Wednesday, September 7, 2011

EOD Analysis for 7th September 2011 and Outlook for 8th September 2011

Nifty did show some strength today and the volumes were very good with OI in Nifty futures clocking 28.5 to 29.1 million throughout the day. Banknifty gained on the back of a good short-covering rally in Europe and as expected, gained over 200 points from the lows of this week. Some profit booking can be seen but if the cues remain good, the technical pull-back on Banknifty may go all the way to 10k levels but one must remember that this is just a technical pull-back.

The 5150 zone was briefly touched upon but there is still some more steam to retest 5177-5200 levels. One close above 5092 was needed to retest the 5150 levels. We closed over 5092 but also retested the 5150 levels. If the longs do decide to go on and Banknifty completes the technical pullback with Reliance and LnT supporting, it would a welcome relief rally for bulls. On the other hand, with just 2 more days to go, if profit booking starts coming in and we close below 5092 tomorrow, then more shorts will enter the system. This will imply a retest of 4950-5000 levels on Nifty and 9500-9600 levels on Banknifty.

For this week, the downside maybe limited to just 4950 levels and the upside for now seems to be capped at 5225 levels as an intra-day high. However, if we get a close above 5177, then we can expect all the gaps to be filled and some fresh longs taking us all the way to 5348 before Nifty decides to turn back. At all times, we need to remember that this upside is just a relief rally and the risk of retesting 4800 is very much on the cards within this series. VIX did cool down a bit but it is still hovering around 28 levels; unless VIX drops to sub-25 levels, choppy conditions will prevail.

There is no point in taking a fresh long position at this stage. Those who have been holding longs should just trail the position and we are slowly drifting into Sell on Rise territory. Hedging is very critical and one could either short an option of the same direction or use a little more margin and take an opposite position in the next series futures. 20 point stop loss to be strictly adhered to and then trail the winning leg.

On stock specific action, Sun Pharma has given 2 consecutive closes below 500 now. The retest of 450 is almost certain on this counter. Sesa Goa has so far shown a resilient pullback from 200 levels but is a counter vulnerable to retest 200 levels yet again [Whilst there are rumours about some bad news on Sun Pharma and Sesa Goa - it hardly matters; the weakness is there on the charts and regardless of what happens vis a vis patents and rights with Sun Pharma and mining issues, Cairn deal with Sesa Goa, the stock price will fluctuate solely on demand-supply and charts; charts are weak.....]

Automotive sector has started seeing some profit booking. Safe to ignore the news around fertilizer stocks like Chambal et al as the pullback is done and hardly any more steam left. Better to play with liquid counters and whilst ONGC showed some strength today, it will go down to 250 levels soon. [I normally don't recommend shorts on this counter as the lot size is 4000 and if the moves are caught well, fine but otherwise, it is a dangerous futures counter. 1 point move triggers a gain or loss of 4000 so better to play this via equity. for taking a hedged position, one needs a margin of 1 lakh to take positions like Long current series/Short next series or vice versa. Surprising that NSE and SEBI hasn't taken note of such discrepancies yet]

The reason why I am highlighting this is because I received a couple of mails from followers of this blog asking for a second opinion on playing this counter. If price is a barometer, then M&M has a lot size of 500 and that means logically, ONGC should have a lot size of 750 to 1000 IDFC should have a lot size of 1000 to 1250 only. Trading with a couple of counters is no doubt good but the pros and cons of picking up a counter, margin requirements etc need to be examined as well. So my suggestion is to stick to the top counters where the lot sizes are smaller, cost of carry, margin requirements are lower.

Gold prices are cooling off slightly and Dow futures for now are trading positive. FTSE may show strength upto 5325 levels before reversing the gains in the next 5 to 8 trading sessions. Hope all of you are taking advantage of both this blog and Raghuji's EW counts as well. Should there be any doubt regarding a position, please feel free to drop in a comment and ask. Depending on schedule will try to answer the same. Just ensure that when you take a position, it is hedged to protect your margins. If the losses are taken care of, the profits will follow in a trending market.

1 comment:

vineeta said...

very informative blog