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

The volumes started on a mild note in the morning with about 24.8 million OI in Nifty futures; The gap-up was expected on the back of a strong Euro [which the Nifty seems to be temporarily mirroring] and positive global cues. Immediately the shorts were covered and OI rose by another 1 million; as mentioned yesterday, there were a lot of pending Banknifty shorts which also got covered and once the 11200 was crossed over, some fresh long positions could be seen on Banknifty. Banknifty paved a stellar performance and recovered a lot of lost ground from yesterday and so did LnT which displayed strength. While normally we talk about Put unwinding that takes markets down, there was a lot of Call Unwinding also seen for the 55/5600 CEs and Short PEs were covered at piecemeal rates with a lot of premium already being milked down.

One needs to look at the currency markets in terms of SDRs [Standard Drawing Rights, derived from a basket of international currencies, which I will try to work on and present over the weekend]; The dollar has weakened whilst the Euro has latched on to its gains from yesterday so far, but the price of gold fell on the backdrop of weak dollar-strong Euro; CHF is firm, JPY is firm and ratio between GBP-EUR has been pretty constant as both appreciated against the dollar but are within a tight range of themselves. Some cooling off in the price of gold can be explained by margin calls being triggered and Silver which touched 40.4 a couple of days ago was anyways set for a correction

As of now, the expiry target remains unchanged at 5608-5690 levels on EOD basis for 28th July 2011, the FnO settlement date. The crucial turning point is 23rd July which is a non-trading day and some of the gains posted today may be reversed on Monday/Tuesday

Only a close above 5690 can usher further strength and only 2 consecutive closes above 5740 can bolster the bull story. The falls so far have been arrested within the 5532 levels only and further falls for July series can be expected to be arrested in the 5480-5532 zone

The volumes are still lower for an EOD above 5690 and to try for 5740 but it cannot be ruled out. Recommended strategy for Monday as follows

For Nifty, shorts can be opened in the 5655-5690 zone or below 5608 but should be hedged with August 5700 CE in the ratio 1:1; since we are approaching the end of the series, one should create the short with August series futures

For Banknifty, shorts can be opened in the 11350-425 zone and the 2nd tranche below 11250; at least for July series, it is hard to imagine further supply coming beyond Banknifty spot of 11425 levels as experts are suggesting; Profit booking will come in the 11350-11425 zone; next week is expiry week and there will be some manipulations to settle the Options contracts with minimal losses

On the Options Front, one could build a Long Straddle with the August 5700 CE and August 5600 PE 1:1 ratio with a 15 point stop loss on both sides and a Trailing Stop Loss on the winning side

Profit booking, 5600 Put unwinding expected to come in once either on Monday or Tuesday.
Thanks for visiting my blog and encouraging me to contribute further to the analysis. I hope you had a profitable week and I wish you a very happy weekend. Let us hope all of you reap further profits next week.

PS: Low margin players should stay out of the market for a week till the expiry is done with. Crucial Dates for August series will be posted over the weekend.

EOD Analysis for 21st July 2011 and Outlook for 22nd July 2011

Nifty OI futures were pretty much constant throughout the day at 25 million; the initial session was flat as expected to milk the premiums but the expected short-covering came much later after a fall towards 5532 level; the 5532 level has held firm but it may not be able to sustain for a longer time should there be such volumes on the downside; Banknifty gave up a lot and ended at 11049; based on the futures and options data, seems like there are some more shorts left to be covered but tomorrow being Friday, there will be some margin calls as well so it is difficult to forecast which way Nifty will take; some of the other heavy weights managed to hold on to some gains and hence the fall in Nifty got arrested despite Banknifty giving up so much gains.[congratulations to all who took short positions at specified levels and reaped the profits]

As far as Eurozone crisis is concerned, markets have discounted for all of Greece's woes [this is reflected in the fact that in the international Fixed Income Markets, Greek bonds of shorter terms are trading at 20% to 25% coupon rates and the 5 year and 10 year bonds are selling at a 50% discount to par values] Also Portugal's woes have been factored in and so is the case with Ireland and Iceland. The only 2 countries that have not been discounted for are Italy [only about 30% of the expected debt has been factored based on the bond auctions] and Spain has not been discounted for. It is just a matter of time that all the skeletons will come out of the cupboard one by one after a brief rally on the bourses for this year. It is important to note that there will be challenges in the UK as well and Bank of England has categorically stated that only deposits upto
GBP 85,000 pounds will be guaranteed for personal accounts. [the source for this information is listed on my blog and one can go through Nadeem Walayat's detailed profiling of Europe on his page]

With employment statistics coming out of US, there are some fears which is reflected in the fact that the Dow rallies a couple of days prior to that and then starts falling as the news come out. Gold once again is hovering about the 1600 per ounce mark but that comes on the backdrop of a falling dollar as well;

Recommendation for tomorrow is to fold out all trading positions regardless of profit and loss and take fresh guard on Monday. If one does not have positions, it would be better to sit on sidelines for tomorrow and let the week settle down.

The crucial levels still remain the same for both upside and downside; the breakdown of 5532 on EOD basis will force Nifty to retest the 5480-5500 zone and I would expect shorts to be covered over there. Below 5480, Nifty opens for a retest of 5408-5440 but I expect 5408 level to hold firm on EOD basis and no panic is required to the extent this level holds firm. Banknifty shorts seem to be pending for covering and we may see some short covering to gain 80 to 100 points but I would discourage taking fresh long positions for the expected bounce on both Nifty and Banknifty.

There is a lot of weakness in the forex markets as GBP, USD, EUR are all falling uniformly against CHF, JPY, CAD and the risk aversion is getting reflected in the high volumes of T-Bills, German Bund and Gold. Long Gold positions should book some profits now as it is an artificial bubble and a fall towards 1525-1560 can come through within 5 to 8 trading sessions. Note that the increase in interest rates by ECB has brought the Euro-Dollar support level to 1.40-1.41 from 1.38 which was a knee jerk reaction last week.

Stock Specific as well as Index specific levels for positions will be updated on this blog over the weekend after all markets have closed for the week. Dow below 12400 levels on EOD basis will usher in a lot of fresh shorts and a sharp correction towards 11700 levels may be expected should that happen. This will have an impact on other equities as well.

EOD Analysis for 20th July 2011 and Outlook for 21th July 2011

Nifty opened in the green and tried to move forward but the volumes were not enough to sustain the upside. The OI in the morning was 23 million and hence in sometime, it started falling; once below 5580, the shorts opened up and the OI increased to almost 24.8 million which accelerated the fall and towards the end, there were a lot of shorts covered quickly. One must realize that the current gyrations are simply taking place to milk options premium on both ends.

Nifty Shorts opened in the 5608-5655 zone and Banknifty shorts opened in the 11350-425 zone all yielded good profits for those who took positions accordingly

Weakness can be felt only when 5532 is broken on the downside; difficult to gauge at this point whether all shorts have been covered but at EOD, the Nifty Futures OI stands at 25.2 million and there was a surge in roll-overs today for Nifty futures.

Banknifty is still well above 11k but LnT, Reliance and many other heavy weights collapsed today; A technical bounce is expected to the 5580-5625 zone once and likewise for Banknifty to 11250-350 zone

The crucial levels still remain the same
For Downside: 5408, 5440, 5480, 5532
For Upside: 5580, 5608, 5655, 5690

Bull story will only get stronger with 2 consecutive closes above 5740
Bears can only rejoice when 5480 is broken on the downside on EOD basis which will open Nifty for retest of 5408-5440 zone; however, looking at the movements in the major counters and options data, I still maintain the expiry target to be in the 5600-5690 zone; most falls will probably be arrested within the 5480-5532 zone for now; there is no need to panic to the extent 5408 is intact on EOD basis

Best strategy remains Sell on Rise as of now and the recommended levels are as follows
For Nifty Futures: 1 tranche of shorts in the 5608-5655 zone if it gets there and the next tranche below 5580
For Banknifty: 1 tranche of shorts in the 11250-350 zone if it gets there and 1 tranche below 11250

For options, I would recommend placing only 20% to 25% of trading capital and that too in August series options; high margin players can build a hybrid spread but low margin players should continue with the Long Straddle spread; best bets are a Straddle of August 5500 PE and August 5600 CE 1:1 ratio [15 point stop loss for each leg and trailing stop loss on the other leg] if the margins are lower, one could go for August 5400 PE and August 5700 CE but then the Stop Loss on each leg should be revised to 8 or 9 points maximum (adjusting for Delta Factor)

Stock Specific Ideas
Buy LnT as close to 1750 as possible for a short term target of 1850 via futures
There is a lot of noise regarding weakness in Crompton and Lupin; avoid shorting further as most of the weakness has already been discounted in the charts and hence the falls; the downside further is probably very limited and there is no point in scrambling for tit-bit remains of the pie

Keep an eye on Canara Bank and IRB as they have some upside pending with a 3 - 4 month horizon

EOD Analysis for 19th July 2011 and Outlook for 20th July 2011

The started with OI in Nifty futures of 23.5 million; however, once the 5580 mark was breached, another million of OI came into play and once the 5608 mark was breached, the OI in Nifty futures rose to 25 million. Whilst some downside was expected today, I have to admit that what happened today was exactly opposite to what I had expected yesterday; I expected Nifty to first touch the 5608-5655 zone and then come down slowly

Nifty just needs another 2 million in OI to make a crossover of 5690 and today's trade showed that such high can be triggered within 30 minutes via algorithmic trading; it is surprising to see that despite high gold and silver prices, Nifty soared today towards the end; I had specifically advised shorting Nifty in the 5608-5655 zone and Banknifty in the 11350-11425 zone; Banknifty will find it difficult to crossover 11425 zone on EOD basis but in case other heavy weights contribute and volumes come up, Nifty may show some strength on the upside and it would be prudent to hedge the Nifty shorts created in the 5608-5655 zone with August 5700 CEs in the ratio 1:1

Broader outlook remains the same
Crucial Levels on the Downside: 5408, 5440, 5480, 5532
Crucial Levels on the Upside: 5580, 5608, 5655, 5690

The bull story can only move further with 2 consecutive closes above 5740 and probability is 1% for July series. 2 consecutive closes above 5740 will open Nifty for a retest of 5890-5944 levels but there needs to be a lot of volume which still remain a concern with weak macro-economic clues

Most of the falls may be arrested in the 5480-5532 zone and to the extent 5408 is maintained on EOD basis, the last bull party is pending; If one checks the data for 2011, 5408, 5532, 5690 have been very strong resistance points especially 5532; every time Nifty has been range bound in the 5408-5532 zone, it needs at least a dozen attempts to crossover 5532; if until 10th August we don't go below 5408 on EOD basis, it is safe to assume that the intermediate bottom is in place and the range has shifted from 5408-5532 to 5480-5650; the bull party will not be a straightforward up move; there will be some range bound sessions but just that the floor and the ceiling of the range would have surged up marginally

As of now, I would still peg the expiry target of July series in the 5608-5690 zone and the revisions will be made on the basis of conditions above. Most critical upsides can only happen after the monsoon season. Dow has a pending 5% to 7% correction from CMP while FTSE has already come down significantly from 6150 to sub 5950 levels; it won't be surprising to see 1 more leg of correction and consolidation in Nifty before resuming the long upward march.

The next crucial date for Nifty is 23rd July which may manifest itself on 22nd or 25th July;

Some medium term stock ideas (4 to 6 month time frame)
Titan - Buy in the 200-210 zone for target 250-275
Sesa Goa - Buy in 250-260 zone for target 300-320
Canara Bank - Buy at CMP for target of 625-650
JM Financial - Buy at CMP for target of 40

Some longer term stock ideas (12 to 18 month time frame)
Nanveet Publications
GPPL
Arshiya Logistics
GDL

Disclosure: I have no personal holdings in any of the counters mentioned above. These are just some recommendations based on my observations of charts and one is advised to consult a personal financial adviser before taking any positions

EOD Analysis for 18th July 2011 and Outlook for 19th July 2011

Volumes still remain a concern on Nifty and throughout the day, the OI in Nifty futures was around 24 million; however, in the last hour, there was an addition of 1 million in Nifty futures OI and a lot of shorts seem to have covered;  rollovers have indeed started as expected and macro-economic concerns are suggesting a rapid leg downwards should there be further disturbing news.

Banknifty is well above 11k mark and it is safe to open a short in the 11350-11425 zone for a minimum target of 100 points; Weakness will creep into Nifty when we get an EOD below 5532 level; although it is very likely that the falls may be arrested in the 5480-5532 zone itself, a close below 5532 can open Nifty for a retest of 5440 and 5408 levels before retracing back. As of now, expiry target for July still remains 5600-5690 zone with a retest of lows that will probably not breach 5408 on EOD basis;

Broader Levels still remain the same as on Friday
For Downside: 5532, 5480, 5440, 5408
For Upside: 5580, 5608, 5655, 5690

Every 50 point rise must add at least half a million OI; for downside, current volumes are sufficient to take Nifty to retest the 5480-5532 zone and addition of OI will increase with a breach of 5532
Sell on Rise remains the preferred strategy for higher probability of gains

Nifty is consolidating very well in the 5408-5608 zone; should there be consistent closes above 5408 on EOD level upto 10th August, we can safely conclude that the June low of 5196 was indeed a retest of the Feb low of 5177 and this consolidation is happening for the last pending rally in Nifty for 2011.

For tomorrow, one can use the rise in Banknifty to open a short for good gains and Nifty shorts must be opened in the 5608-5650 zone [if it comes there] or below 5532 if the fall is accompanied by volume; the action lies in the first and last hour of trade while the middle session will be relatively flat to suck options premium; the moves downwards seems to be deliberately moderated to take options premium out and catch retail traders off guard; just as the upward move in March and June was done with 30-40 points upwards and then 2 sudden spurts in between, the same seems to be happening on the downside now;

Traders must keep an eye on the daily P n L especially in Options because operators are relying on 'Frog in Boiling Water Syndrome' that most people including me have; Short positions via futures are better and to the extent Banknifty is above 11k and major counters like LnT, RIL are at respectable levels, the falls can be quickly arrested; agility is the key to trading success for the next 2 weeks as the markets may seem calm for a couple of days with minimal gains / losses on EOD level, one jerk on Friday is enough for Nifty to melt down 100 plus points; keep an eye on Gold prices that made a new high today at 1600 dollars an ounce; it is an indication that risk appetite is lower right now as far as fund houses are concerned;

Extra Notes For Macro-Economic Perspective:
To take a holistic view of the soaring gold price, one also needs to take a look at the Euro-US Dollar, USD-JPY and Dollar-CHF levels; while the number of 1600 per ounce looks good on paper, adjusting for the fall in dollar value, the current gold prices are equivalent of 1500-1520 dollars an ounce on January / February levels. For those already invested in gold via ETFs or futures or MFs, it is time to start booking some profits

For traders who like Silver must also note that silver has already made its top and we will not see silver at 55 dollars or 60 dollars for the next 5 years. Silver still has some correction pending and target for silver in the next 12 to 18 months is USD 25-28 per unit; that should be the time to invest in silver for a target of doubling its value in a 3 year time frame [which is still below current top of 60]

Hedge Funds are using excessive leverage on the Commodity bourses and CBOT has had to revise the margin limits 3 times in the last 1 year for Long Silver / Long Gold positions; the 5 day correction made a lot of small time traders bankrupt on CBOT; Suddenly, there will be a lot of fund houses giving buy calls on Silver and Gold saying the next bull run for these precious metals is about to begin; for Gold, I can agree but not for silver; Gold will top out around 1625 levels and for now, we will soon see a correction in gold of about 5% to 8%; Fresh gold purchases (in futures and options) must be on hold till we see the 1475-1500 levels again; within the next couple of weeks some more small and medium sized fund houses speculating with long positions on Gold on CBOT and LME will probably go bust with the margin requirements for settling positions.