Weekly Index Outlook 
Sensex (8843.2)
Stock markets began to totter even as the interim budget was being read last Monday. All hopes of a flurry of policy changes to pull the distressed economy and stock markets out of the current morass were laid to rest by the insipid document. Sensex that had been clinging to a feeble up-trend, lost its hold and slid 8 per cent lower for the week.
The overseas markets were most unhelpful, slithering and sliding to multi-year lows, causing nervous jitters amongst the trading fraternity back home. Volumes were extremely low in cash market though they were decent in the derivative segment implying that traders are currently calling the shots in our market. FIIs turned net sellers once again taking the total outflow for 2009 to $1.3 billion.
The Sensex could make no headway last week and declined firmly below the 50-day simple moving average as well as our key short-term trend deciding level of 9050. The 10-day rate of change oscillator and the14-week relative strength index have moved in to the negative zone again signaling weakness in the short-term. Oscillators in weekly chart too are signaling a sell after a failed attempt to move in to the bullish zone.
If we follow conventional techniques, the Sensex is in a sideways trend since last October. The broad range for the Sensex over this move was between 8300 and 11000. It is normal for trepidation levels to increase every time the index nears the lower boundary of a trading range. It is then very easy to believe that there could be another 20 to 30 per cent decline from those levels. The reverse is true when the upper end of a trading band is reached as hope soars. The right approach would be to wait for either boundary to be breached before deciding on the next move.
The symmetric triangle formation that we had been tracking as per Elliott Wave rules, ended at 9724 and the lower trend-line of the triangle was also breached. The decline recorded last week can be labelled as either, a) The last wave down of the five-wave pattern from the January 2008 peak. The downward targets as per this count are 7300 and lower. b) Or an X wave that can be followed by another three or five wave pattern. If the index recovers from the zone between 8000 and 8500, we would have to revert to this count.
In other words, though the Sensex has reversed lower and gloom and doom is pervading everywhere, index is still above the support at 8300. A close below this level would be the first signal that investors should brace themselves for another plunge. Supports for the week ahead are at 8631, 8316 and 7697. A rebound can take the index higher to 9375 or 9725. Close above the second resistance is required to make the short-term outlook positive again.
Nifty (2736.4)
Nifty too reversed lower forming an evening star pattern in the weekly candlestick chart. The index has closed below the 50-day moving average as well as the lower trend-line of the symmetric triangle. It can decline to 2658, 2509 or 2425 in the near term.
Rallies will face resistance at 2870 and 2930. Short term traders can play short as long as the index trades below the first resistance. The medium term trend is however still sideways and there are a cluster of supports just below at 2660, 2570 and 2502. The medium term view will turn overtly negative only on a close below 2500. Such as move will signal that the down trend from the last January peak has resumed.
Global Cues
Global markets went in to a tailspin once more, led by the Dow Jones Industrial Average (DJIA). This index breached the crucial 7500 mark that had been the cynosure of all eyes over the last couple of weeks and closed slightly lower. The next support is at 7197 that was the trough formed in October 2002.
A couple of monthly closes below this level is needed to sound the death knell for the structural bull market in equities. As per Elliott Wave counts, a significant low can be formed around 7500 in DJIA which can be followed by an intermediate term rally lasting a few months. But a strong decline below 7500 will give the next target at 6500 for this index. The S&P 500 is still holding above its 2008 lows.CBOE Volatility index spiked to 50 though it is way below the peak at 89 recorded last October. Investors have probably learnt to live with the bad news and sliding stock markets. Many of the European indices such as the CAC, DAX, Greece General Share Index, Italy's MIBTEL and Spain's Madrid General index are testing their 2008 lows or are already below it. Asian markets led by China and the Latin-American markets have weathered the decline relatively well over the last month.
Tata Steel 
Tata Steel too recorded double-digit decline last week, ending 13 per cent lower.
The stock has given up all the gains made in the previous three weeks and is currently testing the support at Rs 165.
A short-term bounce can take the stock to Rs 180 or Rs 190, but traders can initiate fresh shorts on a reversal from either of these levels.
The near-term view will turn positive only on a close above Rs 205.
Weakness in daily oscillators and the feeble recovery over the last three sessions implies that the stock can head lower to Rs 145 or Rs109.
We retain a neutral medium term view as long as Tata Steel trades above Rs 140.
However, fresh purchases should be avoided on a decline below this level.
Reliance 
Reliance Industries moved in line with our expectation, weakening from the key resistance at Rs 1,400 to decline to Rs 1,240. The stock is currently hovering around the support offered by the 21 and 50 day moving averages. But a decline lower to Rs 1,207 or Rs 1,150 is possible over the near term. Resistances for the week are at Rs 1,312 and Rs 1,350. Short term traders can sell in rallies with a stop at Rs 1,350.Key support to watch in the week ahead is the short-term trend line at Rs 1,170.A strong decline below this level will herald that the stock is headed towards Rs 1,060 or Rs 1,020.
Since these levels are close to the lower boundary of our medium term trading range, investors can watch out for buying opportunities in such declines.
Infosys 
The decline in Infosys halted at the second support at Rs 1,160indicated in our last column. A decline below this level will imply a move lower to Rs 1,100 or Rs 1,060 over the short term. Resistances for the week would be at Rs 1,224 and then Rs 1,264. Failure to move above the first resistance would be a cue for short-term traders to initiate short positions with the downward targets at Rs 1,112 and then Rs 1,050.The medium term outlook for Infosys remains sideways in the band between Rs 1,000 and Rs 1,500. It is normal for investors to get jittery as a stock nears the lower boundary of a trading range.
However, there would be no need to press the panic buttons unless Infosys records a weekly close below Rs 1,000.
Maruti Suzuki 
It was a volatile week for Maruti Udyog, at the end of which it closed on a flat note.
The resistance at Rs 636 remains a serious hurdle for the near term.
The formation of a hanging man pattern on the weekly chart implies that the up-trend from the December 5 trough could have ended last week.
A decline to Rs 520 or Rs 440 is now possible over the medium term.
A strong rally above Rs 650 is required to mitigate this bearish view and pave the way for a rally to Rs 750.
The stock is struggling to cross above the long-term 200-day moving average at Rs 640.
A strong surge past this level is needed to take it higher to Rs 673 and eventually to Rs 750.
ONGC 
ONGC reversed lower from an intra-week peak at Rs 708, forming a bearish engulfing pattern on the weekly candlestick chart. Short-term support for the stock is at Rs 657. Once this is breached, a decline to Rs 618 would be on the cards. The stock has strong medium term support in the band between Rs 615 and Rs 620, from where it has rebounded thrice since November 20, 2008. Resistances for the week would be at Rs 702 and Rs 725.The medium term view stays negative as long as ONGC trades below Rs750.
The possibility of a decline to the October 27 trough at Rs 538remains open over this term. But the long-term support around Rs 550 can cause another sharp intra-day rebound in steep declines.
SBI 
SBI launched in to a deep correction right from the onset of last week and ended with 12 per cent loss.
The bearish engulfing candle in the weekly portends the possible resumption of the down trend that commenced from the January 5 peak.
As per this assumption, the decline can continue to drag the stock to Rs 991 and below that to Rs 860.
It may however be recalled that SBI has strong long-term support around Rs 1000, that occurs at 61.8 per cent retracement of the bull-market from 2001.
A rebound is possible from the zone between Rs960 and Rs 1,000. Short term resistances are at Rs 1,102 and Rs 1,140.
Traders can sell in rallies as long as the stock trades below the second resistance.
Nifty future may move in a range
Equity markets in India were back to square one last week, as both the Interim Budget and on Obama stimulus plan failed to live up to expectation. The NSE Nifty February future crashed by eight per cent to end at 2722 against the previous week close of 2942. The NSE March future closed even lower at 2709.10. Both these Nifty futures ended in discount with respect to the Nifty spot, which closed at 2736.45. Rollover of open positions presented a mixed trend. While Nifty witnessed higher rollover of about 40 per cent, most of which were on the short side, the market-wide rollover stood weak at 31 per cent. This is mainly because from next month, several individual stocks' lot size has been raised by 2 to 14 times. Among the sectors, auto, power and capital goods witnessed strong rollover.
Recommendation follow-up
We had advised traders to go in for a long straddle in March series using 2900 strike. Despite the sharp fall in Nifty, the position ended in negative.
Outlook
The Nifty future's yet another attempt to climb above 3000 was aborted last week amid heavy selling. The Nifty futures, particularly March contracts, added more short positions. The Nifty NSE future now finds critical support at 2650. A drop below could take it to 2500 level. On the other hand, if it manage to reverse the downtrend, the immediate resistance appears at 2820 and then at 2950. We expect the Nifty future to witness a sideways movement in a band between 2650-2820. However, this week being the settlement week for February series, the market might witness heightened intra-day volatility.
Option monitor
Options trading on Nifty presents interesting picture. The lower level strikes between 2200 and 2500 attracted heavy trader interest on hopes that the Nifty might crack sharply. The Nifty 2800 Mach put, however, shed open interest positions. On the other hand, 2900 and 2800 March calls witnessed steady accumulation. This captures well the fight between bulls and bears.
Volatility Index
But for occasional spark above the 50-point mark during intra-day, India VIX or Volatility Index, which measures the immediate expected volatility remained steady around 45It ended the week at 45.21 against the previous week close of 43.31.
Recommendations
We are advising traders to adopt the following two strategies.
Consider short straddle strategy using Nifty Feb 2700-strike. While the call is quoting at 36.10, the put is quoting at 57.20. A short straddle is a combination of writing uncovered calls (bearish) and writing uncovered puts (bullish). Short straddles can be pursued when one believes that the price of the underlying asset will be range-bound. This strategy would turn profitable only when the price moves in that range. On the other hand, if the price moves wildly out of the range in any of the direction, the strategy can result in a heavy loss. As one has to dole out higher margins, for writing options, this strategy is suitable for traders with a higher risk appetite only.
Traders could consider going short on Nifty future, if it dips below 2700 (March). In that event, the stop loss could be 2750 and they can book profit at 2650, 2500 levels as per their individual risk profile.
FII trend
The cumulative FII positions as percentage of the total gross market position on the derivative segment as on February19 is 34.67 per cent. They were predominantly sellers in the F&O segment last week. They now hold index futures worth Rs 8,670 crore (Rs 7,363 crore) and stock future worth Rs 12,788 crore (Rs 12,233 crore). Their index options position jumped to Rs 17,360.37 crore (Rs 15,489.48 crore).
NIFTY & SENSEX SPOT LEVELS FOR 24th Feb 2009
 | 2736.45 | ( -1.90 %) | -52.90 |  |
| | 1 | 2 | 3 |
| Resistance | 2780.73 | 2825.02 | 2860.73 |
| Support | 2700.73 | 2665.02 | 2620.73 |
 | 8843.21 | ( -2.21 %) | -199.42 | |
| | 1 | 2 | 3 |
| Resistance | 8937.13 | 9031.06 | 9118.33 |
| Support | 8755.93 | 8668.66 | 8574.73 |
Strong & Weak futures for 24th Feb 2009
This is list of 10 strong futures:
APIL, India Info, Matrix Labs, Shree Cem, WWIL, Amtek Auto, SRF, Maruti, Colpal & Renuka.
And this is list of 10 Weak Futures:
EKC, GDL, Aban, ICICI Bank, Orient Bank, Tulip, IOB, Pantaloon, Patel Eng & Wel Guj.
Nifty is in Down Trend.
FII DATA
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) |
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 20-Feb-2009 | 956.27 | 1157.44 | -201.17 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) |
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 20-Feb-2009 | 742.66 | 575.48 | +167.18 |
Technical analysis for novices
Support, resistance, breakout, trend-line are terms used quite often in market parlance. This article attempts to demystify these terms.
Trading in the stock market is no less risky then trying to make a living off a roulette wheel; there are significant fluctuations in the price movements. However, unlike the roulette, the randomness here is fuelled by the perception of the participants. One of the tools to identify such perceptions is technical analysis, which is a study of two aspects — the price and the traded volume of a stock. These observations are plotted on a graph across a specific timeline for better analysis. The idea is to understand the mood of the market conveyed through the movements on the chart. Supports and resistances
Every stock price is the result of an ongoing tussle between buyers and sellers. Not all traders agree upon the prevailing prices, hence the constant movement. But there comes a level when a seller is unwilling to sell and the buyer feels the prices can't go down further. This is labelled as the 'support' level.
At this level, buyers will come in to buy the stock and even sellers with a bearish view may not see the price falling further. A similar agreement on overheated prices between buyers and sellers creates a hurdle or 'resistance' for the stock price from going up. These levels are vivid and recurrent. The stock price falls to a particular point and bounces back taking support. At 'resistance' points, stocks hit a barrier, restricting further rise.
Break-out
Now, if the stock price penetrates a 'support' or a 'resistance', that means that the general consensus on what the price should be has changed. This is known as a 'breakout'. It can be the result of a fundamental change in the stock, and is usually abrupt in nature.
Again, one must see it in conjunction with decent increment in volume, signifying a mass change on the consensus about the new prices levels. Once a resistance is crossed convincingly, it becomes a significant support and once a support is penetrated strongly, it turns in to a resistance.
Trend
Every stock trades with a consistent direction in prices called a 'trend'. A rising trend is characterised by higher lows and highs. In other words, a consistently rising support level. The opposite holds good for a falling trend. Joining the lows in a rising trend and highs in a falling trend, helps one draw a trend line. A breakout, penetrating the trend line, accompanied with higher volumes, indicates a reversal of the trend. Much like breakout of a resistance and supports, the trend line penetration signals fresh entry or exit points.
Moving averages
There are many indicators used in this science. A look at one of the most popular ones — the moving average (MA). MA is nothing but moving average of successive sets of daily prices, plotted in the price chart. Eg. A 50 day-MA is the average of the past 50 days prices (Pt, Pt-1, …..Pt-49). A stock is bought when this MA is penetrated from below or sold once the price moves below the MA. From a longer term perspective, a 200-day MA is a well-respected indicator.
Technical analysis has several such indicators or tools which can be used to interpret stock price patterns and trade them profitably.
But the most important tool is discipline in trading within the visibility provided by the technical tool. Set your biases aside and restrict the losses and take profits wherever the tools indicate!
--
Arvind Parekh
+ 91 98432 32381
