Tuesday, August 23, 2011

EOD Analysis for 23rd August 2011 and Outlook for 24th August 2011

Nifty opened on a flat note today and then saw a bit of a fall. these falls were bought into but nothing indicated fresh longs being built up on either Nifty or Banknifty. Nifty's rise was predominantly boosted by shortcovering on Banknifty for sometime but there seems to be a hint of more shorts entering Banknifty or shorts being rolled over even at the levels of 9450-9500 on the spot price. The underlying assumption behind this inference is the way Banknifty futures are trading at a discount with respect to spot price. The cost of carry on these shorts in all probability dropped the premiums on the futures.

There is nothing to cheer on the bourses yet as Nifty is well below the crucial level of 5092. Banknifty although showed an EOD of 9450-9500, one needs to be very very alert due to the shorts/short roll-overs aspect mentioned above. Only a strong round of short-covering and fresh long build up can boost these counters and bring some cheer on the bourses. Tomorrow we may see some selling pressure due to DII selling and other global cues if weak. Gold prices are still high marking sentimental fear as far as smart money is concerned.

One can see how premiums are dropping in options on both Call and Put side as volatility is slowly cooling down. Once planet Mercury starts moving on forward trajectory from current retrogade move [over this weekend], premiums will drop further. So one should not invest in options on the Long side till expiry is done with. Expiry days are filled with manipulations by the big players and small players simply get chopped on both sides. Some of the second tier banking counters are now available at good prices and one can consider adding a few shares in the DP account for a short term upside. On the automotive front, there is a lot of discussions going around the market on both Buy and Sell side for M&M; needless to say a lot of attention is being showered and whilst the direction of the move on this counter is yet to be ascertained, option writers have been milking the public sentiment well on this counter. The spot price of this counter has been in a trading range and overnight the 680 PE and 740 CE have dropped 30% to 40% of premium values. The lot size is 500 and unfortunately, even now a lot of retail traders have not understood the operators game with this counter. On the other hand, Bajaj Auto is silently being accumulated and is showing technical signs of reversing to upside as well. Tata Motors at these levels are good counters to buy in tranches and although this stock may face a lot of badgering, taking a slightly longer term horizon, it is a gem to have in the DP account as well.

Current market conditions are such that one should trade without taking exposure on the equity side or stick to futures with an appropriate hedge by writing an option on the same side. Long Nifty + Short Call or Short Nifty + Short Put or Long-Short pairing of 2 adjacent series is a better way of trading. This recommendation of course is for players with higher margin and low margin players should wait. Not taking a position and preserving margins can help to trade better after expiry.

On the global market front, there will be a lot of noise but one should ignore these noises. European markets have their tops in place now. On Dow, one can see frequent ups and downs but it will stage a comeback a couple of times before going down the wire. Movement of Dow is not dependent on what the Fed says; it all depends on when margin calls are triggered and the pace of de-leveraging on both the FnO side and Commodities side. Also one must bear in mind that FnO expiry on Dow happens in the third week of the month unlike Nifty which happens on the last Thursday of the month. One should take a balanced view before rushing in to trade and losing money on options.

Wishing all of you profits or NPNL conditions till this expiry is done with.
Crucial levels remain unchanged and one should be very alert for a break below 4780 on Nifty as it will make Nifty vulnerable to retest 4675, the panic bottom of Feb '10

PS: When I say exposure on the equity side, I mean the 1:4 leverage that brokerage houses allow one to use. Buying should be delivery based and in case of trading, it should be strictly within the limits of what one's margin allows i.e. 1:1


animoitra2011 said...

How to trade nifty tomorrow? Its the levels that I mean.

reachnagraj / theknight16 said...

@animoitra: Tomorrow should be buy on Dips on Nifty via September futures and hedged with Short Nifty Call Option of 5000 Sep series in the ratio 1:1

[This trade demands a margin of about 65k per pair] Only trade if you have a heart of steel and can execute the Stop Loss/ Else wait for expiry before initiating fresh trades]