This is list of 10 strong futures:
Nifty is in Down trend
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 30-Oct-2009 | 3966.63 | 3390.58 | 576.05 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 30-Oct-2009 | 2400 | 1807.07 | 592.93 |
 | 4711.70 | ( -0.82 %) | -38.85 |  |
| 1 | 2 | 3 | ||
| Resistance | 4814.40 | 4917.10 | 4980.55 | |
| Support | 4648.25 | 4584.80 | 4482.10 | |
 | 15896.28 | ( -0.97 %) | -156.44 | | |
| 1 | 2 | 3 | |||
| Resistance | 16236.37 | 16576.47 | 16792.05 | ||
| Support | 15680.69 | 15465.11 | 15125.01 | ||
The breezy roller-coaster ride that we had expected turned in to a scary hurtle downward as the Sensex plunged 914 points last week recording the largest weekly decline in the last three months. The cut was much deeper in mid and small stocks especially those reporting adverse earnings as tolerance to negative news nosedived. The truncated week ahead is likely to be influenced by the Federal Open Market Committee meeting scheduled next week and the signals that are flashed from there.
Sudden reversal in stock prices made volumes soar sky-high, especially in derivative segment. Volumes in futures and options segment reached record levels mid-week close to the expiry of October contracts. The vicious side of the market was amply demonstrated in the way it waited for the belief in the current rally's invincibility to get all-pervasive before reversing lower: waiting for the last bear to turn in to a bull. Sensex' close below the 50-day moving average is a negative as is the close below the previous peak of 16,002. 10-day rate of change indicator declined in to the negative zone for the first time since August and the 14-day relative strength index has declined to 32. The weekly oscillators are however still in the positive zone implying that though the short-term trend is very weak, the medium term trend is not overtly so yet.
Though we had anticipated a correction last week, the magnitude was far greater than envisaged. We had expected a terminal corrective wave that moved sideways for a few weeks before the move from July lows ended. But the decline last week throws up a zigzag formation from July lows that could mark the completion of the C wave from March lows.
But we will wait for a confirmation of one more week to see if this decline prolongs and leads the index to a firm close below 16,000. Another fight-back by the bulls from these levels can result in a sideways move between 16,000 and 18000 for the rest of this year, indicated in our previous columns.
If the Sensex records a strong close below 16,000 next week, it would mean that an intermediate term correction is in progress that has the minimum targets of 14659 and 13885 – the opportunity that those who have missed the rally so far, are waiting for.
A rebound next week can take the Sensex higher to 16,450, 16,650 or 16,848. Failure to move above the first resistance would imply that weakness will persist to drag the index down to 14917 or 14740.
It was a harsh 285-point tumble in the Nifty last week. The supports at which we had expected the index to halt were pierced effortlessly.
We had expected one more leg higher to 5200 or 5300 followed by some sideways movement before the entire move from the 3918 low ended. But the decline last week implies that the move from this low has ended at 5182. It is a little early to decide if this is the end of the rally that began in March. The current decline needs to prolong next week and Nifty needs to record a strong close below 4700 to signal an intermediate term correction that has the minimum targets of 4389 and 4170.
The short-term trend in the index is down. A brief pull-back can take Nifty to 4876, 4940 or 4993.
Failure to move past the first resistance would be the cue to initiate fresh shorts with a stop at 5000. Downward targets for the week are 4581 and 4497.
The much-awaited correction finally materialised in global equity markets and many benchmarks gave up over 5 per cent last week. CBOE Volatility Index jumped above 30 on Friday, the highest level seen since this July.
Key resistance for the VIX is at 33 where the 200-day moving average is positioned. Close above this level will imply that the investor sentiment will stay edgy for a few more months.
Surprisingly the chart of the Dow appears much more resilient when compared to other global indices.
The short-term trend has been roiled by the 250-point decline on Friday but the index is holding above the 50-day moving average at 9725. Oscillators are however pointing towards the decline continuing in the near term. Medium-term target for the index is 9350.
Latin American benchmarks recorded deep cuts following decline in commodity prices.
Asian markets did not fare too badly last week though some such as the Seoul Composite Index, Thailand's SET and Sri Lanka All share Index are already in a medium-term down trend.
RIL took the downward trajectory last week and closed 116 points lower. The stock is sustaining below the 50-day moving average for the second consecutive week and its 10-day rate of change oscillator has been declining deep in to negative territory.
This indicates that the stock is in a medium-term down-trend that can prolong. Targets for the C wave from the Rs 2,490 top are Rs 1,827 and Rs 1,532. Presence of 200-day moving average at Rs 1,805 makes the first target critical.
Short-term trend in the stock is down but it has strong support around Rs 1,900 from where a bounce to Rs 2,080 or Rs 2,125 is possible.
Failure to move above the first support will be the cue for initiating fresh short positions.
SBI (Rs 2,191)
SBI plummeted to an intra-week low of Rs 2,118 by Wednesday before making an attempt to stabilise itself. A three-wave zigzag from March lows appears to have been completed at the recent peak of Rs 2,500. Minimum target of the decline that will now follow is Rs 1,900 with the 50-day moving average at Rs 2,044 providing some interim support.
Near-term resistances for SBI are at Rs 2,270 and Rs 2,360. A close above the second resistance is required to mitigate the bearish outlook. Reversal below the first resistance will drag the stock to Rs 2,062 or Rs 1,918.
Tata Steel (Rs 471.6)
The 11 per cent cut received by Tata Steel last week has marred the medium-term outlook and has opened the possibility of the termination of the up-trend that began from the March low of Rs 148. It needs to be noted that Tata Steel is one of the underperformers among the pivotals since it has retraced only half the losses made in 2008 while some of its peers are perched well above their 2008 peaks.
But the stock has already retraced 30 per cent of the move made since the March trough completing the minimum retracement requirement for a correction. The decline can halt here.
If it continues, next target would be Rs 427.
Short-term trend in the stock is down and rallies will face resistances at Rs 515, Rs 530 and Rs 548. Reversal from the first resistance will give traders the perfect place to initiate fresh short positions.
Infosys (Rs 2,205.4)
Infosys bore the bear's onslaught pretty well last week, recording a mild weekly decline of 2 per cent. Immediate support for the stock is at Rs 2,120 and the short-term trend will turn down only on a close below this level. Subsequent targets remain at Rs 1,936 or Rs 1,906.
Key resistance for the week is at Rs 2,318 and investors ought to stay wary as long as the stock trades below this level. Strong move above Rs 2,415 is needed to make the outlook gung-ho once again.
ONGC (Rs 1,132.7)
ONGC too fared relatively better last week and closed with a mild Rs 42 loss.
The stock has, however, closed below the 50-day moving average at Rs 1,179 and the oscillators in both the daily as well as the weekly chart denote bearishness.
Fresh shorts are however recommended only on a decline below Rs 1,120. Next target is Rs 1,080.
Medium-term view will stay negative as long as the stock trades below Rs 1,200. Medium-term target on a decline below Rs 1,080 is Rs 965.
Maruti Suzuki (Rs 1,403)Maruti wasn't spared from the sell-off last week and the stock closed 7 per cent lower. Rallies would face strong resistance at Rs 1,500 and Rs 1,525. Medium-term target if the decline continues is Rs 1,250.
The steep decline in Nifty last week appears to have turned the market mood on its head, from a positive growth one to the present dilly-dallying, doubtful one. Besides, with the earnings season now behind us there is also little to speak of in terms of near-term upside triggers for the market. In keeping with the sombre mood, we suggest traders to set a bear put spread on the index to benefit from further weakness. You can do this by buying Nifty November 4,700 put option and simultaneously selling Nifty November 4,600 put. This would result in a net initial debit as the strategy involves buying in the money put as against selling one that is out of money. In this case, you will have to shell out Rs 138 for buying Nifty November 4,700 put while you will receive Rs 97 when you write Nifty November 4,600 put. On the whole, the spread will cost you Rs 41/share. While it is advisable to execute both the legs of the strategy simultaneously to benefit from lower margin money requirement, you can time the purchase and sale of options depending on the day's market movement.
Maximum profit potential: The maximum profit for this spread will occur when Nifty moves below the strike price of the sold option, i.e. 4,600. The maximum profit potential will be limited to the difference between the two strikes minus the net debit paid or the cost of setting the spread. In this case, the maximum profit will be Rs 59 [(4,700-4,600) – Rs 41].
Maximum loss potential: When your spread is totally out of money i.e. when Nifty value is higher than the 4,700, the maximum loss that you can suffer will be limited to the net debit paid, Rs 41 – that is the money that was spent initially in setting the bear put spread.
So, in essence you will be taking a maximum risk of Rs 41 to earn a maximum profit of Rs 59. Traders with a slightly more bearish view can tweak the strike prices further low using Nifty November 4,700 put and Nifty November 4,500 put. The spread will entail an initial cost of Rs 71 for a maximum profit potential of Rs 129.
When to exit?Traders should consider booking profits and closing the positions as soon as the underlying trends below the strike price of the sold put option. But in the meanwhile, if you feel that the likelihood of the underlying moving down is low, you can consider closing the position prematurely
Arvind Parekh
+ 91 98432 32381
