Monthly Market Update 9/6/2016

Monthly Market Update 9/6/2016

August was the month of consolidation for Indices and good two way action time for commodities ( especially crude oil ) and currencies.  Fogy Fed effect continues to cast its shadow on indices and making it difficult to commit either way but again it came out as a very good month for Forex trading with ~650 pips.  Let’s look at what lies ahead for major markets and outline which opportunities we can exploit.

Indian Stock Market

NIFTY spent most of month buffeting between the boundaries ( 8550 – 8700 ) tethered with the parent Index  – US S&P 500 with occasional spikes on both extremes.  Overall price action was subdues devoid of any realistic opportunities.  Resilience of equity market in front of Fed rate hike is an interesting development but we need to be very careful in reading too much from price action.  Here are the few pointes we would like to put forward for the month ahead.

– First and foremost, a new captain at the helms of RBI, Mr. Urjit Patel. He has kept a low key profile so far and very little can be said about what path he will draw for the RBI. Raghuram Rajan’s towering presence had helped to withstand Government’s meddling on RBI policy construction but we can’t say anything definitive about Mr Urjit Patel at this point. So this has become now a known unknown and need to hear him carefully in future.

– As NIFTY approaches near 9000 ( http://bombaybulls.com/nifty-back-to-9000-7112016/  ), it will start favoring short side trades. At least initially. So now we will switch the strategy of buying calls on dips to buying puts on spikes higher.  If Fed really does what they are communicating then established short position near this level will be very rewarding.

– Right out futures trade is still prohibitive because of negative risk reward.  NIFTY has started fireworks well before Diwali but it can be a trap.  Things look very rich in price and at some point it will stagnate or start falling. So when everybody is looking at one side, looking with different perspective will help manage the risk.  Right now market is taking Fed for granted but that could be a dangerous flirtation. Even a rate hike’s domino effects can’t be ignored.

In August,  individual stock trades were very rewarding.

ICICI Bank 

L&T Ltd 

ONGC 

Wipro 

Dr Reddy 

There are other proposed ideas in Grasim, ABB and housing finance stocks but it will take time to materialize.

We will keep looking for good put buying opportunities in NIFTY going forward with keeping focus on finding opportunities in individual blue-chip stocks.

Commodities Outlook ( Gold, Silver & Crude Oil )

Previous month was stellar in terms of commodity trading but August proved lackluster.  So far we have hardly missed big opportunities in crude oil trading  (http://bombaybulls.com/commodity-bonanza-after-gold-its-black-gold-772016/ )  but this time we missed filling some orders and didn’t managed to take full advantage of a quick rally from 40 to 48.  Even though we were ready to buy and had a plan ! But this is the vagaries of financial market ! For crude oil ( WTI ), we will keep $40  level as pivotal and will try to find opportunities around this level without any strong bias.

Gold and silver trades haven’t worked out as expected in terms of profit targets but still nothing has lost. We were expecting the momentum to continue in both precious metals but few strong data points and rekindled hope for fed rate hike has put some ceiling on these highflyers. Whether Fed will hike or not and what will be the path after that are big unknowns and only time will tell.

As long as Gold remains buoyant above 1280 / 1300 and silver supported above 18, all bodes well for further rise.

Will Fed Kill The Golden Goose ?! – 7/27/2016

So in general no strong bias in commodities but will just trade it technically for few ticks here and there.

 

Forex Market Update

Last month’s big winner JPY pairs which gave us around 1200 pips were totally shunned this time. Because as things change we need to change too.  Even though we were staunch believers of huge action from Japanese government, when they started disappointing the market, we need to keep the distance and rethink our strategy. Besides USD side equation wasn’t helping either. But our strong conviction about USD selling against Australian Dollar and New Zealand dollar prevailed.

JPY Pairs – Recent Fed hike talk after strong data release from US has helped to bounce back but still situation is very fragile for JPY pairs.  In case Fed disappoints again then the next stop for USD/JPY will be 95 in no time. So usual drag in JPY pairs will persist.  We will be looking for opportunities to sell rallies.

EUR/USD – 1.1050 to 1.1400 is the established range, but big brake is coming. Not committed with strong conviction either way but we will keep trading it with long bias until something changes significantly.

GBP/USD – As we mentioned in this post that shorting pound is going to be very painful, which proved right soon, we are buyers of GBP/JPY and other GBP crosses during big dips.  For GBP/USD, 1.3000 is still the big level to watch on downside and 1.3400 / 1.3500 on upside.

AUD/USD & NZD/USD  – All which needs to be said has been said here before and there is no point in repeating why we are buyers of both pairs.

AUD/USD – RBA Can’t Do Much Except ‘Hope’ – 8/2/2016

NZD/USD – Central Bank Can’t Do Much Except ‘Hope’, Part II – 8/10/2016

In short, for Forex trading, if Fed hikes rates then that will be a big dip buying opportunities in at least AUD/USD, NZD/USD and GBP/USD. For EUR/USD we will trade it accordingly and USD/JPY will be a sell on rallies trade.  Let’s see how the month unfolds.

Have a nice trading month ahead 🙂