Friday, September 2, 2011

EOD Analysis for 2nd September and Outlook For 5th September

Nifty futures had healthy volumes today with the OI in Nifty futures consistently around the 26 million OI mark throughout the day. Banknifty futures showed a high of 9650 levels at one point of time though most of the gains were given up in the middle session. Except for the bad start on 26th August into September series, so far, the retracement has been remarkable.

Further movements will now depend on global cues as well as political and sentiment outlook on the Indian bourses. As far as banking counters are concerned, a technical pullback to 10k on Banknifty is not ruled out at all. It may take some time for proper assessment of the aftermath of SBx mergers with SBI to sink in. For the short term, there is no value unlocking but value erosion as the fixed cost structures will be badly affected with these mergers and NPAs will actually surge. For a fully optimal NIMs improvement and effective operational efficiency that helps reduce operational and fixed costs, it will take at least 3 years.[We have already seen how ICICI Bank has been struggling with its banking acquisition last year]. As an investor, one should wait for SBI to now come to 1000-1200 levels to accumulate with a 2-3 year horizon.

Unless 5092 is taken out on EOD basis, it is very unlikely to see fresh longs in the system. Finally the weekly losing streak has been snapped for once and we are still above the psychologically important 5k mark. With the results season coming in and sudden spurt in spot gold again to 1850 levels, there is extreme panic as far as smart money is concerned. The dull market breadth across all bourses is also hinting at how most retail and HNI traders have given up at least temporarily.

The next major rally will again be led by banking only followed by automotive and pharmaceutical segments. Short term, better to go with the trading on indices and 5100 looks pretty much achievable now. Above 5177 if crossed over with good volumes, Nifty opens for a retest of 5348 but that will need 2 consecutive closes above 5177 with healthy volumes. The broad range for now still remains 4690 to 5177 for now and one can consider opening shorts at 5100 levels with Short 5100 PE as the hedge 1:1 ratio. Strategy would be to maintain a 20 point stop loss on the losing leg and riding the winning leg.

On Banknifty, one can consider opening shorts as close to 10k levels as possible and preferably with some margin and the shorts should be via a a 3 month forward contract. On Dow, 11875, 12000, and 12200 are critical resistances. First round of shorts on Dow should be opened as close to 12k as possible, again with a 3 month forward contract. Second round of shorts would be closer to 12200 or below 11400. Target is 9500 for this futures contract. [Only for high margin players and those who can hold a position without getting bogged down with the news, noise and temporary red on the counter]

Stock specific action, one can see good relief rallies on the automotive counters which is not surprising, both technically and fundamentally. The festive season will mark some optimism for the automotive segment on both domestic and international demand. The tops are in place but shorts should be opened at comfortably high levels.

Hope all had a profitable week and a good festive break. For me personally, this week was not very good in trade because I did not follow up on my positions with proper discipline and allowed greed to take over a couple of winning positions. Again goes to show how analysis and trades are 2 totally different aspects. The fine tuned EW counts and projected path will be updated over the weekend out here and on Raghuji's blog.

Until then, enjoy the weekend and festivities.  

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