Sensex (9406.7)
Just when it appeared as if the Sensex would slip past the 10,500 mark, it was yanked back by the misdoings of Mr Ramalinga Raju. Bears exploited the situation to the hilt, bludgeoning stocks across sectors, sometimes for the most absurd reasons. Sensex' return for 2009 dipped in to the negative towards the close of the week.
Profit booking ahead of quarterly earnings announcement could partly account for the crash in some of the mid and small-cap stocks that had recorded stellar gains over the past month. Volumes were significantly higher especially on Wednesday when the Satyam swindle came to light. Healthy open interest in the derivatives segment implies that traders are once more becoming active.
Sensex was unable to get past the medium-term resistance in the band between 10,500 and 11,000 last week. It recorded an intra-week peak at 10,469 on Wednesday morning before declining to 9,250. Weekly momentum indicators have retreated in to the negative zone after a brief sojourn into the positive territory. The implication is that medium-term trend that was beginning to turn positive is once more under a cloud. The 10-day rate of change oscillator has also declined in to the negative zone and the 14-day relative strength indicator is at a reading of 44 implying that the short-term trend too has turned negative.
The bulls however need not throw in the towel as long as the Sensex holds above 9,000. An upward reversal from here will result in the index moving higher towards 10,500 or 11,000 again. The near term view will turn murky only on a definitive close below 9,000.
Medium-term trend in the index continues to be sideways in the band between 8,000 and 11,000. Sensex is declining from the upper boundary of this range. As per E-wave counts, a five-wave move has been completed between November 20, 2008 and January 7, 2009. This is the third part of a 3-3-5 flat formation. What can now ensue is:
a)An X wave followed by another three or five wave pattern. This would keep the Sensex vacillating in the band between 8,000 and 11,000 for a few more weeks.
b)The alternate count is that the long-term downtrend has resumed from the recent peak at 10,469. In this case, the index could head to 8,246, 7,424 or a little lower.
For the week ahead, an upward reversal from current levels can take the index higher to 9,700 or 10,000. Failure to surpass the first resistance would imply that the down trend would resume to pull the index lower to 9,120 or 8,467. Key near-term support for the index is at 9,120. Short-term investors can continue to buy in declines as long as this level holds.
Nifty (2873)
Nifty reversed from an intra-week high at 3,147 to close 173 points lower. If we view the weekly chart of the Nifty, it has been a one-week-up-one-week-down kind of move over the last four weeks.
In other words, the index is confined to a narrow band between 2800 and 3100.
The short-term view will be clearly defined only on a break-out beyond this range.
The 50-day moving average at 2,870 has not been penetrated yet.
The index can move higher from here to 2,936 or 3,015. Failure to clear the first resistance would mean that the down trend from the 3141 peak would resume to pull the index lower to 2750 or 2570.
Short-term traders can hold their long positions as long as Nifty sustains above 2750.
A strong close below this level will signal an impending decline to 2502 or 2252.
Global CuesEquity markets in Europe eased gently lower in a mild correction last week. US markets were however volatile as a slew of negative economic news dragged the stock prices lower.
CBOE volatility index that had recorded an intra-week low of 37 perked up to 44 towards the end of the week indicating the return of nervousness among investors.
Dow Jones Industrial Average reversed lower from the 9000 mark.
It is possible that the third leg of the up-move from the 7,450 trough was truncated at 9,000.
A recovery above 8500 will however mean that there can be another spurt higher to 9,600 levels.
The medium-term outlook will turn overtly negative only on a weekly close below 8,060.
Latin American markets in Brazil and Chile were the out-performers last week with over 3 per cent gains on improved prospects of commodities.
Some Asian indices such as Jakarta Composite, KLSE Composite, Philippines PSE Composite Index, Seoul Composite Index, Thailand's SET and Shanghai Composite Index too managed a positive weekly close.
Commodities continued to consolidate around key long-term supports.
CRB index inched 1 per cent higher for the week.
Nymex crude recorded a peak at $50.5 per bbl and is retreating fast.
Key resistances for this index over the next few months would be at $50 and then $55.
The floor is likely to be at $25. —Strong & Weak futures for 12th Jan
This is list of 10 strong futures:
Guj. Alkali, Grasim, India Cem, Neyveli, Maruti, Can Bk, Balram Chini, Ultra Cem, Shree Cem & BEL.
And this is list of 10 Weak Futures:
LITL, Punj Lloyd, IVRCL Infrast, Ansal Infra, TVS Motors, Bombay Dyein, Strides Arcolab, DLF, HDIL & R Com.
Nifty is in Down Trend.
NIFTY & SENSEX LEVELS FOR 12.01.09
 | 2873.00 | ( -1.62 %) | -47.40 |  |
| 1 | 2 | 3 | ||
| Resistance | 2931.82 | 2990.63 | 3051.42 | |
| Support | 2812.22 | 2751.43 | 2692.62 | |
 | 9406.47 | ( -1.88 %) | -180.41 | | |
| 1 | 2 | 3 | |||
| Resistance | 9607.64 | 9808.81 | 9987.22 | ||
| Support | 9228.06 | 9049.65 | 8848.48 | ||
FII DATA
FII -350.55
DII -13.26
Reliance Ind
RIL rose to an intra-week high of Rs 1,384 before recording the giant engulfing candle in the weekly chart. The key near-term support at Rs 1,200 was breached as the stock declined to Rs 1,092 on Friday. Near-term resistance would be at Rs 1,208 and then Rs 1,274. Short-term traders can initiate fresh shorts on a failure to move above the first resistance. The downward targets would be Rs 1,092 and then Rs 1,021. As we have been reiterating, the medium-term trend in the stock is sideways between Rs 950 and Rs 1,500. Penetration of the lower boundary is needed to signal the resumption of the downtrend that can pull the stock lower towards Rs 800.
Tata Steel
Tata Steel could not move past our first target at Rs 258 last week. But the reversal from this peak has been relatively mild. The short-term trend can continue to be classified as sideways. A conclusive close below Rs 200 is needed to turn the short-term trend down. Near term supports for the stock are at Rs 192 and then Rs 182. The medium-term view on Tata Steel stays positive. Momentum oscillators in the weekly chart are signalling that a sustainable trough could have been formed at the recent trough at Rs 146. Investors with a medium-term perspective can buy the stock in declines with a stop below the recent trough at Rs 140.
SBI 
State Bank of India reversed lower from our first target at Rs 1,380 and declined to the stop-loss level at Rs 1,190 indicated last week. The presence of both the 50 and 200-day moving averages in the zone between Rs 1,200 and Rs 1,250 makes it an important support zone. Short-term traders can hold their long positions as long as the stock trades above Rs 1,140. A reversal from here can take the stock upward to Rs 1,260 or even Rs 1,300. Fresh investment should be avoided in this stock on a decline below Rs 1,140. If this is the continuation of the down move from the September 2008 peak, the targets are Rs 990 or even Rs 750.
ONGC 
ONGC reversed lower from Rs 734 last week with an evening star pattern in the daily candlestick chart. Failure to move past the resistance at Rs 740 reaffirms the negative medium-term view for the chart. Resumption of the down move from the Rs 810 peak can now drag the stock lower to Rs 627 again. The stock has strong long-term support around Rs 600. If this level is breached, the next halt could be at Rs 538. Short-term supports for the stock are at Rs 668 and then Rs 627. Short-term traders can initiate fresh longs on a reversal from the second support. Resistances in the week ahead would be at Rs 712 and Rs 734
Infosys 
Infosys is one of the rare few stocks among the pivotals that have closed with a positive weekly close. The stock gained over 5 per cent last week to form a morning star pattern in the weekly candlestick chart.
This is a bullish reversal pattern. However, another strong weekly close is required to reinforce this assumption. A weekly close above Rs 1,200 is needed to make the near-term outlook positive.
Traders can initiate fresh longs on a close above this level. Subsequent targets for the stock are Rs 1,260 and Rs 1,307. Near-term supports for the stock are at Rs 1,140 and then Rs 1,060.
Maruti Suzuki 
MUL was untouched by the mayhem in the markets last week; recording a weekly gain of over 7 per cent.
The third leg of the up-move from the Rs 446 trough seems to be in progress.
This wave has the targets of Rs 608 and then Rs 684. Short-term traders should stay watchful as the stock nears Rs 600.
A reversal from here will drag the stock lower to Rs 520 or Rs 502.
Weekly momentum indicators signal that the medium-term trend is on the verge of being classified as up.
Long-term investors can use declines to buy the stock with a stop at Rs 420.
Downtrend may continue for Nifty futures
Despite a promising start in the New Year, the stock markets have now tumbled back, wiping away the entire gains of 2009, following the 'Satyam scandal'.
The Nifty future fell by over 6.25 per cent to end the week at 2863. And in the process, it also turned into discount with respect to the spot Nifty, which ended at 2783. But what's notable is that this time around, the sharp fall was on the back of high volumes. Though on a weekly basis, open interest positions have shown a marginal improvement for Nifty future, there was a heavy unwinding on Wednesday when market fell sharply.
That the unwinding was restricted to index futures alone, but also across several stock futures suggest that there could be an overall lack of confidence in the trading community.
Follow up
We had presented two strategies for traders last week:
1) Shorting Nifty future with 3150 at stop-loss; and 2) Short straddle strategy using 3000 strikes.
The first strategy would have generated windfall profits for traders.
As for the short straddle strategy, it is currently is in the red, albeit only marginally.
After moving past the 3000-mark quite comfortably the previous week, the Nifty future has slipped way below, confirming it may now be under the firm grip of bears.
As has been mentioned in this column previously, the Nifty future faces crucial resistance at 3250.
Only on breaching this level comfortably, will it be able to reach 3550, its next resistance.
But since the Nifty future has failed to hold above 3150, the possibility of it falling again to its October lows of about 2250 looms large.
Our view is supported by the fact that Nifty futures shed open interest positions during the week.
Further, the emergence of writers for call options at 3100 and 3300 strikes also points that traders may not be sure of a further rally.
Interestingly, 2900 puts also witnessed sharp drop in open interest positions, indicating profit booking by put buyers.
But, since 2700 and 2800 puts saw sharp accumulation in open interest position, it suggests that traders may be switching their positions from 2900 to lower levels.
Besides, that a handful of stock futures are trading at a discount to their spot, also paints a negative picture.
Volatility Index
India VIX or Volatility Index, which had earlier dipped below the 40-point mark, has now bounced back sharply. The index, which measures the expected volatility of Nifty in the near-term, closed at 47.82.
Last week's Satyam fiasco and the fact that there has been an overall shakeout in investor confidence may explain the high readings on the volatility index.
Recommendation
Consider the following strategies:
1) Since we believe that the market may be under the tight grip of the bears, we suggest traders go short on Nifty future.
The stop-loss can be pegged at 3050. Traders however can adjust the stop-loss suitably.
b) Traders can also consider buying 2800 put, which closed last week at Rs 108.
FII trends
The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on January 7 stood at 31.94 per cent.
Foreign institutional investors were predominantly net sellers during most part of last week.
They now hold index futures worth Rs 7,276.4 crore (Rs 6,532 crore) and stock future worth Rs 10,384.61 crore (Rs 10,705 crore).
Their index options holding improved to Rs 9,96.74 crore (Rs 8,307 crore).
--
Arvind Parekh
+ 91 98432 32381
