Tuesday, August 9, 2011

TECHNICAL OUTLOOK: Caught in a bearish mode

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 Street plunges; Dow closes below 11K sees a sharp nosedive to finish at session lows with S&P 500 plummeting over 6%, its lowest close since September 2010. All eyes will be on the Fed meeting today. In commodities, crude plummets 6% with the Brent breaking below the 200-day moving average of USD 106 as the US credit rating cut and rising stockpiles stoked concerns that an economic slowdown will worsen and reduce fuel demand. From the precious metals space, gold rallied and extended gains to hit an all-time high above USD 1,720 an ounce level on safe haven buying as equity markets tanked.

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 4850.

Results today: GMR Infra, Gujarat State Petronet, Wockhardt, Tata Communications, Piramal Lifesciences, ABB, United Breweries, Madras Cements, Mahindra Satyam, Jubilant lifesciences, Orbit Corp, Sobha Developers, Essar Ports, Four Soft, Ruchi Infra, Mandhana, Mudra Lifestyle, J Kumar Infra, Alphageo India, Bombay Rayon

Global events to watch for:

Þ FOMC Meeting Announcement.

Þ Productivity and Costs

Þ NFIB Small Business Optimism Index

Þ ICSC-Goldman Store Sales

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

Global indices Update @ 8:

Dow Jones : 10809 (-634)

NASDAQ : 2357 (-174)

Nikkei 225 : 8694 (-403)

Hang seng : 19165 (-1325)

SGX CNX Nifty : 4905 (-228)

Gold (USD/t oz.) : 1747 (+34)

Nymex Crude (F) : 76..53 (-04.78)

INR / 1 USD : 44.96

TECHNICAL OUTLOOK: Caught in a bearish mode

We had yet another gap down yesterday as markets the world over responded to the S&P downgrade. It is a funny thing but no one ever mentioned the fact that a nation that issues debt in its own currency and which is in full control of its monetary policy cannot default willingly! Countries default because they run out of foreign currency (mainly Dollars) to service their debt. The US does not need foreign currency to service its debt and hence rating agencies shouldn't even bother about rating US sovereign risk! Now France will certainly have to be downgraded too- as it is even more profligate than the US. Then the Banks and financial institutions of these countries will have to face a downgrade. The S&P has really set off a chain of reactions and that could be one of the reasons that is worrying the world markets. Maybe it is time for us to sit up and take notice too? We surely don't want another 2008 on our hands!

Chances of that appear to be considerably less because there are hardly any built up long positions. Remember that much of the pain in 2008 was because of the severe excess of leveraged positions (particularly by 18-20 year old kids playing the markets with their Dad's money). Much of the losses this time around is happening with opening gaps. While that does create a scare, it is not really leading to much panic because hardly anyone has anything to dump! In fact, matters may probably be at the other extreme- traders are regretful that they don't have much of shorts in a declining market! But that does raise another question- a more disturbing one. Who then is selling so much and continuing to keep the pressure on the market thru the day? The FII figures are not really coming thru as anything significant. LIC and other Insurance companies were on the buy side yesterday and ensured that intra day rally. But we are going to begin the day with yet another gap. We have so far lost about 700 points from the high at 5760 and we count that about 360 points of that fall should have been lost thru gaps- meaning that for 50% of this decline people have not been able to trade at all!! Still the panic level in the market is quite low. That can happen only when traders are not trapped with long positions in a falling market.

There is a growing feeling in the market that lower index levels would be seen. This could possibly explain the big surge in the put OI at the 4700 strike yesterday. PCR remains at 0.96, still in bearish territory. IVs have continued to flare up, trading up to 32% initially during the day and then easing off to around 30% by the close. In the US, the Vix has shot up yesterday to around 41%. This is certainly near the higher end of the band and signals a possible nearing of the end of the decline. The US treasury is also trading down to near its all time lows. So the US market is also getting overdone and should soon be readying for a short term bounce.

The daily chart of Nifty future is showing a spinning top pattern at the bottom. If prices are above yesterday close, then it would be a signal of a bottom. If prices begin with another decline, look for a top close as one of the signals to buy. If market begins with an upside gap, then set a stop beneath yesterday close and go long. If market begins with a down gap and then shows no signs of recovering, then move to sidelines or more aggressive traders can participate with shorts as well. Know that this would be a risky strategy but no risk, no gain, right? The supports on the way down are at 5018 and then 4965. On the higher side, we are happy to take whatever the market is willing to give!

STRATEGY FOR THE DAY: Market should open with yet another downside gap.The situations possible are all described above and should be referred to for judging the action to be taken. Be adventurous for a reason not just because your "gut tells you". Volatility can spill a lot of your gut! Stock action will depend on how the market fares. Since the sentiments are fragile and volatility is high, we are sending the stock calls thru SMS only for the last couple of days.

Stocks to buy if market is strong:

INDIABULLS A cluster of supports at around 160 levels - rising Gann line, 62% retracement of the last rising swing and 200-period EMA seem to be holding the current falling leg on the daily time frame. Using this level prices have managed to bounce back smartly last couple of sessions. Expecting a follow thru here, buy.




Buy above 170

2.5 points

174 / 176-77

Or dips to 167

2.5 points

170.5 / 172.5

GUJ NRE COKE The already declining short term trend in this counter accelerated the fall with great speed in the last three sessions. The gapped fall has pushed the momentum readings into deep oversold region. Last session saw this counter form a possible bullish pattern. We could see some short covering led pullback here. Aggressive players may use, bounce back if any, as a intraday buying opportunity.




Buy above 32.5

1 point

34 / 35

Stocks to sell if market is weak:

EMAMI Prices have been crashing heavily in the last couple of weeks. Yesterdays decisive fall broke below couple of important supports on the daily time frame and has closed below it. RSI too has broken 40 and moved lower. We suggest going short here.




Sell below 459

5 points

451 / 447

Or Rise near 464

5 points

458 / 455-54

Stocks in action for the day: Ingersoll Rand, Tata Chem, GSPL, ABB

Wipro CEO says -Holding onto guidance as of now -Clients tentative on impact of downgrade -Clients in wait & watch mode; BFSI most vulnerable -Will hedge for 3 months; review post that -Unclear which way rupee will move -Will not lay off people this time

Glenmark Pharma has filed for arbitration claim against US based Napo pharma to prevent them from distributing a drug in Glenmark’s territories (ET)

Tatas seek bailout for its Mundra UMPP in Gujarat which has been rendered unviable by the unexpected rise in international coal prices

Tata Chemicals has deferred plans to raise USd 375 million to fund expansion plans following global uncertainties (Mint)

Petrol prices may come down by Rs 1.5/litre with the possibility of any immediate decline in petrol prices will be evaluated on August 15 (HT)

Ex Dividend: Ingersoll Rand special dividend Rs 18/sh, Goa Carbon Rs 4/sh

F&O Ban: Deccan Chronicle , Gitanjali Gems

Listing of Elgi Rubber Co on NSE w.e.f August 10 pursuant to the scheme of arrangement

Omaxe reported standalone net profit of Rs 12.52 crore for quarter ended June 2011 against Rs 18.20 crore in the same quarter a year ago. Net sales were at Rs 241.31 crore as compared to Rs 181.28 crore.

Tata Chemicals posted standalone net profit of Rs 110.83 crore for quarter ended June 2011 as compared to Rs 151.24 crore in the same quarter a year ago. Total income increased to Rs 1623.46 crore from Rs 1484.49 crore.

Mahindra & Mahindra reported standalone net profit of Rs 604.88 crore for quarter ended June 2011 against Rs 562.39 crore in the same period a year ago. Net sales were at Rs 6673.20 crore as compared to Rs 5124.17 crore.

Nelcast reported net profit of Rs 7.85 crore for quarter ended June 2011 against Rs 2.07crore in the same quarter a year ago. Total income was at Rs 155.91 crore as compared to Rs 94.82 crore.

Deepak Fertilisers reported net profit of Rs 63.94 crore for quarter ended June 2011 against Rs 52.20 crore in the same quarter a year ago. Income was at Rs 473.87 crore as compared to Rs 350.54 crore.

Sun Pharma Advanced Research reported net loss of Rs 11.26 crore for quarter ended June 2011 against profit of Rs 48 lakhs. Total income was at Rs 10.08 crore as against Rs 14.73 crore.

Barak Valley Cements reported net loss of Rs 1.76 crore for quarter ended June 2011 against profit of Rs 2.93 crore in the same period a year ago. Total income was at Rs 25.02 crore as compared to Rs 25.57 crore.

Aurobindo Pharma reported net profit of Rs 101.58 crore for quarter ended June 2011 against net profit of Rs 63.34 crore in the same quarter a year ago. Net sales were at Rs 1053.73 crore as compared to Rs 886.57 crore.

Niraj Realtors and Shares, a promoter group company of Alok Industries, has purchased additional equity shares in the open market under creeping acquisition and increased their holding in the paid up capital of the Company to 8.68%. With this acquisition, the holding of Promoters and Promoters Group of Alok Industries stands at 29.43% from 29.37%.

Accel Frontline has entered into memorandum of understanding with Accel Transmatic to acquire their software services division known as "USHUS Technologies"

Jharkhand Road Project Implementation Company, a subsidiary of IL&FS Transportation Networks has signed an agreement with the Government of Jharkhand for improvement works on 15.1 m stretch of Adityapur - Kandra Road on built operate transfer basis. The project is on annuity basis with a concession period of 15.75 years including 0.75 year of construction period. The estimated cost of the Project is Rs. 241.15 crore.

SAIL is likely to form a joint venture with National Fertilisers for its proposed Rs 4,450 crore-urea manufacturing plant in Jharkhand's Sindri, in which the steelmaker will retain the majority stake.

Cairn Energy Chairman Bill Gammell has promised to withdraw arbitration over cess payment and share ONGC's royalty burden in the oil-rich Rajasthan block, accepting the government's conditions for the $9 billion Cairn-Vedanta deal.


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