Wednesday, October 5, 2011

EOD Analysis for 5th October and Outlook for 6th October 2011

On the surface things looked calm for Nifty but there is a grave danger lurking around in the broader markets as well as the leading indicators. Banknifty continued its slide and took a cut of almost 250 points and is at precarious levels. Based on the previous outlook, the falls were expected to be arrested in the 8800 zone for now but the entire banking space across the globe is getting extremely messy. Whilst IT and some of the Auto majors saw some short-covering and modest upsides today, if banks go down and the seasonal demand does not match expectations, auto sector will be the first to take steep cuts. IT saw some short covering as well as possible bounce due to the rollar effect but that is not going to help.

Already the jobless claims in the western world are inching higher so there will be increased pressure to keep jobs locally and this will hurt the IT sector a lot. LnT, Reliance also held fort but it is only a matter of time before the sell button is hit en masse. The only positive takeaway from today's trade has been that the OI increased a bit for Nifty futures to about 23.4 million and significant premiums have been restored to both October and November series Nifty futures. Another thing to note is that the deeply ITM Puts like Oct 5200/5100 PEs were trading at discount and the lower strike PEs did not carry too much premium - maybe just maybe some some more upside may come before the eventual fall.

Crucial levels remain unchanged and upside still seems to be capped at 4840 levels for this week whilst the 4663-4693-4720 levels remain absolutely crucial. IMHO, 4773, a very crucial level has been pounded 3 times now and it no longer holds the importance as it did until yesterday; if bulls are lucky 2 more times it can support but I am not very optimistic any more about this [3 to 5 times is the number of instances such crucial levels hold the fort; we saw it with 5690, 5532, 5408, 5378, all the way down to 5092; after 3 pokes, there remains a lot of uncertainty as to whether subsequent supports will come through]

Any rise right now is illusory and is on account of short-covering rather than fresh longs. Only if the OI in Nifty futures surges to 30 million plus levels with a RISE, can one say fresh longs are entering the system. For a falling market, I personally have no reservations that the volumes will come with the fall and just in case they don't come through, it can only delay the fall but not avert it [it has already been seen most of the times in the last 3 months that a 30 point fall in Nifty triggers a 3-3.5 million increase in OI and accelerates the fall]. Fortunately, there was a slight decrease in VIX [though still above 35 levels] which also indicates some calm but the reason is straight forward - a vast majority of the retail trading section does not want to participate in the market.

Wishing all of you and your beloved family members a very Happy Dushera. May Lakshmi Devi and Saraswati Devi both shower their blessings on you for health, wealth and prosperity.

PS: Cash still remains king and hold on to it - and invest in only select counters on sharp dips in tranches. Once 4693 broken on downside, another floodgate to 4450-4550 coming in....


Ajith Kumar said...

Dear Nagaraj,
I bought 4500PE(8lots) around 88 ,now it is at the price of 64.Can I hold it with a SL of 4840 level.

reachnagraj / theknight16 said...

Dear Ajith
Very difficult for me to say anything in this regard except for the fact that money management was not followed prudently. You may wish to read the Futures & Options Paradox for some insights.

With this amount, I would have simply shorted 1 lot Nifty and banked the gains with a 20-25 point stop loss. It is your money and you need to decide how to take this forward.

animoitra2011 said...

Dear Nagraj ji I bought 4800 pe @150 .What to do?Also according to time price alerts 10 th oct is crucial date for trend change.What is your gut feel ?Which way its going to go ?Regds.

nalin said...

hi nag bro...a very hearty dushera to u n ur family....may u all b blessed by Thee....