Inter Market analysis 7th august 2011

Dear all,

Here is the intermarket analysis for the week

Bottomline –

1) Technical Breakdown could be on Nifty but the indicators like RSI, India VIX, Leverage and volumes suggests markets highly oversold in the near term.

2) We may now need to wait for 3-4 sessions as to how Nifty/Sensex behaves at 5120 and 17000 which if broken on closing basis for 3-4 sessions will lead to a grinding down move or one panic to lower levels in medium term.

3) The midcap and small cap indices have not broken levels equivalent to February lows and have just come close to recent lows which indicates a disconnect as the selling is more focused to the index stocks. Generally a panic scenario in markets is first indicated by a crash in midcaps/smallcaps.

4) The global indices are also highly oversold with Dow at RSI levels of 2008 and VIX out there also is on the higher end indicating diverse views which would be either are at a short term bottom or a risk of some undue announcement and panic is being priced in.

5) Crude has now confirmed it will stay in a range of 80-100 on Nymex and 95-115 on Brent which augurs well for Indian Markets.

6) We expect there could be a short term relief in the indices. The best strategy would be to wait for Nifty to stabilize in the zone of 5120/17000 over the next few days before taking a call but fresh shorting or selling at current levels should be avoided unless one believes there is a major panic like 2008/2009 with a undue announcement.

7) We see this period as a time which will generate good opportunities in the broader market because of the panic. We expect this leg to be the last wave of the downfall its need to be seen whether it stops at 5120 or goes into panic mode where no level is sacrosanct but it’s a time to make a list of stocks you like and the best entry price and wait. Some of them may come to those levels in panic.

Strong supports are now placed at 5120 and 4800-4600 in panic. Selective buying can be done on sharp panics with token quantities being bought at current levels.

9) We may soon come out with a sectoral stocks where capitulation is seen. Infrastructure stocks like Aban Offshore, Power finance corporation, Hdil etc are at capitulation stage where further downside could make them seriously interesting. One may look towards contra buying in them with a 1 year perspective as well as a short term jump.

Regards
Amit Agnithotri
Market Risk Strategist
Nsetrader.com

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