Wednesday, August 10, 2011

OUTLOOK: Overseas market reactions will continue to dominate

Market Outlook: Indian markets are expected to be on the positive track on the back of hope of stable sentiments on the global space. US, Europe mkts recover, Dow jumps;. Gold hit a record high on Tuesday in its biggest three-day rally since the depths of the financial crisis in 2008, as investor fears over the threat to the global economy from the European and US debt crises hit assets seen as higher risk. 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.

US Update: The US markets saw their biggest one-day gain since May 2010 after a wild market session as investors snapped up beaten-down stocks and following a Fed statement to keep interest rates near zero for at least two more years. The Federal Reserve pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 to revive a recovery that's "considerably slower" than anticipated.

Results today: Adani Enterprises, NHPC, GSK Pharma, Tata Global Beverages, Tata Power, REC, Kingfisher Airlines, ABG Shipyard, MTNL, Bharat Forge, Apollo Hospitals, VIP Industries, GATI, Hanung Toys, Everonn Education, Hotel Leela Venture, Autoline Industries, Lovable Lingerie, Astec Lifesciences, Nelco, Xpro India, IL&FS Engineering, Jayshree Tea, Jubilant Industries, Zodiac Clothing, Gokul Refoils Zylog Systems, Koutons Retail, Man Infra, Ruchi Soya, Kohinoor Foods, Shrenuj & Co, Advanta India, Tanla Solutions, Gujarat Siddhee Cements, Crew BOS, Ind-Swift Labs, Eveready Industries, Fame India, Financial Technologies, Bartronics India, Uttam Sugar Mills, Paramount Print Packaging, Nahar Spinning, Page Industries, Oudh Sugar Mills, Innoventive Industries, Sanghvi Forgings, Eros International, BS Transcomm

Global events to watch for:

Þ Treasury Budget

Þ Bank Reserve Settlement

Þ EIA Petroleum Status Report

Global indices Update @ 8:

Dow Jones : 11239 (+429)

NASDAQ : 2482 (+124)

Nikkei 225 : 9047 (+102)

Hang seng : 20019 (+687)

SGX CNX Nifty : 5160 (+64.5)

Gold (USD/t oz.) : 1757 (+14.7)

Nymex Crude (F) : 81.49 (+02.1)

INR / 1 USD : 45.17

OUTLOOK: Overseas market reactions will continue to dominate

Another day another gap. The market then struggled to work its way out of the new hole it dug for itself. Once again the action initially was good, but it got slammed down once again before recovering slightly. Is that enough? Not really. But at the time of writing this report the Dow is up. Not unexpected, that. After all, traders there too would cut before the FOMC event. Some expectations for a QE3 comment is expected. But even if it is not there, market should rally some. After all, the VIX there hit about 45-48, the band of reversal. So, like we said, nothing unexpected. If the market closes in the US flat to better, we will have a better day here.

The gap took us down to another support zone near 4965. Swift recovery and no challenge of that low shows bulls in charge during the day. We want to see more action from them today before we get ready to lend them some money. The situation is too fluid for us to think any other way. In yesterday's letter the situation for today was described as a buy (gap down and then up from the start). We didn't get a top close so we could not turn aggressive (this was the second situation described).

While price wise we may have hit some lower levels that are near support, the upside action is still limited. This is borne out also by the position of the RSI on the hourly chart. Here it is not even able to get above the 40-45 levels so far. That is the minimum that must happen. So lets look for that to happen today. Then the other event we want to see is an ability to hold the higher levels attained during the day. Will that get us out of trouble? Not yet. There is no divergence on the daily charts (we now have them up to the hourly chart) and this will require a rally and then another dip with a close beneath 5095. It need not make a new bottom below what we have seen today though it could happen too. All these may take a few days so don't get carried away by any upsides that you may get right now. It has a max limit till around 5250 or so.

Puts got added from the 4600-4400 levels (about 60L). We reckon that much of these are short puts because we cant reconcile with buying OTM puts at IVs reaching up to 40% in a market that has already declined 900 points from the swing high at 5760. Not that it is not possible. We are just saying that it is not probable. If that is so then we have a bottom formation at hand. We will follow up this thinking in letters ahead.

STRATEGY FOR THE DAY: Bias is for some positive action. Overseas market reactions will continue to dominate the proceedings and hence there may be spurts intra day when Europe opens in the afternoon. Be aware of this. Stocks are in various process of bottoming so we will have to take a call on them on a dynamic basis rather than go to the market with predecided picks. If market stabilizes then local news will once agian begin driving individual stocks. So this is another aspect to keep track of.

Stocks to buy if market is strong:

RALLIS INDIA Rallis India is one of the few shares which has its uptrend in tact. Such stocks are the first to move once the market dust settles down. The trend has been captured by the ascending trendline as can be seen in the appended chart. RSI has given a positive crossover on the daily charts, signaling fresh buying opportunity. Go long.




Buy above 163

2 points

166 / 168

Or dips to 161

2 points


TTK PRESTIGE A strong support in the form of 100-period EMA seems to have held the recent fall from the all time high of 3200 levels. This week has seen prices attempting to bounce back from that support and closing on a positive note, despite market weakness. RSI has turned around from 40. Consider buying.




Buy around 2770-2790

25 points

2840 / 2870-80

Or dips near 2730-20

25 points

2770 / 2800

Stocks to sell if market is weak:

WOCKHARDT Last week prices broke below a neat rising Gann line support and moved lower. Last few sessions made few attempts to move back above the same but with prior support now acting as strong resistance, they failed to move any higher. Yesterdays fresh turnaround from the resistance has signaled a sell opportunity here. Go short.




Sell below 421

5 points

414 / 410 / 407

Or Rise near 428-30

5 points

421 / 417

Stocks in action for the day: Mah Satyam, DLF, Prajay Eng, GMR Infra, ABB

Wockhardt says -Hope to complete sale of nutrition operations by March -Not planning any further disinvestment

Pawan Munjal says (Hero MotorCorp) -Launched a new 150 cc bike, Impulse -Will set up 2 new manufacturing plants in India -Will enter some African markets jointly with Honda -Will announce tech tie-up with European firms shortly -2-wheeler market in India still has huge potential-Hero MotoCorp plans to invest USD 1 billion over the next five years to generate a turnover of USD 10 billion (ET)

GMR Infra Q1 -Consolidated net loss at Rs 66.7 crore versus profit of Rs 28 crore -Consolidated net sales at Rs 1,864 crore versus Rs 1,231 crore

Tree House Education & Accessories IPO of 84 lakh shares with a price band of Rs 135-153/sh opens today

Mahindra Satyam plans to wind down its American depository share programme in 2012 on the back of inability to file the annual report post September 2008

Telecom Dept shelves plan to sell the govt’s 30% stake in Bharti Hexacom a subsidiary of Bharti Airtel (ET)

Oil Ministry informs CAG on its disagreement with RIL over the company’s view of how govt approves decision of a panel which governs oil & gas fields (ET)

NMDC to double its ore output from its Karnataka mines to meet local demand after the company gets a nod to restart operations in southern state (ET)

Prajay Engineers Syndicate ropes in Middle East Investors to invest Rs 154 crore in its current project

Reliance Power plans to set up a 200 mw wind power plant in Maharashtra with an investment of around Rs 1500 crore (DNA)

RIL raises USD 1 billion loan from the international market & also in talks with US Exim bank to part fund its USD 12 billion Jamnagar phase 3 expansion project (TOI)

DLF set to exiting both phases of SEZ Pune a JV with Ackruti city to raise liquidity by selling its non-core assets (HT)

Ex Dividend: BHEL Rs 17.90/share

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

RIL-BP $7.2-bn deal gets govt nod

Productivity down for second consecutive quarter

Pranab allays fears of a payments crisis

Maharashtra tables Bill to promote self financed varsities

Govt acting on black money details from other countries


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