Update - 17th December 2011

11800 maintained on weekly closing basis; to the extent we don't get 2 consecutive closes below 11500, 12400 is still open. Dow's Santa will spring a surprise before getting burnt as an old man for 2012;

Get out of ETFs asap; don't let your hard earned bucks go into pork bellies!

Outlook for December 2011 - 5th December 2011

No change in outlook; Dow seems set to retest the 12200-12400 levels before making the next turn lower;
Shorts should not rush so soon and the ideal strategy would be to open the first set of shorts as close to 12400 [12440 to be precise as per my charts] as possible with the Jan 12500 Call as a hedge [1:2 ratio recommended] and the next short after a close below 12k levels [Safe traders can wait for volume and momentum to convincingly breach 11800 levels and go full throttle here]

IMHO, the maximum upside we can have from here with all the good news and Santa Rally is capped at 12600 [12580 to be precise as per my charts]. It is very likely that we will see sub 11800 levels prior to Dec expiry and then come back for a retest of 12000-12200 once again [yes lots of volatility floating around]

Once we get 3 consecutive closes below 11400 [expected closer to January '12 series expiry], bulls on Dow can say a full and final good-bye to 12k levels for a long time to come IMHO

[Corresponding upside levels on SnP are 1280-1300 levels and downside targets for SnP are 1180, 1150 and expect to see all these resistances and supports in the 8 weeks to follow from today]

Update - 23rd November 2011

So the initial target of 11500 on Dow has been achieved and we have a close below 11500 as well. Some short-covering is due now but in all likelihood this won't exceed 11625 levels; to the extent 11625 is not taken out on the upside, safe to assume that the next leg downwards will resume with next destination as 11250 from where the next round of short-covering will start.

SnP fans with some extra margin can go ahead and short SnP at current levels via Jan futures and buy a 1200 Jan Call to hedge the same 1:1; target for SnP is 1130 [it will take a long time hence suggesting Jan contract for the same - could take time upto March also]

Update - 21st November 2011

Happy to be able to get this forecast right; the close below 11800 on Dow and close below 1230 on SnP invited 11550 [a shade above the predicted 11500 levels] and SnP hit the targets.

Shorts should now revise stop loss to 11600 on Dow to lock in gains [and 1195 on SnP] How far down this will go is anybody's guess but some short-covering should come by EOD or perhaps tomorrow. Expect at least 38.2% - 50% of the current fall to be retraced from the lows before starting the next leg down.

As far as I am concerned, wanted to see this on Black Friday but markets decided to do this after slicing and dicing the turkey ;-) Important point to note is that the December series of Dow has opened on a bad note (today being first day of FnO series) and in all likelihood, a lot of people will rename November 2011 as Mowember unless the Fed comes in and introduces QE in some form [if QE comes, then bulls will mow down bears once again!]

Update - 14th November 2011

Still too early for bears; looking for a counter-trend bounce on Dow above 12k-12200 levels and 1270-1290 levels on SnP before the next leg down; a break-down of 1230 on SnP on closing basis will be the first sign of weakness and 1190 will be the deal sealer for bears. Likewise, a break-down of 11800 on closing basis on Dow will be the first signal and a breach of 11500 will be the deal sealer for bears.

Update - 12th November 2011

Not much change to the outlook and just 2 conditions apply

2 consecutive closes above 12200 and Dow will may try a poke towards 12400 levels
2 consecutive closes below 12k and Dow in all likelihood will go to 11500 levels from where a short-covering rally up can be expected [confirmation of 11500 will be a close below 11800]

A close below 1230 on SnP will be the first signal and total weakness only after it stages a close below 1190 levels

Dow and SnP range-bound whilst Nasdaq is continuing it's counter-trend move up; Transport, Banking etc have all confirmed bearish outlook whilst Utilities are holding firm still.

A key point one must not forget in the entire set of moves we had from the peak in May, to a trough in September/October and now the subsequent retracements

Despite accounting for the counter-trend rally, the entire market capitalization has been eroded for well over worth of QE1/QE2 put together! Little wonder the likes of Goldman Sachs are asking for some GAAP adjustments to be made for allowing balance sheet not to be shrinked basis 'MTM' and rather 'Fair Value'

This is yet another example of how people want to avoid the real problems and try all formats of financial engineering stunts - can any perma-bull answer the fundamental question as to why despite such a close index value on Dow / SnP from the May 2011 highs, so much shareholder value has been eroded and the 401k accounts are getting more and more toxic? Why despite lower than 4% record levels of mortgage rates, housing prices are not going up? Long live the bulls - long live shameless manupalitive bankers who cannot just think beyond complicating matters for common people for their fat bonuses and simply do not have the will to extend business credit which is what made the West a truly competent force!

Update - 7th November 2011

Critical levels remain unchanged - safe to open shorts here with appropriate hedges via options
First sign of weakness will be a close below 11800 on DJIA and a close below 1230 on SnP

Update - 2nd November 2011

Critical Support at 11500 levels and a poke at 11900-12k levels once more cannot be ruled out. First tranche of shorts should be opened as close to 12k as possible whilst safe traders can patiently wait for a close below 11500; once a close below 11500 is registered, it won't be too long for Dow to retest the yearly critical support levels of 10250-10500.

Patience is the key - refrain from hitting the trade button on each tick

Update - 25th October

Dow can still surprise a lot of bears and one should not blindly short here; so far the longs did well to enjoy the ride to 11875; weakness will only be fully confirmed with a close below 11425 on DJIA and 1190 on SnP - until then, stay hedged or better - hold on to the cash as the fall after a close below 11425 will be far more juicy and rewarding. The turkey is still being cooked so don't write off the pending upside so easily; a poke to 12k mark is still not ruled out....

Cheerz

Update - 24th October

So far no signs of a sad Monday but it ain't over till the fat lady sings; target achieved - those who went long should now keep a trailing stop loss at 11875 and ride the contracts till the run lasts; a poke at 12k cannot be ruled out as of now.

Shorts should be fully hedged as of now and only when 11500 is broken decively on the downside, one should give up the hedges. [or 1190 level decisively broken on the S&P] - let us not forget that this is a bear market rally; the next leg down will be far more furious than the previous leg down.

There were a lot of pot shots taken at the team when this target was given with Dow sinking near 10400 levels; waves and charts don't lie - sometimes the interpretation does go awry only to return to sanity a couple of sessions later; hope you enjoyed the profits with Long Dow Futures.....

Update - 21st October

The upside has come through so far and shorts should not be opened before 11875 is taken out. There is very much a possibility that Dow may go on steroids for a couple of days so even when shorts are opened as close to 11875 as possible, hedge via futures in opposite direction or take some calls as specified in the earlier update this week. First round of shorts in the 11875-11975 zone and the next set should be opened only after a close below 11425 and then 11325 [The fall should start manifesting within 2 to 3 weeks maximum as Nasdaq is already showing negative divergence and same is the case with Transport as well]

The next leg of fall will be far more rapid and hence bears would do well to be patient and wait for the opportune moment.

No Fly Zone As of Now

Sluggish action after a brief round of short-covering and mixed zignals from markets. Unless Dow closes below 11425 and 11325 in a furious decline, there is still very much the possibility of inching higher. [likewise, unless SnP posts a close below 1190 levels, cannot write off a leg up and Happy Friday may still play out] Don't short without a hedge......
 

Bears Beware - lots of short covering pending

As usual, the sad Monday jinx played on and the Euro-zone crisis is a mere excuse - there is nothing convincing in today's fall and looks a slightly larger than expected correction - Puts played out well and now a bounce towards 11500 seems on the cards and can even carry higher. Full blown weakness to be confirmed only with a close below 11325 that gives T1 at 11150 levels. Stay hedged and enjoy the power of puts

Prime shorting candidates are Goldman Sachs and Google with a 3 month forward contract via futures or some delta neutral short straddles. Traders with some risk appetite can go long via current month futures and hedge the same with shorts via December series futures 

Interim Update - October 16th

Looking for a bounce towards the 11875-12 region which presents a shorting opportunity via December futures

Hedged straddle with 11500 Put and 11250 Put of Jan '12 and Mar'12 series respectively and Calls of 12k for the same series will play well on both sides of the range.

10250-10400 region to be retested within 8 weeks time and Thanks-Giving turkeys will fill grizzly bears with good food until Santa props up stuff again.......

Follow Up

No change For the Forecast at this point of time

Support lies at 10250-10500 levels and the potential to stage a counter-trend rally is high towards 11875 levels subject to 2 consecutive closes above 10450

DJIA Outlook For September

My main posts will be restricted to Nifty only and will be updating DJIA outlook sporadically to help take positions on DJIA futures on NSE. DJIA has a pending upside of 11400-11450 in September regardless of what the Fed or White House comes with. However, risk averse traders should not take Long positions on DJIA. Rather one should wait to see how 11450 pans out on spot. 2 consecutive closes above 11450 on DJIA opens DJIA for 11850 levels where shorts can be safely opened with a 3 month forward contract.

On the other hand, if one wants to short DJIA, shorts should only be initiated after 2 consecutive closes below 10800 for a target of 10200 levels. One should not write off the Dow so easily. It may make one more attempt towards 11k plus levels in December. The much awaited collapse on Dow may not come before February 2012. Eventual target is a minimum low equal to that we saw post Lehaman Brothers and possibly fall further as well. However, blind shorts should be avoided as one can be marginalized / trapped for filling up margins. On NSE, there is no facility of options on DJIA futures.

The fall will be led by banks only to begin with. Transport has confirmed the bear market already. Enjoy shorting from a suitable level and reap the bumper rewards in due course of time.