Ashu Dutt’s 'THE CHARTIST’S ALMANAC' - July 2009 Edition from www.ashudutt.com

You can access all Research Reports on Equities, Commodities, Currencies, Real Estate at http://www.ashudutt.com/

Ashu Dutt’s THE CHARTIST’S ALMANAC

Edition: XXVII

Published this 10 th day of July, 2009

Price: US$200 for 24 Editions

BOTTOMLINE (updated)

- Short Term Trend (7-30 days) – Bullish. The Odds are

o +10% gain: 60%

o +5 % gain: 20%

o -5% loss: 20%

- Intermediate Trend (30-90 days) – Bullish

o +15% gain: 40%

o +10% gain: 40%

o +5% loss: 20%

- Long Term Trend (90 days +) – Bearish

o -20% loss: 30%

o -15%loss: 50%

o -10% loss: 20%

STRATEGY

- Trying a short in the immediate term may be downright dangerous. As I add up the put and call writing data, it seems highly unlikely the markets will keep below 4000. Closing out the shorts makes sense. I know it is counter intuitive to all the views you hear but then that’s the way I see it

- The likely scenario is a rise to 4400-4500 levels (and that could happen within the next 90 days) and then a 15-20% fall. So a “counter intuitive” strategy may make sense i.e going against the current thinking and staying long now (even perhaps be in a buying mode) and then closing out and perhaps even a short should we see 4500s (ofcourse, we need to look at the momentum as we reach that point but I can’t see any chance of a level beyond 4600)

KEY DRIVERS

- Past supports and resistances are meaningless. Both were driven by “one time” events. The massive November/December 2008 fall by a global credit squeeze and the highs of June by a Congress victory. None represent where we are settling

- Looking at the momentum (and yes there is momentum because the markets seem to stay down only for short stints and rise at the slightest excuse), I would expect sharp spikes in the markets. Infact very sharp spikes should a significant short build up. This is a very likely scenario given that most chartists and other “influential” voices have dug themselves into a “short” position

COMMENTARY – NIFTY & SENSEX

- The charts cannot be looked at without Options data. I would watch for Put and call writing data. When call writers are writing calls at 4,000 (which is what they are doing), its every likely traders will get trapped

- The put writers are writing puts at 3600 and 3700. That’s an amazingly conservative put writing strategy. And they would move up to put writing at 4,000 double quick if we see the slightest uptick. And call writers may move to 4400 – 4500 levels

- So what we really have are those who believe the markets will fall further (and thus give others the option to buy at 4,000) playing too close to current levels and those who believe the markets will stabilize at a certain level playing too far away from current levels. Signs that the market is overly pessimistic (always a sure shot sign for strong market spikes)

- I expect the markets to settle at around 4200 levels (i.e. support). I don’t agree with most analysts that we may go right back to 3600 (some even talk about 3100)

- Past levels of 3600 reflected a “credit seizure” environment with no real clarity at that time on which way things were headed

- The underlying strength in the market seems enough to drive it to around 4400-4500 levels

- Liquidity has eased considerably. Credit availability is not even a critical point. In this changed environment it is ridiculous to believe we will go anywhere close to 3100

COMMENTARY – MIDCAP

- If we see an upward trend, Midcaps may well deliver the best possible returns. Infact as high as 10-15% in a 30 day scenario

- There is not much of downside risk though (except if volumes were to disappear)

COMMENTARY – SMALL CAP

- Largely “riff raff” variety of stocks. Always a very risky group of stocks. In most cases, its not a market risk but a stupid risk to take. Difficult at best to look at any chart patterns

ABOUT Ashu Dutt’s “THE CHARTIST’S ALMANAC”

After years of wondering why the markets were doing something different than what logic or rationale would dictate, it became clear to me that markets will make their own calls and since humans trade in them, we will remain creatures of habit and of our behaviours.

In the long run, the markets must make peace with economics or the real economy. They don’t need to do this in the short term or the intermediate term. And in the short term and the intermediate term markets will do all kinds of things that can only be explained by behaviour and behaviour being repetitive gets well reflected on charts. Thats why charts may give decent indicators of where markets are headed.

Ofcourse, what you have to live with is the analyst’s bias. Different analysts can read the same charts and make different interpretations of what it means. I do the same. What I do try to avoid is getting stuck in esoteric technical analysis theories and stick to reading the parameters that I have found best fit my analysis.