Thursday, August 11, 2011

OUTLOOK: Mixed reactions but volatility rules.

Market Outlook: Indian markets are expected to be on the flat note and trades are expected to be negatively biased on the back of fears over possible trouble in the French banking sector that has large exposure to shaky peripheral European debt. Investor sold off with a fear over the threat to the global economy from the European as higher risk. Dow, S&P extend losses, off nearly 3% after a sharp snap-back rally in the last session as investors fretted about the economy and high levels of public debt. Asian markets trading weak; Straits Times slips 2%. On the overall basis we are negatively biased on the global phenomena and expect Indian markets to trade with a watchful outlook with support near 4900.

Results Today: Tata Motors, Reliance Infra, Reliance Power, SCI, JP Power, Shree Renuka Sugars, Polaris Software, Rolta India, S Kumar, Castrol India, Jubilant Foodworks, Amtek Auto, Apollo Tyres, Shriram EPC, Ackruti City, Puravankara Projects, Parsvnath Developers, Moser Baer, Rico Auto, Inox Leisure, Ashoka Buildcon, Valecha Engg, Anant Raj Industries, JHS Svengaard Lab, Sakthi Sugars, Amtek India, Provogue India, MSP Steel & Power, Lumax auto, Loyd Electricals, LML, Clutch Auto, PVP Ventures, Walchandnagar Industries, West Coast Paper Mills, Zuari Industries, TV18 Broadcast, LT Foods, Gammon Infra, Nitin Fire, Crest Animation, Gujarat Gas, First Leasing, Jindal Worldwide, Varun Industries, Texmo Pipes, Vascon Engineers, Fresenuis Kabi, VST Tillers

Global events to watch for:

Þ International Trade

Þ Jobless Claims

Þ Bloomberg Consumer Comfort Index

Global indices Update @ 8:

Dow Jones : 11239 (-519)

NASDAQ : 2381 (-101)

Nikkei 225 : 8922 (-116)

Hang seng : 19718 (-59.3)

SGX CNX Nifty : 5137 (-11.0)

Gold (USD/t oz.) : 1785 (+01.0)

Nymex Crude (F) : 82.72 (-00.17)

INR / 1 USD : 45.20

OUTLOOK: Mixed reactions but volatility rules.

Market did two of the requirements that we had placed before it yesterday- open better and hold on to the gains. While one may have wanted it to be better than what we got, it was still much better than what had transpired in earlier days. So we have to be satisfied with what we have so far. After all, it is only the first day that the market has shown some inclination to arrest the decline. Whether this is ascribed to Fed rates being held down or oil price decline or short covering, it really doesn't matter. A rally of sorts has been set off. The prices traded up to the top end of the recent gap area at 5233 and that is really the level that needs to be regained. Remember that gaps act as important resistance areas when approached from beneath. We have a pretty large one stretching from 5325 to 5233 and that really is the main resistance area for the market ahead. Until we can bridge this, we have to consider all moves upward as a rally only. On the hourly chart we also find an overhead resistance trendline is poised around 5250, adding to the resistance in that zone. Of course, there are more gaps for the market to deal with if it continues to rise further. So the way ahead is not a smooth one.

In yesterday's letter we had mentioned that a good bulk of the Puts added could well be short puts. It was not very difficult to conclude that considering that the IVs had shot up so much in the past three sessions. But with the rise of yesterday, there was a sharp cooling of the IV levels and it had dropped to around 30-32% from the over 40% that we had seen a day earlier. In our earlier letter we had also mentioned about the sharp highs that the US VIX hit and how that too had to cool off. So they did. And it is our expectations that they will continue to do so in the days ahead. Hence the best trade to take would be to short volatility for the moment. We see the IVs receding to around 25% at the very least if not lower. This will require the prices to range for a while. If the market rises too we should see the IVs come off too. Since that has a greater probability right now, we should be creating trades in that direction.

It is possible that today could be a rather dull day. After the frenetic action of the past few sessions that would not at all be surprising. All the equity markets across the globe showed some really, really huge volatility in recent days and that would call for some sideways action in all markets. So the day may be better traded using a support-resistance approach rather than look for trended breakouts. Of course there will be some stocks that will show some runs but they may be fewer.

Fertilizer stocks were in demand yesterday and it looks like the rumor that has been afloat in the market just before the three day cave in has been rejuvenated. Chambal shows the best pattern among the lot and should be looked at by traders and investors alike. This is also a stock to keep buying on dips. RCF from the cash group is another one that is looking pretty strong. Policy changes are the driving force for these stocks. So be a Govt watcher along with a price/chart watcher. Similar is the situation in Sugar stocks that have attempted some rally yesterday. Renuka is the only one to look at, if at all. Maruti continues to out perform significantly in the auto pack. We had mentioned this a few days ago, suggesting that it is the only stock to trade along with M&M. The latter has also rallied nicely but maybe near some resistances already. Use dips to buy rather than chase them higher.

STRATEGY FOR THE DAY: Negative opening again on the cards on back of weak US markets hence readers are warned not to get overly active in such a market. Intra day volatility is possible and may indeed be sharp and a bit scary too. But in sum they should not really be creating lower lows or higher highs either. So best to approach this with the aid of our Table given in this letter or use the extra names available on our Dyna Level service (free on our website). Do continue to keep a watch on Europe and the news that comes out of there. After all that is at the root of the current problems.

Stocks to buy if market is strong:

FUTURE CAPITAL: Prices managed to bounce back smartly after holding support at a rising Gann line on the daily time frame. A follow thru will also see them end the prior corrective leg and move up afresh. RSI has bounced up from 40 levels. Look to buy here.




Buy above 173

3.5 points

178 / 181-82

Or dips near 169-68

3.5 points

174 / 177

IRB INFRA After few sessions of sideways consolidation prices witnessed a nice spurt last session and was seen trading positive all thru the day. The decisive upward push also led the momentum readings revive a bit. The rise came on higher volumes indicating possible rally ahead. Buy.




Buy above 169

1.5 points

172 / 174

Or dips near 166.5

1.5 points

169 / 170.5

Stocks to sell if market is weak:

BAJAJ ELEC After a free fall since mid July 2011, prices found feed near prior bottom and valuation region around 203-02 levels. A failed consolidation above that region has invited renewed selling action yesterday as prices once again slipped lower and closed below 203 levels. Sell.




Sell below 199

1.5 points

196 / 194 / 193

Or Rise near 202-03

1.5 points

199 / 197

Stocks in action for the day: Piramal Health, India Sec, Unity Infra.

Piramal Healthcare to acquire 5.5% stake in Vodafone Essar: Piramal Healthcare has entered into an agreement with Vodafone Group to pick up a 5.5% stake in Vodafone-Essar. It will buy this stake from Essar Group company ETHL Communications Holdings, for around Rs 2,856 crore. The transaction follows the settlement between Vodafone and Essar over the sale of Essar's approximately 33% stake in Vodafone-Essar, which was announced on July 1, 2011. The deal is in line with Piramal's objective of earning 19% internal rate of return (IRR). To pay USD 640 million for Vodafone Essar stake -Acquires 5.5% stake from Essar -Buy 5.5% stake from India Securities (listed – board has proposed delisting).

Domestic car sales down 15.76%, bikes 10.51% up in July: Domestic passenger car sales have registered a 15.76% decline in July this year mainly due to hikes in lending rates and lower production by market leader Maruti Suzuki during the month. Car sales in the country stood at 1,33,747 units in July, 2011, as against 1,58,767 units in the same month last year, according to figures released by the Society of Indian Automobile Manufacturers (SIAM) today.

DoT Secretary says: - VSNL 's surplus land to be auctioned -DoT to appoint consultant for demerging VSNL surplus land -Consultant to advise on auction modalities Surplus land to be first demerged into SPV

Listing of L&T Finance holdings as on August 12

Nitin Fire to have board meeting to consider & issue bonus shares

F&O Ban: Deccan Chronicle , Gitanjali Gems , Suzlon

Unity Infraprojects bags projects worth Rs 253 crore

Leela group set to sell its property in Kovalam near Kerala for Rs 500 crore to NRI Ravi Pillai (ET)

EGoM meet on August 12 to decide on allowing more sugar exports & lifting ban on wheat exports (FE)

Neyveli Lignite is seen eyeing three of the NTPC’s coal block in Jharkhand even as power ministry has asked for a review of coal ministry’s decision to de-allocate these blocks (TOI)

Indian Oil Corporation reported standalone net loss of Rs 3718.70 crore for quarter ended June 2011 against Rs 3388.39 crore in the same quarter a year ago. Net sales were at Rs 92100.17 crore as compared to Rs 71672.66 crore.

Adani Enterprises posted consolidated net profit of Rs 569.81 crore for quarter ended June 2011 against Rs 407.44 crore in the same quarter last fiscal. Net sales were at Rs 9596.13 crore as compared to Rs 5536.08 crore.

Apollo Hospitals Enterprise reported standalone net profit of Rs 51.27 crore for quarter ended June 2011 against Rs 39.27 crore in the same period a year go. Net sales stood at Rs 641.01 crore from Rs 523.29 crore.

Lakshmi Machine Works reported net profit of Rs 41.14 crore for quarter ended June 2011 as compared to Rs 30.09 crore in the same period a year ago. Total income was at Rs 511.14 crore as against Rs 345.58 crore in the corresponding quarter last year.

Jayshree Tea reported net profit of Rs 18.12 crore for quarter ended June 2011 as compared to Rs 11.76 crore in the same period a year ago. Total income was at Rs 92.56 crore as against Rs 83.32 crore in the corresponding quarter last year.

Bombay Burmah Trading Corporation has agreed to sell its Sunmica division engaged in the business of manufacturing and marketing decoratives and industrial laminates to AICA Laminates India, a subsidiary of AICA Kogyo, Japan as a going concern on slump sale basis for Rs 100.30 crore.

Page Industries posted net profit of Rs 27.68 crore for quarter ended June 2011 against Rs 13.69 crore in the same quarter last fiscal. Total income was at Rs 176.41 crore as compared to Rs 119.70 crore.

Shrenuj & Company reported net profit of Rs 19.40 crore for quarter ended June 2011 against Rs 13.43 crore in the same period a year ago. Net sales were at Rs 676.10 crore as compared to Rs 465.69 crore.

Career Point reported net profit of Rs 4.64 crore for quarter ended June 2011 against Rs 2.80 crore in the same quarter a year ago. Total income was at Rs 15.77 crore as compared to Rs 14.82 crore.

Bombay Rayon Fashions reported standalone net profit of Rs 56.81 crore for quarter ended June 2011 against Rs 52.16 crore in the same quarter a year ago. Net sales were at Rs 603.82 crore as compared to Rs 502.69 crore.


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