Index Outlook: Investors kept guessing  Market was at its whimsical best last week. It declined in the first two sessions, taking the Sensex to the low of 16,560. But just when investors were about to throw in the towel, it reversed higher exasperating all those who were betting on a decline in prices. It will go down as a highly unsatisfactory week – both for bulls and bears. Stock-specific action, however, continued even as the broader market trudged along in a clueless fashion. Strong economic numbers, both domestic as well as from overseas, helped to cushion the decline in stock prices. Volumes were tepid in both cash as well as derivative segment as investors chose to retreat to the fence to wait out this volatility. Foreign institutional investors turned net buyers in the second half of the week. Open interest has already surged over Rs 1.3 lakh crore denoting that trading interest in the market stays robust. Index put-call ratio is, however, climbing indicating that the bears outnumber the bulls at this juncture. The lack of momentum, either on the up or downside in the near term is aptly reflected in the 10-day rate-of-change oscillator declining towards the zero line again after an aborted effort to move in to bullish zone. The 14-day relative strength index is in an uptrend, but poised in the neutral zone. The inference is that the short-term view is ambivalent with the possibility of a move in either direction. Weekly oscillators are however still dipping implying a negative bias. That the index is at an inflection point is apparent from the fact that it is hovering close to its long-term 200-day moving average at 16,850. The 21-day moving average has already crossed below the long-term average and the 50-day line is present just slightly above at 17,200. The medium-term trend in the index remains down since the peak of 18,047. A strong close above 17,300 will change the view to neutral and pave the way for a rally towards the index' former high at 18,047. But failure to close above 17,300 will leave open the possibility of a decline to 15,860 or 15,063. Similar trends in other global benchmarks, where the medium-term downtrend has not yet reversed, makes it important that investors tread with caution as long as the Sensex trades under 17,300. The short-term trend is however positive and the Sensex could move higher to 17,296 or 17,414 in the days ahead. As explained earlier, investors need to watch out for reversal from the band between 17,300 and 17,400. If this range is crossed, next target for the Sensex is 17,951. Supports for the short-term are at 16,695 and 16,414. Nifty (5,119.3)Nifty declined to 4,967 before rebounding to close the week above the 5,100 mark. The short-term bias is positive and the index can rally a little higher to 5,160 or 5,191 in the days ahead. However as indicated last week, the area around 5,160 is a strong short-term resistance level. So traders ought to remain alert with their long positions as long as the index does not cross the band between 5,160 and 5,190 emphatically. Subsequent target for the index is 5,329. The medium-term trend in the index is still down and a strong close above 5,190 is needed to alter this outlook and pave the way for a rally towards the index's previous peak. Failure to move beyond this resistance would imply that the third leg of the downtrend from the April peak would unfold that has the targets of 4,786 or 4,675. Global CuesGlobal stocks moved higher in the second half of the week as the Hungarian government moved to douse fears of a Greece-like crisis and Euro tried to gain ground sending dollar lower. Most important benchmarks closed the week with gains. The dire medium-term outlook that was beginning to emerge in most global indices has been mitigated somewhat with last week's fight back. But the recovery has not progressed sufficiently to signal that the present round of correction has ended. CBOE VIX recorded a new high at 37.3 on Tuesday before declining to 28 towards the weekend reflecting improvement in investor sentiment. However, a close below 28 is required in the VIX to signal the end of current volatility. The Dow recovered from the brink of a precipice at 9,800 to rally to 10,200. The short-term outlook will however remain under a cloud as long as the index trades below 10,400. Downward targets on breach of 9,800 support remains at 9,400 while key short-term resistance is at 10,700. — Pivotals: Reliance Industries (Rs 1,046.2)  RIL declined to the intra-week low of Rs 995 on Tuesday but Friday's spurt helped the stock erase all the losses to end the week marginally higher. The stock completed one-leg of the down-move from the April peak at the low of Rs 976. It has been moving sideways between Rs 975 and Rs 1,050 since then. Medium-term prospects for the stock would remain negative as long as it trades below Rs 1,050. Rally beyond will take the stock to Rs 1,064 or Rs 1,084. The extreme short-term trend in the stock is currently up. But the stock is close to key resistance zone where the 50 and 200-day moving averages are positioned. Short-term investors should therefore tread carefully as long as the stock trades below Rs 1,050. Supports for the week are at Rs 1,030 and Rs 1,016. State Bank of India (Rs 2,338)  State Bank of India could not breach the resistance band between Rs 2,350 and Rs 2,380 indicated last week and moved sideways in a wide band between Rs 2,250 and Rs 2,350. We stay with the view that short-term traders should buy the stock only on a close above Rs 2,380. Subsequent target for the stock would be Rs 2,500. Key short-term support for the stock is Rs 2,100. The stock is moving in a very wide band between Rs 1,900 and Rs 2,500 over the medium-term. Turbulence could be experienced as it approaches the upper end of this trading band. Investors with a longer horizon should therefore wait for a close above Rs 2,500 before considering fresh investment in this counter. Tata Steel (Rs 472.6)  Tata Steel recorded the intra-week low at Rs 450 and then attempted to pull itself higher in the last two sessions. Both short as well as the medium-term trend in the stock continue to be down. Key short-term resistance for the stock is at Rs 486. Short-term investors can continue to sell in rallies as long as the stock trades below this level. The stock is currently positioned at key medium-term support of Rs 446 that occurs at 50 per cent retracement of the up-move from March 2009 low. A sustainable rebound is possible from here and traders should therefore exercise caution with short positions. Next medium-term support for the stock is at Rs 376. Infosys Technologies (Rs 2,633.6)  Infosys Technologies was unable to move above the key short-term resistance at Rs 2,735 and declined to the intra-week low of Rs 2,616 instead. Short-term supports for the stock are at Rs 2,622 and Rs 2,596. Fresh long positions should be avoided on a close below the second support since that would indicate an impending decline to Rs 2,510. Medium-term view for the stock will remain negative as long as it trades below Rs 2,750 since that will leave open the room for a decline to Rs 2,350 over this period. Index Strategy: Consider covered call on Nifty
After the roller coaster ride of last week, there still doesn't appear to be any semblance of direction emerging for Nifty. Technical analysis however points to a positive bias in the short-term (read index outlook). Option trading nonetheless remains elusive with a build up in open interest (weekly) of calls at strikes 5,000, 5,100, and 5,200, as also in puts at strikes 5,000 and 5,100. We suggest traders with a high-risk appetite to consider a covered call on Nifty. You can set this by buying current month Nifty futures and selling June Nifty 5,300 call (closed at Rs 11.6). While the long position in the index futures would turn profitable as the index trends up, the short leg of the call option would provide you with limited protection against a decline. The short option would also help generate additional income. However, do note that the strategy would require a high margin commitment from your side. You can time the purchase of the index futures and short call depending on the market opening on Monday. Exit strategy In case the market does trend up as expected, you can consider closing the long index futures position at 5,160 levels. The short call option can be left open until the index decisively breaches past 5,190. As for the downside, keep a strict stop-loss depending on your ability to stomach loss and meet margin requirements, and follow it diligently. Cut the long position on hitting the stop-loss; the short call be left open as it would then be in the money. However, note that selling options is a limited profit transaction. Your maximum profit from the trade would be limited to the initial premium inflow only. Traders with a higher-risk appetite can consider moving the short call strike to 5,200 (closed at Rs 36.6). While this would be in line with the technical outlook that points to a strong resistance at 5,160 and 5,190 levels, the strategy would require high margin payments and constant monitoring Sizzling Stocks: Eicher Motors (Rs 921.7)
 Eicher Motors revved up suddenly on Friday as news of its joint venture with Volvo, VE Commercial Vehicles, trebling its capacity to become the largest commercial vehicle engine manufacturer in the country hit the market. The stock accelerated to a new high of Rs 956 on the news. One leg of the uptrend from April 2009 in this stock was completed in January this year. Third leg of this uptrend appears to be unfolding now. This wave has the targets of Rs 824 and Rs 1,016. The stock moved past the first target on Friday and could move to the next if the uptrend sustains. However, since the area around Rs 1,000 is also a psychological resistance for the stock, short-term investors could take some money off the table around this level. Others can hold the stock with the stop at Rs 760. KPIT Cummins (Rs 132.6)  This counter turned red-hot on Wednesday as the stock vroomed 20 per cent higher propelled by the announcement of a joint venture with Bharat Forge to manufacture and market an indigenously developed hybrid technology solution for automobiles. Some market participants appear to have got a whiff of the announcement in advance since the stock has been racing higher since May 31. It gained 53 per cent from here as it reached the peak of Rs 141. The up-move from May 26 low could be the beginning of a fresh leg of the uptrend since last March. The target in this case would be Rs 163 and Rs 210. Investors with a longer investment horizon can hold the stock with the stop at Rs 86. Stock Strategy: Consider initiating long in GMDC GMDC (Rs 125): Arresting the downtrend, the stock recovered sharply in last month from its support level. It now finds strong support at Rs 113, while its immediate resistance is at Rs 130. A close above Rs 130 could lift the stock towards Rs 150. On the other hand, a drop below the support can drag it lower to Rs 87-90 levels. F&O Outlook The GMDC June futures (lot size: 2,000) has been adding open interest position lately. In fact, on Friday, it added 3.9 lakh shares (or 72 per cent) along with a sharp rise in price. The futures also closed at a slight premium to the spot close. However, in spite of strong accumulation, the overall marketwide open interest stood just at 5 per cent. Options are not active in GMDC. Strategy: Traders can consider going long on GMDC with a stop-loss at Rs 120, for an initial target of Rs 130. Traders can shift the stop-loss to Rs 130, if the stock closes above that; new target can then be Rs 150. ACC (Rs 860): After a small pullback around end of May, the stock resumed its downtrend. It now finds a resistance at Rs 875 and a support at Rs 813. The stock appears to be heading towards its support level. A close below its support can weaken the stock drastically towards Rs 728. Only a close above Rs 890 would change the outlook to positive. F&O strategy: The ACC futures (market lot 376) closed at a slight discount against the spot close. It shed open interest along with drop in share price, suggesting unwinding of long position. The overall market-wide open position stood at 10 per cent. Options are not that active to discern any view. Consider selling ACC futures with a stop-loss at Rs 875 for an initial target of Rs 813. Follow-up Last week, we had advised traders to consider shorting ICICI Bank. Though it provided profit opportunities last week, it did not reach our recommended target level of Rs 747. Traders, who still hold ICICI Bank futures, can do so with a revised stop-loss at Rs 850 (on a closing day basis) 3 ways to play the market
Which is best for you — day, swing or position trading? Explore the pros and cons of these different styles.
 Ability to identifymarket turning points is key to making consistent profits. During my many years in the trading and trading education world, I have been a day trader, swing trader, and longer term position trader. While my strategy has never changed, the time horizon for finding opportunities and holding positions has changed a bit over my career. The focus of this piece is to explain the differences between day, swing, and position trading, and also explore the advantages and disadvantages of these different styles. Day Trading Day trading is typically described as the action of entering a position in the market with the intention of exiting that position before the close of the trading session, that day. Day trading requires fast connection speeds, powerful computers, back-up systems, real time data, direct access execution systems, and multiple monitors. The positives: For those with high energy, looking for action each day, yet also have very good discipline, day trading is for you. In general, profitable day traders are not the ones taking 10-100 trades a day. The consistently profitable day traders are the ones who tend to take the 1-3 quality opportunities offered to them, typically near the open of the trading session. Those who are very good at making key decisions on the fly can do well here. Day trading also allows traders to take advantage of the many short-term supply and demand imbalances in the markets each day. The negatives: For many, day trading is attractive due to the "get rich quick" mindset. While some will do very well in a short period of time, many end up losing money in this venture. Emotions tend to run very high when day trading, making rule-based execution difficult for those who have any issues with discipline. There is also the added difficulty of competing with market makers at the day trading level. Lastly, day trading is the most time-consuming style of trading as it requires you to be in front of your computer screens each day while you're trading. Those who are not good at making quick decisions are not likely to succeed at day trading. Swing Trading Swing trading is typically described as the action of entering a position in the market with the intention of holding that position for one day to a couple weeks, or even longer in some cases. Swing trading does not require real time data or direct access execution though it is recommended. The positives: From my experience, swing trading is where the largest number of aspiring traders succeed. Swing trading captures the market niche with the least amount of competition. It's a timeframe too large for day traders and too small for longer term investors and institutions. Proper swing trading does not require a big time commitment. Spending an hour or so performing your market analysis two or three times a week will suffice. Typically, swing traders will take advantage of today's technology and use the "set it and forget it" approach when entering positions into the market. It helps take the biggest risk to trading out of the equation, you and your human emotion. Swing trading offers the benefit of pre-planning every part of the trade no matter when you are doing your analysis. In fact, the best time to perform your swing trading analysis is when the market is closed. The negatives: Swing trading is somewhat boring to the active day trader as opportunities are not present each day. For those swing trading stocks, you will find opportunities come in bunches. For example, when the S&P is in an uptrend and price has temporarily declined to a demand (support) level, most stocks will be set up as buying opportunities at that time. As soon as the S&P rallies from that level, most of the swing trading low risk entries will be gone. This is not necessarily a bad thing, but the waiting game is unattractive to most people in general. Longer term position This style is typically described as the action of entering a position in the market with the intention of holding that position for weeks to months. There is no need for real time data or direct access executions. The positives: Longer term position trading to most people is "buy and hold." This may be the best style assuming (and this is important) you buy and hold AT THE RIGHT TIME. This style is very hands-off in that every part of the trade is pre-planned, well in advance. It leaves you plenty of time to enjoy other things in life outside of markets and trading. The negatives: Many long-term market speculators use news and professional opinions as their primary decision-making tool. Typically, this will lead to buying high and selling low which means losing money. Ideally, price charts, demand, and supply should be your primary set of tools. This style takes time to produce results. Successful trades may take place over a multi-week or month period and some people are not fine with this. Also, this style requires capital to be tied up for longer periods of time than day and swing trading, so opportunity cost may be a concern. Whatever type of trader you are, keep in mind that your rule-based strategy will not change. A strategy that works in one market or timeframe should work in any market or timeframe. Whether you are day trading on a one minute chart, or taking three trades a year off opportunities found on the weekly chart, the way consistently profitable market speculators derive income is from buying low and selling high, or selling high and buying low. This means you must become proficient in identifying market turning points, which comes down to the ability to objectively quantify demand and supply in any and all markets. Once you can do this, identifying price levels where this simple and straight-forward equation is out of balance is not that difficult and that is where low-risk/high-reward opportunity lies. As for me, the most profitable and comfortable trading has always been swing trading. 'Time of massive oversubscriptions in public offers is over' Only if the offering is unique and the concept is good, can public issues be made at premium valuations.
 ASHUTOSH MAHESHVARI, CEO, MOTILAL OSWAL INVESTMENT BANKING M.V.S Santosh KumarMergers of Indian companies will pick up over the next three years. FCCBs issues are on the wane. . These are just some of the trends Mr Ashutosh Maheshvari, CEO, Motilal Oswal Investment Banking, sees happening. Excerpts from the interview: Are initial public offers slackening, with the markets' bear run? In April, there were close to eight or nine IPOs. Prior to May 1, QIBs and institutional investors were required to put in 10 per cent of the amount at the time of application and the balance at allotment. The changed rules, coming into effect from May 1, required them to put in the entire amount at the time of application. Therefore, IPOs that were meant to come out in May were front-ended to April. So, if May alone is considered, a good part of the activity was pulled into April, and therefore offers are not slackening. Going forward, three to four offers a month are likely. With the changed guidelines, the times of issues being subscribed twenty to forty times are over. Currently, most issues are being subscribed in the QIB segment. Are there any specific reasons why retail investment in IPOs appears to be waning? It's primarily the lack of listing-day gains. Earlier, out of ten issues, nine would have offered hefty listing gains. The situation is reversed now. Now, if a few issues list at hefty premiums in the future, the retail investor will swing back into the game. The lack of listing gains is also why there are no takers for margin funding in IPOs. The scheme works primarily on gains on listing day. Has the introduction of ASBA for retail investors diverted any funds through this segment? At present, about 20-29 per cent of subscription is through ASBA. It can increase to 50 per cent, gradually. Levels are low because, procedurally, it is still not very smooth. Retail investors in IPOs are also not used to the system yet. It is merely a convenience factor. Are valuations for IPOs more realistic than previous issues? Valuations depend on sectors. A small offer like Talwalkar's, which actually has thin margins, was valued at 25-30 times earnings. Essentially, if the offering is unique and the concept good, only then can issues be made at premium valuations. Any company that decides to go public will normally always do so, irrespective of valuations involved. So, even issues like Emaar MGF, BPTP and so on will mostly come out in the next quarter or so. . Besides IPOs, what are the other methods of capital raising that have gained ground? The QIP route remains the most convenient and attractive way of raising capital for a listed company. Earlier, it was the large-cap companies that were able to undertake QIP issues. Gradually, in time, midcap companies too successfully launched QIPs and even companies with market caps of Rs 500 crore can now raise capital. This is actually a good sign; the depth of the market is increasing. Is there a sector bias in QIPs? From a QIP investor's point of view, sectors which play into the consumption story, and which are linked to the domestic economy, rather than the export economy, are favoured. So there are sectors such as EPC construction, consumer goods, capital goods, finance and so on, which are primarily dependent on growth within India, and will therefore find QIP investors. How about FCCBs and warrants? Warrants are no longer in demand because the rules changed, requiring them to put in 25 per cent of the amount to be raised upfront (against the 10 per cent previously). While FCCBs were a great product, issuances have drastically declined. The reason is, earlier, FCCBs were driven by something called asset swaps. A company issues an FCCB and the investor who takes it does an asset swap with a bank. It splits the equity and debt option. Now, the market for asset swaps is essentially dead. Even if FCCB issues are happening, premiums are marginal, at about 5-10 per cent. At this price, issuers are not very interested. Much of a revival is also unlikely, because worldwide, banks have made losses in their products, so it's doubtful that they will return to offering asset swaps. And without this, FCCBs are not that attractive. Are investment banking fees on issuances going down? There are two segments when it comes to offers and investment banking fees. Public sector issues form one segment, while normal equity offerings by the private sector forms the other. Fees on public sector disinvestment programmes and the public offerings of the government enterprises have always been on the lowside. On these issues, investment bankers sometimes actually lose money. At the end of the day, the number of issues and the volume of deals done during the year are compiled into what are called League Tables, which provide rankings and visibility for investment banks. Public issues are usually undertaken to improve standings in League Tables.With private sector equity issues, the situation is better than that in the previous years. What is the scene on mergers and acquisitions? There is good opportunity in the M&A segment, in both cross-border and domestic consolidation. The most important point to consider, going forward, is that India has rarely seen the merging of two Indian companies. Given the fact that businesses have moved to the next generation and people are capital market-savvy, looking for wealth creation, the merging of Indian companies should be the trend to watch out for over the next three years. Inbound and outbound acquisitions have been, and will continue to, happen. What is going to change is the ' M' in that 'M&A'. Strong & Weak Stocks for 14th June MondayThis is list of 10 strong stocks: BRFL, RCOM, Recltd, Dr Reddy, TV-18, UCO Bank, Dish TV, Asian Paint, Bajaj Auto & Colpal. And this is list of 10 Weak Stocks: Aban Off shore, Grasim, Punj Lloyd, KS Oils, Suzlon, MTNL, Hindalco, Tata Steel, India Info & MLL. The daily trend of nifty is in Uptrend SPOT/ CASH INDEX LEVELS FOR 14th June 2010
SUPPORT / RESISTANCE LEVELS IN CASH MARKET FOR 14TH JUNE MONDAY
*Disclosure: I don't have any positions in the above said scrips & NIFTY FUTURES. Disclaimer: "I do not make any warranties, express or implied, as to results to be obtained from using the information in this e-letter. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report. -- Arvind Parekh + 91 98432 32381 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sunday, June 13, 2010
Weekly Market Outlook 14th-18th June 2010
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