Friday, August 19, 2011

EOD Analysis for 19th August 2011 and Outlook for 22nd August 2011

Weakness in the markets continued with very modest signs of short covering in the last hour. The volumes have been very high on the down and Nifty futures saw an OI of over 30 million through out the day. A lot of selling pressure is coming due to margin calls on Western bourses and redemption pressures.

As far as DAX and CAC40 were concerned, I had long ago given the forecast that they have topped out and likewise for Dow as well. On FTSE, I did anticipate a rally towards 6400 but the close below 5550 on FTSE ruled that out completely. DAX will melt another 2200 points from current levels in a year to come and CAC40 will collapse by another 950 points at least further. However, this correction has been rapid and there will be some intermediate reliefs.

For Nifty, fundamentals have not changed but with a subdued political scenario, weak global cues, there is not much liquidity to fuel the markets big time. Some value buying will come in and this is actually a very good time to invest in some good counters for short term upside. Managing too many counters in a portfolio will be difficult and hence it would be good to buy the index itself via ETFs. Banks will lead the recovery from here and one should see fresh supply once 9500 is taken out convincingly.

The Dow syndrome normally tends to be happy Fridays and unlucky Mondays; if that jinx continues today and on Monday, we may turn the other way around i.e. cheer on Monday and gloom on Tuesday. Banknifty is still vulnerable to a couple of round of sell-offs but I am reasonably sure that with expiry around the corner and an almost perpetual fall we have had this series, relief is on the cards. From the highs of July, Banknifty has dropped 2100 points in about 4 weeks time. A 1000 point relief rally is likely in the next 4 weeks. In case it does decide to go and retest the long term support line of 9200 on spot, even then a return to 10k levels in Aug series is not ruled out.

It remains to be seen how SBI and ICICI shape up now and whether they do manage to take support from here [or may be 140 points further down on SBI and 80 points down on ICICI before a technical pull-back takes place] The 10k figure is both technically and psychologically important for the market in the short term.

Markets are still not out of the woods but it is time to start cherry picking stocks and indices in small tranches. Nifty is below all crucial support levels of the medium term. this the third straight week in a row where Nifty has closed below the close of the previous week. [5072 last week was the closing figure] So the short term resistances will be 4950, 5020, 5050, 5092, 5120, 5150 and 5177; Unless 5225 taken out on EOD basis, there is not much hope on the Nifty. We are 4 trading sessions away from expiry.

It will be subject to manipulations and low margin traders should wait till the expiry is done with. The current VIX levels are placing very high Put premiums a lot of which will vanish in thin air within 5 to 7 trading sessions now. Premiums have returned to Banknifty futures to reasonable levels and marginal levels for Nifty futures. I would interpret this as Longs rolling over their positions for September series and shorts booking out slowly.

Stay very alert and trade with calculated strategies for capital protection in case of a trade going against you. Risk-reward ratio is in favor of buying now. Hope all of you had a profitable week and continue to make more as time progresses. Wishing all of you a very enjoyable weekend.

1 comment:

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