Friday, July 22, 2011

EOD Analysis for 22nd July 2011 and Outlook for 23rd July 2011

The volumes started on a mild note in the morning with about 24.8 million OI in Nifty futures; The gap-up was expected on the back of a strong Euro [which the Nifty seems to be temporarily mirroring] and positive global cues. Immediately the shorts were covered and OI rose by another 1 million; as mentioned yesterday, there were a lot of pending Banknifty shorts which also got covered and once the 11200 was crossed over, some fresh long positions could be seen on Banknifty. Banknifty paved a stellar performance and recovered a lot of lost ground from yesterday and so did LnT which displayed strength. While normally we talk about Put unwinding that takes markets down, there was a lot of Call Unwinding also seen for the 55/5600 CEs and Short PEs were covered at piecemeal rates with a lot of premium already being milked down.

One needs to look at the currency markets in terms of SDRs [Standard Drawing Rights, derived from a basket of international currencies, which I will try to work on and present over the weekend]; The dollar has weakened whilst the Euro has latched on to its gains from yesterday so far, but the price of gold fell on the backdrop of weak dollar-strong Euro; CHF is firm, JPY is firm and ratio between GBP-EUR has been pretty constant as both appreciated against the dollar but are within a tight range of themselves. Some cooling off in the price of gold can be explained by margin calls being triggered and Silver which touched 40.4 a couple of days ago was anyways set for a correction

As of now, the expiry target remains unchanged at 5608-5690 levels on EOD basis for 28th July 2011, the FnO settlement date. The crucial turning point is 23rd July which is a non-trading day and some of the gains posted today may be reversed on Monday/Tuesday

Only a close above 5690 can usher further strength and only 2 consecutive closes above 5740 can bolster the bull story. The falls so far have been arrested within the 5532 levels only and further falls for July series can be expected to be arrested in the 5480-5532 zone

The volumes are still lower for an EOD above 5690 and to try for 5740 but it cannot be ruled out. Recommended strategy for Monday as follows

For Nifty, shorts can be opened in the 5655-5690 zone or below 5608 but should be hedged with August 5700 CE in the ratio 1:1; since we are approaching the end of the series, one should create the short with August series futures

For Banknifty, shorts can be opened in the 11350-425 zone and the 2nd tranche below 11250; at least for July series, it is hard to imagine further supply coming beyond Banknifty spot of 11425 levels as experts are suggesting; Profit booking will come in the 11350-11425 zone; next week is expiry week and there will be some manipulations to settle the Options contracts with minimal losses

On the Options Front, one could build a Long Straddle with the August 5700 CE and August 5600 PE 1:1 ratio with a 15 point stop loss on both sides and a Trailing Stop Loss on the winning side

Profit booking, 5600 Put unwinding expected to come in once either on Monday or Tuesday.
Thanks for visiting my blog and encouraging me to contribute further to the analysis. I hope you had a profitable week and I wish you a very happy weekend. Let us hope all of you reap further profits next week.

PS: Low margin players should stay out of the market for a week till the expiry is done with. Crucial Dates for August series will be posted over the weekend.

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