EOD Analysis for 29th July 2011 and Outlook for 1st August 2011

The volumes today showed a sharp drop with OI in Nifty futures hovering around the 20 million mark [Last 2 days of July Expiry had reflected an OI of over 29 million and even 30 million for some time!] There is nothing much to read into foe today's trade as Nifty is as good as flat in the 5480 zone and one should not give too much importance to the fact that we did cross 5500 levels once.

The crucial level of 5532 will need some more volume and effort to cross over as the downward trending line from 6338-6181-5944 is pretty close to this mark now; already in the first half of 2011, we have seen the way this level makes bulls struggle and it is safe to assume that some more attempts will be needed to take this out now. For next week, I expect the broad range to be 5408-5532; While most falls should ideally be arrested within 5480-5532 zone, if the volumes remain thin like this, sessions will be flat and with sheer time factor, we will end up retesting the 5408-5440 zone.

As of now, it seems like 5408 will hold out on EOD basis; should we get a close below 5408, then the carnage downwards will continue to 5280-5348 zone (1% probability for this) Whilst Nifty may go a few ticks below 5408 on intra-day basis, I expect the level to hold on EOD basis. However, 2 consecutive closes below 5408 can open Nifty for 5225; 5177; 5092 (Last hope for any upside)

As of now, 5200 has been pounded twice in 2011 and 5400 has been pounded 7 times; both levels can probably support once more but any subsequent pounding will seal the fate of bulls for the next 2 years completely. In such a scenario, all rises towards 57-5900 must be used to get out of investment holdings in equities, mutual funds and Index / Thematic ETFs

The initial part of August series may be quiet but stable; there should be no panic at all to the extent 5408 holds out on EOD basis. If we get a close below 5408 on EOD basis, then the volumes, global cues and domestic cues must be factored to decide further steps for trading / investing

Safe to assume for now that Nifty is consolidating very well in the 5408-5608 zone and some good counters are available at very attractive valuations. I am very bullish on Indian banks and believe that they will lead from front in the next rally which I still expect to come in after the monsoon session of parliament and political stability. The current scenario is similar to that we saw in early 2010 where there was lot of negativity around Europe and US but all Asian equities, BRIC countries led from front for the rally. Gold is already at a high level and with doubts looming about intrinsic values of the fiat countries, India, Brazil and China are very well poised to generate healthy returns on investments on a short term basis.

Fundamentally, we must realize that regardless of the name that US Fed or ECB give to the various stimulus packages, they are indirectly releasing money for hedge funds and institutional investors to speculate in the market and such speculations are always on the long side be it equities or commodities. On the other hand, these bailouts are not bailouts of the original problem but bailouts of previous bailouts (like the vicious credit card repayment scheme) [courtesy of quote 'Bailout OF Bailout' goes to EWI Socionomics booklet by Pretcher Jr]

For Nifty
Crucial Levels Remain The Same
Critical Support Levels: 5408-5440-5480

Critical Resistance Levels: 5532; 5580; 5608;5655;5690

As of now strategy remains Buy on Dips in the 5408-5440 zone for Nifty with initial targets of 5480 or above EOD 5532 only; I would peg 5440-5480 zone as a 'No Fly Zone' for shorts or longs till the signals become clear. If one takes a position on either side at these levels, then one should hedge appropriately

Banknifty is marginally below 10900 levels and if the weakness persists, it may retest 10660-10750 where most falls would be bought into IMHO. Retail traders should stay away from Banknifty for a week till signals get clearer. At this point of time, the possibility of getting chopped on either side is very high and the Banknifty Options premium are extremely high [one could rather hedge the position with the next series future in the opposite direction of the primary position for a slightly higher margin!]

By the end of August, Indian exports will start surging to cater to Fall / Autumn related goods for the developed countries as well as the 'Back To School', 'Back To University' goods and services. Fundamentally, we are on track for a short term positive outlook and the domestic consumption story is still going very strong.

However, one must review the portfolio of investments on at least a fortnightly basis and use corrections to buy. The current price of gold is appearing inflated due to the falling dollar value and with rupee gaining strength, gold prices should hold steady or take a small correction before soaring towards the festive season in October.

I hope all of you had a profitable week. I wish all of you a very happy weekend and a profitable week ahead. Thank you for taking the time out to visit this blog.

Comments, Feedback, Criticism are most welcome.

Long Term Nifty Counts

Long Term Nifty Count (Click This Link To View The Chart)

There is one error in this file at the CT starting from 5th November 2010 from the high of 6338; I intended to convey that we are in a 5 x ABC correction mode with lower highs and higher lows; those labels are hence misplaced (sorry I should have written in pencil, and then corrected; I did it with a pen and couldn't change it; rather the lack of patience to correct it and change it)

EOD Analysis for 27th July 2011 and Outlook for 28th July 2011

So yet again we saw a good manipulative expiry; the volumes again were pretty high and Nifty Futures OI stood at 29.5 million through out the day. The options data tend to generate a lot of noise and especially during expiry, leave a lot of people confused [I am no expert but during expiry, it does get very difficult to say which side it will go to] and hence my advice is to stay out.

We have had 3 days of non-stop carnage on Nifty and Banknifty and Banknifty is well below the 11k mark. Global cues are weak and we may see some more downside; 5480 levels did provide support but I wouldn't read too much into today's EOD as the figures are manipulated for FnO expiry.


Way forward - It needs to be seen how much effort Nifty will put in to overcome the 5532 levels for the next 2 to 4 trading sessions; historical evidence from 2011 suggests that whenever we have had EODs below 5532, Nifty does need a lot of effort to overcome the 5532-5550 zone on EOD basis. I still maintain that these corrections are healthy and are providing good buying opportunities in some attractively valued stocks in Banking, Automotive segments and consumption related. From a portfolio perspective, one should now decrease allocation to IT [maximum 20% allocation advised in this sector]. The Indian banking system is very robust at this point of time and although credit growth is considered slow, the broader picture shows something different

1 - Credit Growth is slower with respect to Credit Growth Indian banks witnessed last year. The reason for that is obvious - the interest rates were much lower and top notch corporates used banks as a funding vehicle. However, the housing loan scam to Realty Companies did take a toll  and with almost 150 bps hike in interest rates QoQ basis, and a higher base effect all contributed to the slowdown vis a vis India

2 - From a global perspective, Indian Banks Credit Growth is still one of the highest and the assets are AAA grades unlike US or major European Banks where the assets have a high level of toxic elements.

Banks will lead in the last pending rally of 2011 and to the extent 10500 level holds out on EOD basis on Banknifty, one can safely assume that the process of accumulation is in process. Banknifty has a pending target of 13500 for 2011; however a lot of this upside will come after monsoon session in August and towards end of September. Smart money always looks for some political stability to increase allocation in emerging countries.

The crucial dates for August have already been provided; proposed price actions will be updated over the weekend after tomorrow's EOD figures.

Broadly speaking, 5408-5440 zone will provide opportunities to Buy Nifty August Futures. Retail traders should only resume trading from Monday. For Banknifty, the Buy levels are 10600-10750 in tranches and one should avoid shorting Banknifty at this point of time. As of now, I expect falls in Banknifty to be arrested within the 10600-10660 zone itself. Safe traders can wait for retest of 10600 levels and take long positions on subsequent retracements above 10700-750 in tranches. Shorts should only be opened in the 11250-11425 zone depending on other market conditions.

Last month, I consistently recommended Sell on Rise; for first week of August, my recommendation is now Buy on Dips as the Risk Reward Ratio is in favor of Longs at least in the initial part of August series.

As of now I don't expect falls to go beyond 5408 on EOD basis; however, if we do get a close below 5408 on Nifty on EOD basis, we open for 5348;5280;5225;5177;5092 (Last hope for any pullback)
Below 5177, the pending bull party will in all likelihood be incomplete for a long time to come.

It would be time to keep watching the portfolios and start redeeming units in profits as the maximum upside will then get capped to 5890-5944 levels in all likelihood for the rest of 2011; so even if one buys on dips, one should look for opportunities to exit profitably in the 57/5800 levels and with minimal losses.

The medium term outlook is bullish and corrections in such conditions are rapid and furious. The dips would be bought into and I am personally optimistic about the tide turning by end of August and mid-September to the upside. Long term Nifty targets remain intact as follows for now

2011: A new high above 6400 [Sensex Target of 22500]
2012: A Fall towards 4850 [First half of 2012]
2013: A Fall towards 4350 [End of 2012 or Early 2013]
2014: A Rise above 7k levels [Sensex Target of 34000]

EOD Analysis for 27th July 2011 and Outlook for 28th July 2011

Nifty started on a mild note in the morning but the OI in Nifty futures was pretty high at 26 million levels; with DII settlement day today and weak global cues, the selling pressure began and within no time, the OI in Nifty futures went up to 28 million and both Nifty fell below crucial level of 5532 and Banknifty fell below the 11k mark; [My sincere apologies to all readers for not giving the DII settlement the importance it deserved and potential risks for Nifty on the downside]

Some short covering was seen around 5520 levels and yet again there was a spurt in the Nifty OI futures at almost 30 million. Short covering was seen in financials, capital goods but profit booking on telecom continued. The huge Put Writing seen at 5500 levels were covered last week and the huge Call writing of 5600 CEs were also covered at piecemeal rates by Option Writers.

Banknifty shorts covered to bring it to safe zone of 11050 once but towards the end, Banknifty fell below the 11k mark again before managing a respectable close marginally above 11k. Preferred strategy is 'Sell on Rise' and while the outlook for Banknifty seems good, I would not encourage retail traders to go long on Banknifty before a retest of 10660 and subsequent retracement to 10750+ levels. However, the data for today indicates that there are still many shorts in the system for Banknifty which will be forced to cover or rollover at a higher cost thereby signalling a potential move towards 11250 zone once.

The expiry target still remains in the 5600-5690 zone as a lot of shorts are pending to be covered or rolled over and based on cost of carry, seems like we might see some upside. The options data is still noisy on the last day; 5500 PE is showing an OI of almost 11 million and the 5600 CE is showing an OI of almost 12 million; however this is just the data for today and on a cumulative basis, there has been cumulative Put Writing at higher levels and one could expect manipulations on the upside to render these Puts worthless.

However, expiry day is full of manipulations from institutional funds and it would be ideal to stay out for Thursday and Friday till a clearer picture emerges.

The levels still remain the same
For the Downside: 5408; 5440; 5532
For the Upside: 5580;5608;5655;5690

Retest of 5480-5532 zone was due and we did see some short-covering in that zone; however, it still seems that some weakness persists and as mentioned yesterday, a retest of 5468 is not ruled out in the first week of August. As of now, I would expect 5408 to hold out on EOD basis until 10th August and if it does so, we can safely assume that the medium term trend is up

However, the Bull Story will only be bolstered with 2 consecutive closes above 5740 which will open Nifty for a retest of 5890-5944 levels. Volume requirements are very high for the same

The Bears have inflicted a lot of damage and the current market situation is such that bear corrections will be very fast and furious. The first hope for bears is a close below 5532 on EOD basis and if short covering does not come within the 5480 zone then the carnage can continue all the way to 5408-5440 levels.

There need not be any panic to the extent 5408 manages to stay firm on EOD basis; however, failure to hold 5408 on EOD basis will open Nifty for a retest of 5348; 5225; 5177; 5092 (last point for any possible upside) However, the probability of breaching 5408 on EOD basis is 1% for the next 3 months.

Retail traders should stay out of the market till Friday and take fresh positions on Monday based on global cues and movements of Nifty. Those holding August Puts or Calls on the Long side should square off all positions by Friday latest regardless of Profit or Loss; the movement into August series from Monday will bring down the options premium by and large and that should be the starting point for fresh positions now.

Current corrections in the market are very healthy and are providing opportunities to Buy Nifty and good businesses at attractive valuations. It is also critical to note the Delivery Volumes of stocks that exhibit extreme spurts on the upside or extreme spurts on the downside on regular trading days; some counters are showing signs of circular motion i.e. speculative longs and shorts on alternate basis without any delivery. One should beware of going long or short on such counters before a respectable delivery volume is seen as one can be chopped on either side of such counters.

EOD Analysis for 26th July 2011 and Outlook for 27th July 2011

The volumes today were actually lower than those of yesterday and the Nifty futures OI stood at 23.5 million to 24 million throughout the day; this indicates lack of retail or mid-level traders participating in the market and is not surprising considering that we are just 2 days away from expiry. As with all markets, Banknifty had gone up significantly yesterday prior to the RBI rate hike announcement. 25 bps was factored by the markets as per a lot of experts and I would tend to agree with that. However, based on the price and volume action on Banknifty through out the month, it was evident that there would be no fireworks on Banknifty as most of the positive news (if it did come out) was discounted already and probably we would have seen an attempt to take out 11500 once

Since it was 2 consecutive closes above 5608, it had to break today or if it had held, it would do so until Thursday for 5 consecutive days. However, there are shorts pending to be covered and the short-covering itself will provide a minimum upside of 40-50 points.

50 bps rate hike was a dampener for the markets and Banknifty came dangerously close to breaching 11050 levels today but most shorts covered in that zone and brought Banknifty back to respectable levels. On a fundamental level, these signs are healthy for the markets. The commodity markets are rallying and with monsoon data still awaited, RBI would certainly prefer to pre-empt inflation by hiking interest rates [that economically, the rate hikes have no effect in taming inflation is a separate issue] If we look at the rate hikes in the last 8 instances, every time we had a rate hike of 50 bps, Banknifty used to go all the way back to 10500-10750 levels

For the last 2 instances of 50 bps rate hike [which makes it 100 bps hike overall], Banknifty has fallen but falls have been arrested within the 11000-11050 zone; this is a very healthy sign for the markets; it shows underlying strength of banks and the fact that smart money is slowly moving in. The monsoon session IMHO will usher good cheer to the Indian economy contrary to what a lot of people are expecting. It is sad to see that a lot people in the light of trading are missing the broader picture of the markets. Unless we have some catastrophes  Nifty is on its way to go higher and such corrections are healthy. Banknifty, LnT and Reliance hold the key to take Nifty higher.

For July expiry the targets still remain in the 5600-5690 zone and then we can expect a retest of 5480-5532 levels and most falls would be ideally arrested in these zone failing which we may retest the 5408-5440 zone once. To the extent 5408 holds on EOD basis, there should be no panic and dips in these regions must be used to buy Nifty for trading or for short term boosts via ETFs; this rate hike that has come about today will bring some more weakness in rate sensitive stocks like automotive and real estate apart from banks. Some counters are available at extremely good valuations and can be very profitable with a 3 month to 6 month horizon.

Levels Remain Unchanged
For the Downside: 5408; 5440; 5480; 5532
For the Upside: 5580; 5655; 5690

Bulls can only rejoice after 2 consecutive closes above 5740 following which Nifty will open for a retest of 5890-5944 levels;

Bears can only rejoice after 5532 is broken on the downside on EOD basis since that will open Nifty for retest of 5408-5440 [close below 5532 implies that the 5480-5532 zone did not provide the required support]

The key dates for August have already been posted and the volumes for upside have been posted last week.
Expected price actions will be posted after July Expiry

A Small note on Market Geometry
There is a simple market geometry with extreme swings on the upside or downside; Once a Swing Top and Swing Bottom are established, it retraces 50% of the move before taking any direction further. There was a relentless drive up from June 20th low of 5196 to July 8th top of 5740; So the rise of 544 points would retrace 272 points in about 27 days with the current Rate of Change of Nifty @ 10 points per day approximately giving a price target of 5740 - 272 = 5468 in about 27 days from 8th July i.e. 4th August 2011; perfectly in line with the levels indicated earlier.

EOD Analysis for 25th July 2011 and Outlook for 26th July 2011

Nifty futures reflected an OI of 24 million in the morning but then once 5670 levels were taken out, another 1 million were added in Nifty futures and towards 5690, another 0.8 million came in taking the cumulative OI to 25.8 million and then some profit booking came in taking the OI down to 25.5 million. This is the 2nd consecutive day that Nifty has stayed above 5608. As expected, Banknifty also paved the way for the upside and profit booking was seen towards 11425 levels and it closed a few ticks below 11400; LnT also paved the way for the upside and the real performing star of the day was Bharti Airtel in the top Nifty 50 stocks posting an intraday high of 4% over previous close.

As of now, the expiry target still remains within the 5600-5690 zone and some downside will come to crush the calls which are gaining a lot at the moment. A retest of 5480-5532 zone is pending and we can expect those to come in after July expiry. The volumes are still not large enough to trigger major upsides or for that matter even hold 5690 on EOD basis. However, an intraday visit to the month's high once cannot be ruled out.

Safe to short Nifty at current levels with a hedge of August 5700 CE and further shorts should be opened only after the 5608 level is breached on the downside. For Banknifty, 11350-11425 still remains a preferred shorting zone but with the RBI announcements coming in, one may consider hedging the shorts with an August 11500 or 11600 series Banknifty Call; due to its illiquid nature, Banknifty Options don't lose time value so easily even if your primary position is going your way so the hedge will be useful. On the other hand, if the primary position goes against you, the 11600 Banknifty Call will gain enough to offset the MTM losses on the shorts.

The crucial levels remain the same
For the Downside: 5408-440-5532-5580
For the Upside: 5608-5655-5690-5740

Bulls can only get stronger with 2 consecutive closes above 5740
Bears can only hope to inflict primary damage below 5608 and then below 5532

It has been 5 weeks in a row now that markets have been well above 5408-5440 levels. This zone can be considered a firm bottom until Diwali if Nifty manages to stay above this zone on EOD basis until 10th August
On a stock specific move, Bharti Airtel is showing signs of temporary topping out and one can safely go for the Shorts via August Futures @ CMP or August 400 PE with a Stop Loss of 445 on the spot price.

For a longer term horizon, Tata Motors is looking good at current prices and one can expect a 15% to 20% return in a 6 month time period [please have a look at the charts and rather than investing entirely, invest in tranches to the extent prices are below 1000]

Crucial Dates for August Nifty Calendar
6-Aug / 9-Aug / 12-Aug / 18-Aug / 22-Aug / 26-Aug /30-Aug

Anticipated price action against these dates will be posted after July expiry