Monday, August 1, 2011

EOD Analysis for 1st August 2011 and Outlook for 2nd August 2011

The volumes through out the day were pretty thin and Nifty Futures OI stood at 21.2 million throughout the day. Banknifty and Nifty both witnessed some gap-ups but with thin volumes that could not be sustained. At one point of time Banknifty had crossed 11050 and Nifty was well above the 5532 mark but as mentioned earlier as well, it will take some more time and effort to positively overcome the 5532 barrier on Nifty and 11000-11050 mark on Banknifty.

The retest of 5480-5532 zone seems to be done with for now and one retest of 5408-5440 zone may come in around 3rd August to 5th August period. 3rd August marks an important change in the monthly as well as quarterly financial calendar for Nifty and astrologically, Mercury will start retrogade motion from 3rd August. In the first quarter of 2011, when Mercury went retrogade, some sharp falls were seen on the bourses and one needs to be cautious this time as well. Moreover, 2nd August marks some important announcements from the US Government about the debt levels. One should bear in mind that the markets have long ago discounted for a lot of negative news from the US when the QE2 discussions itself were on-going.

All the scenarios have been taken into account and smart money knows for sure that there is a lot of trouble brewing in the G8 countries. What we will see now is just some short term fluctuations or knee-jerk reactions. Some experts have gone on to say that the Dow has already peaked with its May2nd 2011 rally; whilst we have witnessed multiple tops and bottoms in between, for the short term, liquidity in the markets will keep going and there will certainly be an attempt to take out the May 2nd high on Dow after 23rd September 2011; Whilst one can hear noises about 14k, 15k on the Dow, that has to wait for a long time now. The maximum upside IMHO the Dow can have is 13200 for 2011. As regards smart money, the portfolios have been hedged upto 2013 as American Options are much more dynamic than European Options that we follow on Nifty. FTSE has a pending target of 6400 which will also come later this year after a retest of 5550

Coming back to Nifty, the hope of a bull run is still intact with major upsides coming in after September 23rd as well. To the extent 5408 holds out on EOD basis, markets are very safe. To the extent we don't go below 5177, the 11th Feb low, the hope of a new high towards Diwali remains intact. However, if we go below 5177 on the backdrop of weak global cues in August, the upside for remaining part of 2011 will get capped at 5944.

For August series, a close below 5408 on Nifty and we open for 5348, 5280, 5225, 5177, 5092 (Last hope for any meaningful upside) 2 consecutive closes below 5408 will bring a 99% probability of going down to 5225.....

For now the crucial levels remain the same
For The Downside: 5408;5440;5480
For The Upside: 5532;5580;5608;5655;5690

As far as positions on Nifty are concerned, it still would be prudent to wait till the uncertainties are cleared. All positions must be appropriately hedged. For Nifty, one can take short positions in the 5532-5550 zone with a 5600 August CE as hedge 1:1 ratio. Targets are 5480-5450-5408 in 1 week time Stop Loss at 5565 for Short Nifty and 5520 for Long August 5600 CE (all index values are spot values)

For Banknifty, frankly there is nothing much to play for and the options premium are too high for hedging. If one has margin, a safe way to play Banknifty would be Long August Banknifty - Short September Banknifty or vice versa. Support levels for Banknifty are 10600-10660 zone and 10750-10800zone and 11000-11050 zone. However, with bad news looming, 11k-11050 is turning out to be a short term resistance. If one has margin only for 1 lot, it would be be better to get more stock specific and avoid Banknifty for a few days.

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