Wednesday, May 18, 2011

Stocks in Action for the day: Bajaj Auto, Maruti Suzuki, RIL, Mphasis

Market Outlook: Indian markets are expected to open in positive terrain mainly on the back of short covering after weak sentiments for couple of days. On the global space US stocks closed down and Asian markets trading lower; Hang Seng, Nikkei down. Overall outlook for the markets today is that of cautious optimism with 5400 levels as a major support and key resistance near 5500.

Results today: Bajaj Auto, Orchid Chemicals & Pharma, DB Corp, Radico Khaitan, Bajaj Holdings, HSIL, MRO Tek, Rajshree sugars, Eclerx Services.

Global events to watch:

Þ Bank Reserve Settlement.

Þ FOMC Minutes.

Global indices Update @ 8:

Dow Jones : 12479 (- 68.79)

NASDAQ : 2783 (- 00.90)

Nikkei 225 : 9651 (+84.10)

Hang seng : 23001 (+100.1)

SGX CNX Nifty : 5468 (+18.00)

Gold (USD/t oz.) : 1490.5 (+10.50)

Nymex Crude (F) : 97.77 (+00.86)

INR / 1 USD : 45.07

TECHNICAL OUTLOOK: Bears take control....

In yesterday's letter we wrote that the weak underbelly of the market may get exposed and it did. Beginning lower, the market could not work up any upward enthusiasm and proceeded to break the previous support zone near 5470 and headed lower steadily. Absence of large long positions prevented any sharp fall and also, there wasn't much of a selloff from traders either. In fact, it took a surprisingly weak number from SBI to puncture the support. The expectations were off by about 99%!!! So much for fundamental previews! In most cases anyway, the expectations are off by 5-10%. Now just think about a similar situation in prices. What would you say about a technical target that was consistently off by 5-10%? You would fire that analyst wouldn't you? But in the financial industry, the fundamental analysts get a bonus! Talk about double standards!! These guys have it easy!

We had warned about the situation in Bank Nifty and yesterday it cracked, taking the Nifty down with it. Along with SBI several other banks were also down so it looks like it may continue to stay down today also. 10525 and 10405 are two immediate targets to look at. The IT index is threatening to break the 50% retracement support that it has been holding around 6560. If it joins the declining melee then the nifty should fall further. However, here individual stocks do not appear to be weak (like in the Bank index) and hence the danger is lesser. Nasdaq has fallen sharply a couple of days ago and is down into near term support. But below 2780, that index may fall further and this is something to watch for as it may affect the IT stocks. The correlation seems to be much lesser now than in the past but in a weak phase, people pay attention to the smallest of things. So be alert.

The two large OI positions are at 5600C and 5400 Put. Interestingly, in yesterday's market there was hardly much unwind of the put position. Does this signify that the market may not fall much? We don't know the answer to that one but it is certainly something to watch for. 5200 Put saw some additions and since the price is only Rs6, it has to be presumed to be fresh long position in those puts. So, here is someone punting for more declines. Couple that with a 20L addition in the 5400 calls and you have a recipe for more declines ahead. Of course, the 5400 call positions could be a short hedge too. PCR has dropped again to 0.9 and so the bearish posture here continues.

5385 and 5355 are two Gann angle supports to the decline. Trendline support is at 5310. Square of 9 support line is at 5355. So looks like that is the zone we are heading into. On the upper side, the daily pivot around 5475 is the first of the levels to take on, followed by the value resistance area near 5520. The weekly pivot at 5615 now looks a bit distant!! But trend strength at the moment is weak so it does not take much for operators to induce opposite moves with an intent of trapping players. They often do it when the mood is one sided and signals are obvious on the charts. Today is one such day. So be on guard here. Work with strict stops if shorting.

STRATEGY FOR THE DAY: More declines seem to be on the cards here and hence approach the market with a negative bias. If there are rallies then look for it to wilt near the pivot resistance or some such and then short when it falls. Trying to find upward traction in a market devoid of buying strength would be really swimming against the current. Note that there is no major selling emerging yet so declines could be slow. But this aspect could change in a flash (a buying trap as discussed above) so be ready for it. No buying in any mid caps at such times, even in those with some news. They cannot fight this kind of market current. Unless you are a "long term" investor.

Stocks to buy if market is strong:


The trend has been trapped in a broad, sideways trading range over the last several months. Recent sessions saw prices hold support of 200-EMA and bounce up from a small correction. But not finding enough momentum had seen them moving in a tight sideways range. Yesterdays smart rise on the closing chart has clearly made a decisive move ahead. Looking for confirmation here. Buy.




Buy above 489

4 points

496 / 499-500

or Dips near 484-82

4 points

490 / 493

Stocks to sell if market is weak:


Prices have been crashing heavily last few weeks and any attempt to halt the same have been futile so far. Yesterday they were back on a sell mode with a substantial fall, turning down from the descending Gann line region. RSI has turned down afresh from 40. Go short.




Sell below 162

2.5 points

158 / 156


This counter has been witnessing a series of declining moves since last three weeks. Prices yesterday plunged to new swing lows, breaking the crucial support of 200-EMA along the way. Momentum readings have grown weaker. Look to sell here.




Sell below 88

1.5 points

86 / 85

Rally near 89.5

1 point

88 / 87


Sell Nifty below 5440 stop 5475 for drop to 5385/5365.

Sell Nifty on rally to 5515 stop 5530 for drop to 5430.

Buys, if any, shall be informed during the day.


Buy Jindal Stl above 645 stop 638 target 655

Sell Century Textiles around 317-320 stop 321 tgt 312

Stocks in Action for the day: Bajaj Auto, Maruti Suzuki, RIL, Mphasis

F&O Ban: Deccan Chronicle, Power Finance Corp

Vodafone India Q4 (operationally better than Bharti) Traffic up 8% QoQ at 119.2 bn ((Bharti was +6.5% QoQ at 212 bn) Wireless revenues up 5% QoQ at Rs 71.6 bn (Bharti was +3.8% at 91.3 bn) Results reflect improving situation for incumbents: DB

Maruti Firms Up Plan To Launch Multi purpose vehicle By Early 2012

SBI Chairman Q4 An Abberation, Not Realistic Net Profit Impacted Due To Heavy Provisions Expect Some Deceleration In Loan Growth Going Forward SBI Structurally Has More NPAs Than Other Nationalised Banks Additional Provision For Teaser Loans Of `500 CrAsset Quality Has Been A Challenge In FY11

Sources Say Hero Group Applies For A Name Change At ROC Hero Group Applies For Name Change From Hero Honda To Hero Moto Will Take Atleast 2 Months For The Name Change Product Names To Remain Unchanged

PTI: Oil Min, DGH Order RIL To Drilll 2 Wells In KG-D6 By Jun

Power Min Sources Say Stop e-Auction Of Coal For Power Plants No Auction Till Existing Plants Get Full Supplies Coal India Must Assure Supplies To 2009-12 Projects 12-15% Of Total CIL Coal Sold :: Via e-Auction Coal India Sold 45 mt At :: `1,800-2,000/t Via e-auction Notified Price Of Coal :: `800-1,200/t Willing To Pay 10-12% Higher :: Price For Coal Coal India Must Formulate :: Emergency Production Plan Power Min To Raise Issue At :: May 19 Meeting PM To Review Power, Coal :: Sector On May 19

Coking coal trends Coking coal decline accelerating Current price at A$316/t, down about 4% from April-end Capacity utilization in Australia at 70% vs 50% post floods

Mphasis in focus: HP down 7% on Nasdaq after weak results and cut in guidance ((HP is Mphasis’s largest client and owner))

Surana Corporation board approves rights issue on a 1:1 basis

Pawan Kumar Ruia Group acquired French based company Sealynx Automotive for an undisclosed amount

Govt to consider a radical proposal to shore up electronic manufacturing capabilities in the country plan to mandate 30% of all electronic equipment procured should be Indian products (ET)

Steel Cos such as SAIL & Jindal Steel is likely to collaborate with global players instead of bidding for these large units as a part of global restructuring (ET)

Finance Minister mulls service tax on transport of bulk of railway freight comprising goods such as coal, steel, iron-ore, cement constituting 70% of the freight revenue (FE)

Finance Ministry is in favour of raising the open offer trigger from 15% to 25% limit to ease out capital inflows in the company (FE)

10 companies including Adani Group, MMTC ltd have shown interest in NTPC’s first direct coal import tender for procuring 4 mt of fuel valued at Rs 3000 cr (Mint)

Gamesa ((For reference)) Bags $2 bn order from Hyderabad-based Caparo Energy Alert: Caparo targeting to install 5GW of wind farms in India by 2017 of which 1GW will be supplied by Suzlon Energy

Alert: Gamesa has 10% market share, number 3 player and gaining market share

HT Media Q4 FY 11 Consolidated YoY Revenue up 21.8% at Rs 470 Cr vs Rs 386 Cr PAT up 13% at Rs 53 Cr vs Rs 47 Cr EBITDA Margin at 18.5% vs 23.8%

Globus Spirit Q4 FY 11 YoY Revenue dn 5% at Rs 109 Cr vs Rs 115 Cr PAT dn 48% at Rs 6 Cr vs Rs 11.5 Cr EBITDA Margin at 10.1% vs 10.4%

Bajaj FinServ Q4 Cons Net Profit At `873 Cr Vs `434 Cr Cons Total Income At `1,317 Cr Vs `652 Cr


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