EOD Analysis for 26th August 2011 and Outlook for 29th August 2011

Nifty opened on a flat note with modest volumes as expected after such a painful expiry. Whilst the first session of the day was modest, the fall accelerated after European bourses opened and the carnage went all the way down to sub 4740 levels at one point of time. Today happened to be the 13th session after we breached the crucial level of 5092 on EOD basis. It also happened to be the 34th trading session after seeing the July 8th high of 5740. We have closed below the last major support line that was there i.e. 4783; Nifty is vulnerable to a panic bottom of 4675, the levels seen in Feb '10 but the volatility is expected to drop sharply and we may trade in a narrow range of 250-300 points for the next 5 to 8 trading sessions.

Nifty has melted 1000 points from July 8th till date and we are still fishing for the bottom; a retracement is due and we should be see some upside during September series.

The panic that seemed to be missing came in today and an accelerated fall came through below 4783; Complete chaos in the market and a deliberate attempt to create absolute fear. The adage is at work i.e. Buy Fear Sell Greed; current market conditions are not for the faint hearted [which I have been hinting for the last few sessions]. From Monday, one can expect the markets to get calmer on both sides and rationalize the time and price balance.

My leading barometer for Nifty i.e. Banknifty has seen sub-9k levels now. It is only a matter of time that it retraces some of the deep cuts it has taken. Capital preservation is the key and one should take positions accordingly. We work hard to earn our capital for trade and should not lose when trading. Profits are the goals but markets can continue to remain irrational until we get insolvent, once said a wise man.

Enjoy the weekend and don't worry too much. Yes unless 5092 taken out on EOD basis, markets will continue to remain weak. One can be assured that Nifty won't melt so easily, so soon but a fall is imminent.

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

As indicated yesterday, expiry day was bound to be filled with a lot of manipulations as far as Nifty spot was concerned. All the gyrations were taking place simply to cause maximum pain to Put Writers and yet again we had an expiry close well below open. Banknifty saw further corrections and markets are now deeply oversold. Some recovery is expected but that will happen next week. Volatility is expected to cool down next week. Volumes were extremely high today and Nifty futures OI for Aug + Sep series put together was about 38 million as we progressed through the day. Banknifty's badgering is particularly noteworthy as the high of Banknifty futures for the day was 9400 levels on futures prices and tanked all the way down to 9180 levels which is an indication of the level of selling we are witnessing on the bourses.

Unless market takes out 5092 on EOD basis on the upside, the upsides can only be considered as short-covering. Gold has corrected about 6% overnight yet equities are low. As I have mentioned, the Rate of Change has been very rapid for the last 12 weeks on both upside and downside. So a relief rally is likely to retrace about 50% of the fall from 5532 levels to 4800 levels i.e. about 5150 levels on Nifty spot. However, pure short-covering won't help and we need some fresh long positions created to attain these levels.

The last standing support level now is the 4780 levels below which we open for a retest of the panic bottom of 4675 that was seen in Feb '10. VIX is expected to cool down and options premium will fall from next week. The major concern with a lot of hot money now is margin requirements across asset classes. Average traders seem to have not learnt their lessons yet with the crash of Silver witnessed in June [over 30% value lost in 5 straight sessions]. Of course silver is a higher beta commodity and CBOT has had to continually raise the margin requirements for the speculative longs that were being created. Gold being a safe haven currency (or asset) may not correct so much so soon but a 6% fall overnight is trying to send a clear message from the big boys of asset management; Cash is minimal and hence sell-offs can be suddenly triggered to meet margin requirements.

Fresh positions should be taken from Monday to avoid carrying forward any risk over the weekend. While resk-reward ratio is in favor of Buy on dips for tomorrow, better to wait a little more till smart money digests all the news and reflects its intentions on the charts. As far as DP accounts are concerned, one can slowly accumulate mid-cap banks, FMCG and counters like LnT.

Detailed updates will be given tomorrow after the weekly EOD.

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.

EOD Analysis for 23rd August 2011 and Outlook for 24th August 2011

Nifty opened on a flat note today and then saw a bit of a fall. these falls were bought into but nothing indicated fresh longs being built up on either Nifty or Banknifty. Nifty's rise was predominantly boosted by shortcovering on Banknifty for sometime but there seems to be a hint of more shorts entering Banknifty or shorts being rolled over even at the levels of 9450-9500 on the spot price. The underlying assumption behind this inference is the way Banknifty futures are trading at a discount with respect to spot price. The cost of carry on these shorts in all probability dropped the premiums on the futures.

There is nothing to cheer on the bourses yet as Nifty is well below the crucial level of 5092. Banknifty although showed an EOD of 9450-9500, one needs to be very very alert due to the shorts/short roll-overs aspect mentioned above. Only a strong round of short-covering and fresh long build up can boost these counters and bring some cheer on the bourses. Tomorrow we may see some selling pressure due to DII selling and other global cues if weak. Gold prices are still high marking sentimental fear as far as smart money is concerned.

One can see how premiums are dropping in options on both Call and Put side as volatility is slowly cooling down. Once planet Mercury starts moving on forward trajectory from current retrogade move [over this weekend], premiums will drop further. So one should not invest in options on the Long side till expiry is done with. Expiry days are filled with manipulations by the big players and small players simply get chopped on both sides. Some of the second tier banking counters are now available at good prices and one can consider adding a few shares in the DP account for a short term upside. On the automotive front, there is a lot of discussions going around the market on both Buy and Sell side for M&M; needless to say a lot of attention is being showered and whilst the direction of the move on this counter is yet to be ascertained, option writers have been milking the public sentiment well on this counter. The spot price of this counter has been in a trading range and overnight the 680 PE and 740 CE have dropped 30% to 40% of premium values. The lot size is 500 and unfortunately, even now a lot of retail traders have not understood the operators game with this counter. On the other hand, Bajaj Auto is silently being accumulated and is showing technical signs of reversing to upside as well. Tata Motors at these levels are good counters to buy in tranches and although this stock may face a lot of badgering, taking a slightly longer term horizon, it is a gem to have in the DP account as well.

Current market conditions are such that one should trade without taking exposure on the equity side or stick to futures with an appropriate hedge by writing an option on the same side. Long Nifty + Short Call or Short Nifty + Short Put or Long-Short pairing of 2 adjacent series is a better way of trading. This recommendation of course is for players with higher margin and low margin players should wait. Not taking a position and preserving margins can help to trade better after expiry.

On the global market front, there will be a lot of noise but one should ignore these noises. European markets have their tops in place now. On Dow, one can see frequent ups and downs but it will stage a comeback a couple of times before going down the wire. Movement of Dow is not dependent on what the Fed says; it all depends on when margin calls are triggered and the pace of de-leveraging on both the FnO side and Commodities side. Also one must bear in mind that FnO expiry on Dow happens in the third week of the month unlike Nifty which happens on the last Thursday of the month. One should take a balanced view before rushing in to trade and losing money on options.

Wishing all of you profits or NPNL conditions till this expiry is done with.
Crucial levels remain unchanged and one should be very alert for a break below 4780 on Nifty as it will make Nifty vulnerable to retest 4675, the panic bottom of Feb '10

PS: When I say exposure on the equity side, I mean the 1:4 leverage that brokerage houses allow one to use. Buying should be delivery based and in case of trading, it should be strictly within the limits of what one's margin allows i.e. 1:1

EOD Analysis for 22nd Aug 2011 and Outlook for 23rd Aug 2011

As we head closer to expiry, the OI in Nifty futures is surging. Throughout the day today, the OI in Nifty futures was around 31 million. A lot of rollovers are taking place and safe to assume that these are rollovers on the Long side as the futures are quoting at a premium. Most of the upside today was a result of short-covering than fresh long position build up. Unless Nifty posts a close above 5092, market will continue to remain weak. 

Banknifty did not join the upside for most of today and in fact at one point of time it was losing 80-100 points. Without cheer on Banknifty, any rise in Nifty is illusory. Unless Banknifty takes out 9450-9500 levels on EOD basis, shorts will keep entering the system. However, one should refrain from just going ahead with a short on Banknifty because when banks rise, Banknifty ends up clocking more than 200 points on the upside. A relief rally towards the 10k mark on BNF points is highly likely in September series so this counter should be played with Long-Short pairing with Sep/Oct series and exit the losing side at about 40 points and continue with the winning side for 80 - 100 points intraday. [Only for high margin players] Good buy levels are 9200-9250 or above 9450 on EOD basis.

The initial expiry targets were based on the huge Put Writing seen at 5400 levels and I had expected a technical pullback at least after the 15th of the month. This month has been terrible for Put Writers and each weekly close actually has been below the previous week's close. The next couple of days will be subject to a lot of manipulations so one may be better off waiting for the signals to emerge. The bull story and meaningful upside all got quashed with the close below 5092 and repeated failure to take it out on the upside. Now the crucial level to be monitored is the 4780 level. To the extent 4780 holds, some relief rallies will come through. The fall has been too fast, too furious. A close below 4780 will make Nifty vulnerable to test the 4650-4680 levels and seal all hopes for a long time to follow. Apart from Dow and FTSE, the other leading indicator will be the Rupee-Dollar exchange rate; if the Rollar rate swells past 46.1 [give or take a few pips] on closing basis, there will be a sharp sell-off on Nifty.

Low margin players should wait on sidelines and let expiry go through before taking any fresh position. VIX will start cooling down from next week. There is a holiday as well on 31st August. So options premium will dry up pretty quickly. Kindly keep that in mind while building options straddles.

Crucial levels remain the same as indicated on Thursday and Friday last week.