Friday, January 13, 2012

EOD Analysis for 13th January 2012 and Outlook for 16th January 2012

Positive start to the day on the back of positive global cues and pretty good volumes as well. OI in Nifty futures hovering around 25 million in the morning session with VIX cooling below 24 levels; Banks, Tata Motors, Coal India, Tisco extending gains and BNF spot also showed a lot of steam. [One thing to note is that after adding significant premium to BNF futures yesterday, today towards Europe open BNF futures started trading at a discount and the forward contracts had more discounts than current month contract, quite unusual on this counter......caution advised] another 1 million added in Nifty futures OI with the rise later

Although Nifty managed to conquer 4880 today, the volumes and momentum did not support much unfortunately; Critical levels and outlook remain unchanged

For Upside: To the extent 4800-4840 band is active and 4880 crossed over with volume and momentum, Nifty can make an attempt towards 4911-4944-4994

For Downside:  Volume and momentum below 4795 can take Nifty down but IMHO, the 4690-4728 band will support at least once. A close below 4690 will bring in a lot of panic and then we need to brace for some steep cuts.

Other Updates and Food For Thought:

With the government asking for an extra pound of flesh in terms of dividends from PSU companies, one should not read too much into the upside of PSUs today in the index majors IMHO; Fundamental Analysis keeps asserting 'Dividend is the sign of a healthy company' - in principle, one can agree but with current head-winds and macro-economic situations, the same cannot be said about PSUs of India. Operating costs are no way rationalized yet and the fixed cost burden is very high.

Steel is sectorally weak still and there is a lot of pain still remaining in the sector; Precious metals are going through corrective rallies and steep falls await them IMHO. Yesterday's collapse on Comex for essential food staples [corrections in Wheat, Soybeans, Corn were significant] also is something we should not read into too much IMHO for 2 reasons

1] The charts had already indicated weakness and profit booking
2] There is a larger degree political game on-going here due to elections and the fact that a lot of producers are trying to create a supply shortage solution by increasing storage facilities and not buckling to bargain deals of the harvest season.

It would be very naive to assume that such measures will cool down inflation fears whether in India or abroad- we are still at about 20% YoY inflation on CPI basis. [Doctored numbers will probably help RBI maintain status quo]

Dow: To the extent 12200-12250 band holds out, we can expect a flick to 12550 odd levels before resuming the downturn. First sign of weakness with a close below 11800 and 2 consecutive closes below 11500 will confirm that a larger correction to retest the 10400 levels has begun; eventual targets are sub-10k levels

FTSE: Still some room to retest the 5700-5750 levels before heading lower. Initial weakness to be confirmed with 2 consecutive closes below 5550 and full weakness to be confirmed with a weekly close below 5300-5350 levels [this will confirm retest of 4900 levels at a minimum]

DAX: Still some room to retest the 6300-6400 levels before heading lower. Initial weakness with 2 consecutive closes below 5750

EuroStoxx50: Weakness only below 2125

Euro-Dollar: The current upsides are relief rallies and the pair is on its path to 1.25 odd levels

Hope you had a good trading week; wishing all readers greetings of the season and enjoy your weekend. Looking forward to another week of opportunities with high weightage on 17th Jan '12 [personal bias is downside but need to be alert on how things pan out. Option traders may be better off trading Feb options from Monday]

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