Monday, July 18, 2011

EOD Analysis for 18th July 2011 and Outlook for 19th July 2011

Volumes still remain a concern on Nifty and throughout the day, the OI in Nifty futures was around 24 million; however, in the last hour, there was an addition of 1 million in Nifty futures OI and a lot of shorts seem to have covered;  rollovers have indeed started as expected and macro-economic concerns are suggesting a rapid leg downwards should there be further disturbing news.

Banknifty is well above 11k mark and it is safe to open a short in the 11350-11425 zone for a minimum target of 100 points; Weakness will creep into Nifty when we get an EOD below 5532 level; although it is very likely that the falls may be arrested in the 5480-5532 zone itself, a close below 5532 can open Nifty for a retest of 5440 and 5408 levels before retracing back. As of now, expiry target for July still remains 5600-5690 zone with a retest of lows that will probably not breach 5408 on EOD basis;

Broader Levels still remain the same as on Friday
For Downside: 5532, 5480, 5440, 5408
For Upside: 5580, 5608, 5655, 5690

Every 50 point rise must add at least half a million OI; for downside, current volumes are sufficient to take Nifty to retest the 5480-5532 zone and addition of OI will increase with a breach of 5532
Sell on Rise remains the preferred strategy for higher probability of gains

Nifty is consolidating very well in the 5408-5608 zone; should there be consistent closes above 5408 on EOD level upto 10th August, we can safely conclude that the June low of 5196 was indeed a retest of the Feb low of 5177 and this consolidation is happening for the last pending rally in Nifty for 2011.

For tomorrow, one can use the rise in Banknifty to open a short for good gains and Nifty shorts must be opened in the 5608-5650 zone [if it comes there] or below 5532 if the fall is accompanied by volume; the action lies in the first and last hour of trade while the middle session will be relatively flat to suck options premium; the moves downwards seems to be deliberately moderated to take options premium out and catch retail traders off guard; just as the upward move in March and June was done with 30-40 points upwards and then 2 sudden spurts in between, the same seems to be happening on the downside now;

Traders must keep an eye on the daily P n L especially in Options because operators are relying on 'Frog in Boiling Water Syndrome' that most people including me have; Short positions via futures are better and to the extent Banknifty is above 11k and major counters like LnT, RIL are at respectable levels, the falls can be quickly arrested; agility is the key to trading success for the next 2 weeks as the markets may seem calm for a couple of days with minimal gains / losses on EOD level, one jerk on Friday is enough for Nifty to melt down 100 plus points; keep an eye on Gold prices that made a new high today at 1600 dollars an ounce; it is an indication that risk appetite is lower right now as far as fund houses are concerned;

Extra Notes For Macro-Economic Perspective:
To take a holistic view of the soaring gold price, one also needs to take a look at the Euro-US Dollar, USD-JPY and Dollar-CHF levels; while the number of 1600 per ounce looks good on paper, adjusting for the fall in dollar value, the current gold prices are equivalent of 1500-1520 dollars an ounce on January / February levels. For those already invested in gold via ETFs or futures or MFs, it is time to start booking some profits

For traders who like Silver must also note that silver has already made its top and we will not see silver at 55 dollars or 60 dollars for the next 5 years. Silver still has some correction pending and target for silver in the next 12 to 18 months is USD 25-28 per unit; that should be the time to invest in silver for a target of doubling its value in a 3 year time frame [which is still below current top of 60]

Hedge Funds are using excessive leverage on the Commodity bourses and CBOT has had to revise the margin limits 3 times in the last 1 year for Long Silver / Long Gold positions; the 5 day correction made a lot of small time traders bankrupt on CBOT; Suddenly, there will be a lot of fund houses giving buy calls on Silver and Gold saying the next bull run for these precious metals is about to begin; for Gold, I can agree but not for silver; Gold will top out around 1625 levels and for now, we will soon see a correction in gold of about 5% to 8%; Fresh gold purchases (in futures and options) must be on hold till we see the 1475-1500 levels again; within the next couple of weeks some more small and medium sized fund houses speculating with long positions on Gold on CBOT and LME will probably go bust with the margin requirements for settling positions.

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