Monday, July 11, 2011

EOD Analysis for 11th July 2011 and Outlook for 12th July 2011

The OI in Nifty futures were pretty much constant at 24 to 24.3 million through out the day; despite the time value, Nifty Puts gained well; Banknifty fell below 11250, tried to stage a comeback but then could not tether to 11250 for long; [but the last 1 hour garnered an additional 0.5 million OI when the fall was brought into; whether it was short-trapping or a genuine increase remains to be seen tomorrow]

5608 provided good support throughout the day except for a few ticks below 5608 which was quickly bought into; today was  the 8th consecutive day for 5608 support level; I expect this level to be breached tomorrow with possibly a visit to 5655-5690 zone once before collapsing; shorts should be opened as close to 5690 as possible and only if the volumes stay lower; the next tranche of shorts should be opened below 5608; with 5408 and 5532 both levels holding firm for a long time now since June expiry, the retest of 5408-5440 may not take place in current series;

Should 5608 stay firm on EOD tomorrow, reasonable to assume that it will provide support for another 3 to 5 days [3 days on calendar days basis and 5 days basis trading days to complete the Fibo count of 13]

The downward correction will be good for the bulls to take some rest and prepare for the marathon run up for the Diwali mahurat trading; With Infosys results due, to the extent EPS of 150 comes and guidance remains with EPS of 150 or above, some upside may be seen in Infosys and other IT counters may join the upside; if the EPS is around 146-148 zone, the downside is pretty much factored in already; the counter will become bearish with any EPS outlook below 144-145 [assuming fair PE multiple of 20 for Infosys] and this will pave the way for 2750-2800 levels

Banknifty is still struggling and may make one more attempt to regain the 11250-11350 zone before collapsing again; the expected downfall is still not coming through as not many shorts are opening up at this point of time on Nifty / Banknifty / CNXIT futures as well as major Nifty 50 counters; with results season open and the bitter experience of getting shorts chopped earlier has sent in caution

Above 5655, there may be some fresh longs and vice versa for shorts once Nifty breaches 5580 levels; sentiment is neutral to negative until 15th July and will possibly reverse after July 23rd to neutral to positive

As always, trading capital in options should be no more than 20% to 25% unless one is building a spread with long-short; For Long Straddles, a good combination can be July 5500 PE with July 5700 CE 1:1 ratio with a 15 point stop loss on each leg and trailing stop loss on the other leg;

Unless we see some major bad news striking the global equity markets, 5408 is expected to continue its firm support and unless we get a close below 5408, I would peg the July expiry target in the 5600-5690 zone as of now. [One needs to be open as bulls have already surprised the floor with a close well above 5690 once and retained the 5608 levels for 8 consecutive trading sessions]

Assuming all other heavyweights including Reliance stage a reasonably good performance, Banknifty at 11k corresponds to Nifty spot of 5600; the downfall in counters like DLF, Infosys, SBI has been more than offset by counters like Titan, LnT, TCS etc; 

For the continued bull story, volumes have to go up and 2 consecutive closes above 5740 are crucial; 2 consecutive closes above 5740 and we open for a retest of 5890-5944 -> Probability 1%

Most likely path - retest of 5480-5532 zone and a gradual pullback; while there is a lot of noise in the options data, there will be some deliberate flat sessions introduced to shave off options premium; the goal of current expiry prima facie seems to be to render maximum 5400 to 5800 CEs / PEs worthless on a NET NET basis on expiry

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