Wednesday, August 24, 2011

EOD Analysis for 24th August 2011 and Outlook for 25th August 2011

Nifty opened on a flat note today and the OI for Nifty futures was pretty healthy throughout the day at 31 million. This is not surprising as we are just one day away from expiry. The selling pressure was there during the middle of the day which is not surprising as some profit booking was bound to take place. Banknifty also reversed yesterday's gains. In fact it tanked another 100 odd points from yesterday's close.

There appear to be a lot of shorts in the system as far as Banknifty is concerned. At some point of time within the next 3 to 5 trading sessions, one should be able to see some short covering here but that won't help too much  as short covering can just about bring levels of 9450-9500 if the short covering goes to a strong level. Unless we see fresh long positions on Banknifty over and above short covering, Nifty will not get any relief. On Nifty, unless we get a close above 5092, range-bound trades will continue and every rise will attract shorts.

After having broken all crucial support levels in this series, Nifty has only one support level left i.e. 4780; a close below 4780 will open Nifty for a retest of the panic bottom of Feb 2010 i.e. 4675 levels. Hopefully next week one can see some relief on the bourses but from an investment point of view, some counters can be added to the portfolio for both sort-term upside and long term holdings.

Tomorrow is expiry day and will mark a lot of manipulations for the FnO position settlement. Premiums on options are expected to drop from next week with lower volatility and hopefully some positive domestic as well as international good news.

For those who are not having any positions open right now, it is better to wait until Monday for taking fresh positions from a trading perspective. From an investment perspective, these dips can be used to accumulate stocks in DP holdings. From a trading perspective, hedges are very important for FnO trades to the extent that you can escape with NPNL in case a position goes against you. For trading in equities, strictly refrain from using the 1:4 leverage provided by your broker. Trade on the basis of 1:1 only on equity side with the margins you have.

Pardon me for the repeated reminders - keep an eye on Banknifty; cheer on Banknifty will help Nifty turnaround or else, the nasty sell sword is hanging on Nifty's head. Also keep a close eye on the Rollar which a close above 46.1 [give or take a few pips] will trigger a strong sell on equities and bring a rally in Gold, Oil, Silver etc.

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