Monday, August 8, 2011

Nifty major support 5050

Market Outlook: Indian markets are expected to be negatively biased on the back of unconstructive sentiments on the global space due to a US ratings downgrade and a worsening debt crisis in Europe. On the US counter Wall St ends worst week since Nov '08 with wild day and Asia trading weak; Straits Times, Hang Seng slip 3%. The initial reaction will be a high degree of uncertainty and thus volatility since investors will not know where to turn for safety. On the overall basis we are negatively biased on the global phenomena and expect Indian market to trade with a curious outlook with support near 5000.

Results today: L&T, M&M, Tata Chemicals, PTC India, EIH, Bajaj Corp, Vadilal Industries, Sun Pharma Advanced Research, ARSS Infra, Jindal Polyfilms, Omaxe, Tata Coffee, DCW, Deepak Fertilizers, SEL Manufacturing, KNR Constructions, Astra Zeneca, Finolex Cables, Morepen Lab, Golden Tobacco, Zenith Exports, AP Paper Mills, Maxwell Ind, Infinite Computer Solutions, Money Matters, PVR, Laksmi Precision, Ansal Housing, Amrutanjan Healthcare.

Global events to watch for:

Þ FOMC Meeting Announcement.

Þ Emergency conference to discuss the debt crises in the United States and Europe.

Global indices Update @ 8:

Dow Jones : 11444 (+60.93)

NASDAQ : 2532 (-23.98)

Nikkei 225 : 9178 (-121.8)

Hang seng : 20177 (-773.8)

SGX CNX Nifty : 5106 (-114.0)

Gold (USD/t oz.) : 1696 (+44.20)

Nymex Crude (F) : 84.40 (-02.48)

INR / 1 USD : 44.80

TECHNICAL OUTLOOK: Global trends at stake.

Things happened pretty much as per the plot on Friday. Opening lower, the market sought even lower levels, hitting down to the 5150 support zone before rallying a bit towards the end to finish better. One could have taken it as a reversal if the prices had managed to close above the opening but that was not to be. Still, now there is a distinct possibility of a one day reversal pattern being created if the market were to trade up with a gap today. This will be the most bullish situation that can occur under the circumstances and one to be hoped for. If it is seen, then jump in without a thought, setting a stoploss below the Friday close. But if there is not upside gap (that does not get filled, of course) then there is no bullish situation present and we may therefore have a retest of Friday lows before fresh moves occur.

But the RSI failed to record a divergence even though it had a good chance to do so. That is certainly a dampener and suggests that we may not be done with the decline yet. With the decline and poor weekly close, the weekly oscillator signals have also undergone further damage. This may all take some time to be undone. So what we may get, if at all, is an oversold bounce. Don't think of it as being more than that for now. Of course, a one day reversal pattern (akin to an Island reversal pattern) would have fair bullish implications in terms of the upside move to be achieved, but in the absence of confirming signals from indicators, we would still have to treat that too as only an oversold bounce. So, bottom line here is that we are not done yet. Looking at the US charts- from where the problems emerged- it does not appear as though they are going to recover from the current decline in any kind of hurry. So the pressure from there is going to persist.

So far 445 points of move has already occurred and we are yet only 5 days old in this month! Readers had been warned to expect a larger range in August but we also never expected that it would come so soon. Can the range expand in the upward direction now? Seems difficult. The last month rollover happened in the price range around 5550. Those positions are in deep losses right now. And it would be mostly small traders who are holding on to these losers. They generally do not bail out until being forced to do so. By now, they would all be losing their nerves quite a bit (in addition to losing money too) and would be more inclined to let go if outlook doesn't change. Hence the gap of Friday is an important item and a failure to bridge this gap would indicate to us that the index would continue to seek lower levels where the pending longs would be forced out. The next support zone for the Nifty is around 5041. Another method of calculation indicates a possibility of 5015. Channeling technique gives us targets around 5050. On the upper side, we can look for 5280 and 5355 as the two major hurdles above that need to be crossed to reestablish some bull power. Weekly pivot has dropped to around 5335 and would be another resistance calculation.

Options activity continues to show high build up in calls implying a lot of short calls. The PCR has now moved to 0.93 and that is definitely bearish territory. Huge build up in calls are seen at the 5500-5600 levels. These may get reduced some as they are now trading down to small levels. Notable additions were visible at 5000 and 4900 puts. A lot of these could be short puts, playing for some rally. But there could also be a lot of long puts of those trying to buy some protection (although it may be a bit late to be doing that).For now, one may look upon these fresh put additions at lower strikes to create some sort of support base below. After a near 500 point move down, it seems unlikely that market move another 200 without there being any specific reasons. Whether the US matter could morph into something similar to 2008 is not a call that we can take. Lets leave that to the so called fundamental experts who seem to be full of cheer yet. Notice how they all talk about 18-24 months down the line? That is so comfortable isn't it? Who in the world is going to remember what you said 18 months ago? And the beauty is, no one can really contradict you!! After all, who knows where the world will be 18 months from today? Bottom line is, if you are going to be trading and putting your money on the line from day to day or week to week, then don't get sucked in by such extended ("18-24 month" or "attractive valuations") stuff. You can only rely on your friendly neighbourhood technical analyst to solve your problem for you!! We mention this because at times like these, suddenly everyone gets afflicted by this virus called "value investing" (without knowing a word of what it is).

STRATEGY FOR THE DAY: Look for a gap up open. If this happens and holds beyond the first 5 minutes, then trade long with a stop below Friday close. Maybe the stop would be a bit far but that cannot be avoided. If on the other hand, market opens flat or weak, then avoid any fresh buys and even exit any that may have been made with a sense of adventure on Friday. If dull and range bound, then leave the market alone for a day to find its bearings again. No need that we should trade the market every day! We should do so only when we feel the odds are with us. And today, the odds are with you if there is a sustained upside gap- not otherwise.

Stocks to buy if market is strong:

THERMAX: The steady declines over last week saw the prices finding feet to witness a revival. With the declines attracting some buying interest one can look to trade this counter with a bullish sign as the momentum has also reaced the oversold levels. The rally in the market could produce some upward traction in this counter today. Buy.




Buy above 521

5 points

528 / 532

EXIDE INDUSTRIES With the market witnessing a carnage backed by negative sentiments across the globe this auto ancillary counter too headed lower only to find strogn support in its value area around 142 levels.The sharp bounce thereafter has resulted in apositive close for the week. With RSI reviving from 40 levels one can expect some buying action today in this counter.Buy,




Buy above 143

1.5 points

146 / 148

Stocks to sell if market is weak:

PSL: Metals have been witnessing bearish pressure and on Friday they capitulated. This counter was barely sustaining above its value support area around 68 , however the bearsih sentiment dragged prices lower and closed below it to signal fresh selling opportunity today.The volumes have also shown an increase on the way down confirming that bears are having a firm grip on the prices.




Sell below 67

1 point

65 / 64

Or Rise near 68.50

1 point

67 / 66

Stocks in action for the day: Tata Comm, L&T, Sun TV, Sesa Goa, NMDC.

GoM on Urea decontrol: No govt control on urea prices Urea companies to get nutrient-based subsidy -Urea companies allowed to hike prices by 10% in first year -No price control on urea after 1 year -Gas-based urea plants to get pooled price for gas -Additional govt support for high cost urea plants -GoM decision to be approved by CCEA

SC allows NMDC to produce 1mt from its Bellary mines -SC directs NMDC to pay royalty of 10% market rate -NMDC cannot export any iron ore from Bellary

SBI Chairman says -Gave govt various options relating to rights issue -Govt will need to infuse Rs 11,000 crore for 55% share in SBI -More dialogue needed to finalise SBI rights issue -Finance Ministry expressed concern on NPAs in banking sector -Govt may need to put in Rs 9,000- Rs 14,000 crore in SBI rights issue

Godrej - Jet Airways deal Godrej Prop says -To take Rs 360 crore land debt of Jet Airways -To pay Rs 135 crore for Bandra land to Jet Airways -To develop 1 mt of saleable area, office building -To equally share profits with Jet Airways from land development -To complete Bandra land development in 3 years

FM says -No proposal for introducing dual pricing for diesel -No proposal to increase taxes to meet revenue shortfall

Sesa Goa to acquire 51% stake in Liberia-based Western Cluster for $ 90 million

Anant Raj board meets on August 11 to consider allotment of NCD's aggregating to Rs 250 crore

Kalanithi Maran pledges 5.69 lakh more Sun TV shares

India Nippon Electricals board to consider issue of bonus shares

F&O Ban: Deccan Chronicle, Gitanjali Gems

Cairn Energy to withdraw arbitration over cess payment & share ONGC ’s royalty burden in the Rajasthan block seeking time till September to complete formalities.

L&T bags three international orders totaling USD 889 million for hydrocarbon projects

SAIL gets CCEA nod to revive FCI’s Sindri unit to invest Rs 35000 crore to setup steel, power & fertilizer units

VSNL’s surplus land of 770 acre valued at worth Rs 6156 crore based on the prevailing govt rates & also the land cannot be used for residential purposes (ET)

Indus Towers mulling the option of merging the company with Bharti Infratel ahead of its proposed listing (ET)

JK Paper ’s right issue of 5.8 crore equity shares at Rs 42/share opens today - JK Lakshmi Cement drops its plan to acquire a cement company in Egypt for Rs 800 crore (BS)

Wockhardt bond holders hearing over the repayment of matured bonds worth Rs 300 crore to be held next week (BS)


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