.  Those who trade options, we recommended buying calls cautiously but that was it. No real big opportunities this month.  On individual stock side we are having really good run where our strategies produced healthy gains.  So on a broad term, we will keep on accumulating good blue chips during downside bargain prices and keep selling covered calls when market looks rich.

Infosys – Didn’t We Tell You Moment 😉 – 7/15/2016

 

Commodities Outlook ( Gold, Silver and Crude Oil )

At the beginning of the moth we recommended getting long Silver because if silver will try catching up with gold then it will be a straight line on the chart !  Of course uber-bullish scenarios didn’t materialize but still both Gold and Silver are hanging there with healthy gains.

Outlook for both Gold and Silver is still bullish and chart is looking very constructive. We will keep on playing these precious mettles with long bias going forward as long as Fed hike doesn’t materialize. We have talked at length about the target price and what to worry about the longs in previous month’s outlook which you can check out here.

Monthly Market Update – 7/4/2016

We had a great month with crude oil trading with short all the way from 48 to 41. ( http://bombaybulls.com/commodity-bonanza-after-gold-its-black-gold-772016/ ) Seasonally it is bearish time for crude oil price and also when fundamental factors are against price appreciation, it is tough to envision gains for crude. But crude is behaving nicely with technicals and we will keep on trading it both ways without any strong bias.

$40 is strong support level and we left bids at that level which didn’t get filled last week.  But we will observe price action closely before getting long because it looks like 40 may not last long and we may get a look under it.  In that case 38 and 36 stands out as good support.  At 40 we just wanted to trade a first bounce, but unfortunately price started recovering from 40.50 and didn’t give any chance. But 38 and 36 can be traded from long side with little more confidence and we will be looking for those opportunities in coming sessions.

 

Forex Market

Thanks to BOJ for giving tons of pips in July. Our long USD/JPY, AUD/JPY and NZD/JPY netted almost 1200 pips with totally tally of 1700 pips. Trades of July shows how one needs to be nimble and has to adapt to the changing market conditions to pounce on the opportunity.

It is really ironic that in the beginning of July we were bearish USD/JPY.  But then suddenly Japanese election result changed it all and we went all in the next Monday.  At some point fundamental view overrides all other logical reasons and this was that moment.  So let’s start our review with JPY pairs first.

JPY Pairs – Trading is like suspense novels.  Once news is out and you know it all, it is worth nothing.  All easy money was there when market was playing guessing games with new phase of Abenomics  after election result. (http://bombaybulls.com/usdjpy-delaying-the-inevitable-7112016/ )We will avoid JPY pairs until the dust settles.  Particularly for USD/JPY, support level of 100 is very crucial. We would like to play a little long from there but it really depends.  Because with repeated disappointments, when market turns sour on something, it is difficult to calm it down and it won’t stop at 100 or 95, it will go where pain becomes unbearable.  So we are open for both long and short side depending upon the developments.

EUR/USD – We got long EUR/USD at the end of the month and US GDP data helped us reach the initial target of 1.1145. (http://bombaybulls.com/eurusd-has-fed-hit-reset-to-sell-rally-idea-7282016/ )Now we are constructive on Euro until something comes up to submerge it.  Besides big short positions against EUR ( Recent CFTC data shows 112 k net shorts) makes upside more appealing if short squeeze materializes. As long as Euro stays above 1.1050, future is bright for next 200 / 300 pips. There may not be a huge fireworks but seems like with push and pull of data releases, EUR/USD will be range bound between 1.0900 and 1.1400. Don’t get carried away and trade the edges.

GBP/USD – Pressure from general market is pushing it down and rightfully so. But until BOE gives more to the bears, it is difficult to see more downside ahead.  Our strategy is to buy big dips in GBP/USD because now USD side pressure is not that much until Fed is hawkish and UK is not going to suffer as touted by pundits.  Let’s see if BOE can throw it under 1.30. If it doesn’t go down with BOE then pain for bears is coming and like EUR/USD, easier money can be made from long side !

AUD/USD and NZD/USD – We like these two antipodeans from buy side. Tomorrows RBA decision can push AUD down but it is difficult to keep it down for longer in this yield less world.  We got long based on following trade ideas and will be patient until something changes.

NZD/USD – Buying The Dip – 7/18/2016

AUD/USD – Buy The Dip Part 2 – 7/19/2016

So in general, USD will likely to be on back foot for coming session and we will look forward to sell USD against stronger currencies.

For July, exceptionally strong gains in Forex and commodities has compensated the lull in NIFTY trading opportunities, so let’s see how the next month evolves.

Have a nice trading month ahead 🙂