Above 2852 level, rally may continue up to 2871-2873 zone by non-stop.Support at 2819-2821 zone.
Below this zone, expect profit booking up to 2798-2800 zone and thereafter slide may continue up to 2779-2781 zone by non-stop.
Below 2723-2725 zone, expect panic up to 2704-2706 zone and buying can be done at around this zone. Stop Loss at 2679-2681 zone.
On Positive Side, above 2889-2891 zone it can zoom up to 2902-2904 zone and if crosses & sustains at above this zone then uptrend may continue.
BSE SENSEX
Traders can expect rally further.
Short-Term Investors:
Short-Term trend is Bullish and target at around 9678 level on upper side.
Maintain a Stop Loss at 9049 level for your long positions too.
GLOBAL CUES & RUPEE
The Dow Jones Industrial Average closed at 8,280.59. Up by 217.52 points.
The Broader S&P 500 closed at 868.60. Up by 22.75 points.
The Nasdaq Composite Index closed at 1,591.71. Up by 45.47 points.
The partially convertible rupee
SENSEX Stocks May Zoom
Headlines for the day
Corporate News Headline
RIL will take delivery of three deepwater drilling rigs starting this year as the company begins producing gas in the Bay of Bengal that may more than double the nation’s output. (Bloomberg)
Essar Steel is planning to raise production capacity to 25 MT per annum investing Rs. 178 bn to put up a 6 MTPA mega steel plant in Karnataka. (ET)
Hindustan Petroleum Corporation has decided to triple crude oil import from Iran while reducing supplies from Iraq next fiscal. (BS)
Economic and Political Headline
The government assured that it would look at "everything" to push the industrial growth impacted by global downturn. (ET)
Exporters finding it difficult to access foreign currency loans need no longer despair, as the Reserve Bank has raised the interest rate ceiling at which banks can raise export credit in the global market. (ET)
The UK manufacturing fell 2.2% in December from the previous month, the worst streak of contraction in almost three decades, and individual insolvencies rose 8.2% in the fourth quarter as the recession deepened. (Bloomberg)
Weekly Index Outlook
Sensex (9424.2)
Indian equities turned irresolute once more and wavered in a narrow range last week. Bulls warded off a further decline with talks of the goodies that might be doled out in the forthcoming stimulus packages in the US and India. But they could not succeed in luring wary investors back to the markets.
Sensex ended the week with marginal gains. Trading was extremely lacklustre last week as news-flow dried up. Volumes were extremely low in derivatives segment as well since traders are getting flummoxed by the whipsawing prices. Open interest is however creeping higher some positions are being taken ahead of the interim budget announcement.
It was status quo ante in Sensex last week as it neither moved higher nor lower but plodded sideways in a range between 9000 and 9400 instead. The positive divergences in the weekly oscillators continue to lend hope of the recovery extending further. The 10-day rate of change oscillator has moved in to the positive zone and the 14-dayrelative strength index is at 50 implying that the short-term outlook is positive.
The wave counts have not under-gone any change either. The short-term up trend from January 23 trough can have one more leg higher that takes the index to 9516 or 9824. The rally can halt at either of these levels and the down trend can resume. If the index gets past these resistances, the zone between 10000 and 10200 will act as the next impediment.
It is always difficult to decipher a sideways moving market as the traders would have discovered the hard way over the past two weeks. As mentioned last week, the fifth leg of a triangle is being formed since the last week of January. This formation can be followed by an X and another three or five wave formation. Such a move will keep the index vacillating between 8000 and 11000 for a few months. Even if the down-trend from the January 2008 peak resumes, it could halt between7500 and 8500.
The index could move higher to 9516 or 9824 in the week ahead. If the index is unable to get past the first resistance, it would mean that it can move down to 8650 or 8380. Traders can hold their longs as long as Sensex trades above 8950.
Nifty (2843.1)Nifty too moved in a sideways range between 2750 and 2870 last week. The short-term up trend from 2661 can continue to take the index to2884 or 2967. The index can reverse lower from either of these levels. If the rally continues, Nifty will test the resistance band between 3070 and 3090. Conversely, a shaky start to the week that prevents the index from moving past 2900 will portend a decline to 2576. Supports for the week are at 2760 and 2660. Traders can hold their long positions as long as the index trades above the first support. The medium-term trend in the index is indecisive and a sideways move between 2500 and 3000 seems possible in this period. Global Cues
There was a strong rally in global equities that made most markets close with hefty gains. Volatility retreated after a sharp spike in the early part of the week. CBOE volatility index declined after recording a high of 49.5 on Monday. The over-200 points spurt in DJIA on Friday took the index well above the critical 8000 level. But the resistance zone between 8400 and 8500 needs to be surpassed to instill confidence that this rally can sustain. Latin American indices such as Brazil's Bovespa and Chile's IPSA recorded a fresh high for 2009 last week. European indices such as CAC, DAX, and FTSE gained between 3 to 5 per cent last week.
Chinese equities too shook off the lethargy to make new 2009 highs.
CRB index that tracks commodity movement stayed around the 360 level though sharp moves were witnessed in different commodities. Aluminium rebounded sharply after the breath-taking decline recorded over the last three months. Gold is hovering around the medium-term trend deciding level at $900. A reversal from here will cause a decline to $830 or $800. An upward break-out would give the next target at $988. —Maruti
It was a one-day-up-one-day-down kind of a week for Reliance Industries. The stock moved in a narrow band before ending with a meagre Rs 17 weekly gain. There can be one more spurt to Rs 1,364 or Rs 1,405. But the area around Rs 1,400 is a strong resistance that can derail any rally. Short-term traders can hold their longs with a stop at Rs 1,250. Next short-term support is at Rs 1,200.We had indicated that a symmetric triangle is being formed since the last week of October. The stock has not broken out beyond the upper boundary of this triangle yet. Medium-term view will turn positive only on a close above Rs 1,500.
Tata Steel
Tata Steel recorded an intra-week low at Rs 167.7 before reversing higher to recoup all the losses. The short-term trend in the stock is down since the peak at Rs 260. This decline can continue to take the stock down to Rs 146 or Rs 129. The near-term view will stay negative as long as it trades below Rs 202. Subsequent target is Rs 225. We retain a neutral medium-term view for Tata Steel.
This view will turn negative only on a firm close below Rs 146. Another upward reversal from the previous trough at Rs 146 will make the stock move in the range between Rs 140 and Rs 250 for a few more months.
SBI 
The 200-day moving average at Rs 1,180 will act as a strong short-term hurdle.
The near-term view will turn positive only on a close above Rs 1,200.The medium-term view for SBI remains neutral as long as it remains in the band between Rs 1,000 and Rs 1,400.
Since Rs 1,000 is also a long-term support, investors with a long-term perspective can bottom-fish around this zone.
ONGC 
ONGC made a half-hearted attempt to move beyond the short-term trading range that had been shackling it down over the past three weeks.
We need a strong surge beyond Rs 660 to propel it towards the next barrier at Rs 736. A cautious outlook is maintained for the short-term as long as the stock remains below this level.
The stock will get support at Rs 642 and Rs 616 in the week ahead.
We maintain a negative medium-term view for the stock as long as it trades below Rs 750. A close above Rs 750 would pave the way for a rally to Rs 810.
This is list of 10 strong futures:
WWIL, Jindal Steel, Grasim, GE Ship, GT Offshore, Neyveli Lig, SAIL, Polaris, Balram Chini & ACC.
And this is list of 10 Weak Futures:
DLF, Edu Comp, Aban, Wel Guj, Punj Lloyd, Divis Lab, GDL, Gitanjali, Tulip & Auro Pharma.
Nifty is in Up Trend.
NIFTY & SENSEX LEVELS FOR 9TH FEB 2009
 | 2843.10 | ( 2.27 %) | 63.05 |  |
| 1 | 2 | 3 | ||
| Resistance | 2870.85 | 2898.60 | 2944.70 | |
| Support | 2797.00 | 2750.90 | 2723.15 | |
 | 9300.86 | ( 2.31 %) | 209.98 | | |
| 1 | 2 | 3 | |||
| Resistance | 9361.96 | 9423.07 | 9524.75 | ||
| Support | 9199.17 | 9097.49 | 9036.38 | ||
FUNDS DATA
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 06-Feb-2009 | 1273.17 | 1155.94 | 117.23 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 06-Feb-2009 | 518.2 | 386.53 | 131.67 |
Bullish and bearish engulfing patterns
There are few candlestick patterns that give a fairly accurate warning about an impending reversal in prices. Bullish and bearish engulfing patterns belong to this class of candlestick patterns.
The ease with which they can be identified also contributes to their popularity and wide usage. To form the bullish and bearish engulfing patterns, what is needed is a pair of candles.
A bullish engulfing candle occurs following a significant downtrend when a large white candlestick's body absolutely covers a smaller black candlestick formed in the previous session.
It is enough if the body of the first candle is covered or engulfed by the second candle. It is not imperative that the shadows of the previous candle are covered.
This pattern is more successful when it is formed in the oversold area that occurs at the end of an extensive downtrend.
The larger the candle that is engulfed, the more effective the reversal signal is. Since the second candle is formed when the price opens lower that the previous day's close and closes strongly above it, it implies that the investor sentiment is turning bullish.
Let us illustrate bullish engulfing pattern with an example. Refer to the Bank of India chart below. The stock was on downtrend from mid-May to early-July 2008 low.
After forming a large bullish engulfing candlestick pattern at around Rs 200, the downtrend got arrested. Subsequently, the stock began to rally higher.
A bearish engulfing candle occurs towards the end of a significant up trend. When the body of a large black candlestick completely covers a smaller white candlestick's body, such a pattern is known a bullish engulfing pattern.
This pattern is more successful when it is formed in the overbought area that appears at the end of an prolonged uptrend.
Chennai Petroleum's chart represents bearish engulfing candlestick pattern. After finding support at around Rs 245 in mid-March 2008, the stock rallied up to Rs 400 levels.
However, after reaching an overbought level, the stock reversed direction forming a bearish engulfing candlestick pattern.
There was a change in investor sentiment at that peak which was indicated by the black engulfing candle. Later on, the stock's decline prolonged and it reached Rs 245.
Many option traders lose on time spreads even though the underlying moves in the direction required of the set up. —
An options trader who recently set up put time spread lost despite the S&P CNX Nifty declining in value. We found that many options traders appear to be grappling with the following question regarding time spreads: Why are long spreads not profitable even though the underlying security moves in the required direction?
This article discusses the time spread and explains how the spread moves due to change in volatility and change in the time value.
It shows that the set up is optimal for traders who want to bet on volatility.
Trade set upSuppose a trader has a neutral view on the S&P CNX Nifty but expects the volatility to explode. The trader could set up long time spreads (short spreads for imploding volatility) because they are also a bet on volatility.
We will assume that the trader prefers at-the-money (ATM) puts. The reason is that more traders currently hold a negative view on the market.
Besides, ATM options are more sensitive to change in volatility than in-the-money (ITM) or out-of-the-money (OTM) options.
The trader buys March 2800 puts and sells the February 2800 puts for a net debit of 65 points (Thursday prices) when the spot index is 2775.
How would the spread behave if the volatility moves up from 50 to 55 per cent by February 19, but the Nifty remains at 2775?
The March puts would be worth 190 points and the February puts would be 95 points. The trader could close the position for 95 points net.
With an initial debit of 65 points, the position would generate 30 points not including brokerage and slippage costs.
But what if the trader's view on volatility turns wrong? Suppose volatility declines to 40 per cent, the March 2800 puts would fetch 140 points on February 19, while the February contract would be worth 75 points.
The position could be, therefore, closed for 65 points. This leaves the trader with no profit on the position.
But why is the trade set-up considered more a bet on volatility than a view on the underlying?
Volatility Vs Time value
If the Nifty declines to 2650 by February 19 with no sizable change in volatility, the March 2800 puts would be worth 240 points and the February puts 170 points. With the initial debit of 65 points, the trader would be left with just 5 points profit.
Importantly, the 125 points decline on the Nifty would not be enough for spread to become profitable. The reason is that when Nifty declines, the near-month contract moves faster than the next-month contract. This can be understood intuitively.
Next-month ATM puts carry higher value than the near-month contracts. When the underlying declines in value after 14 days, the next-month contract loses more time value.
And this reduces the gain due to the ATM option becoming ITM.
The opposite is true with volatility - longer the maturity, greater the sensitivity of the option to change in volatility.
The next-month contract, therefore, rises faster than the near-month option when volatility increases from 50 to 55 per cent.
Traders can best appreciate time spreads when opposing factors- loss in time value and increase in volatility — act simultaneously on the position.
Suppose Nifty declines to 2650 on February 19 and the volatility jumps from 50 to 55 per cent. With the February 2800 puts at 96 points and the March puts at 191 points, the trader can close the position for 95 points. The initial debit of 65 points would mean that the position would carry 30 points profit.
An increase in volatility by 5 percentage points, thus, changes the position from a gain of 5 to 30 points.
Conclusion
Traders should appreciate the fact that time spreads are different from all other spreads, as time value and volatility have opposing effects on the position. It is, therefore, important for a trader to have a view on volatility before setting up the spread.
--
Arvind Parekh
+ 91 98432 32381
