FII DATAFII07/11: -19.27 Cr. (Prov)
DII
07/11: -147.08 Cr. (Prov)
Strong & Weak futures 10 STRONG futures
RajeshExpo ,LITL, UnionBk, CanBk, HindujaVen, GTL, IDFC, DivisLab, Bhushan Stl &, HCC10 WEAK Futures
NDTV, Tisco, Ivr Prime, National Alum, Unitech, Telco, Auro Pharma, Purva, J Stainless, &Uni PhosNifty is in Down Trend until closes above 3070Index Outlook
Sensex (9964.2) Even as the world raised a toast to United States of America that voted for a new order in which racial hierarchy ceases to matter, stock markets reversed downwards. It was probably President-elect, Barack Obama's grim reminder about the "worst financial crisis in a century" that brought the six-day-old party in equity markets to an abrupt end.
Indian markets moved in tandem with the rest of the global markets, rallying merrily up to Tuesday and reversing sharply lower on Wednesday. Volumes were high in the first half of the week but it petered off towards the weekend. Light open interest in the derivative segment implies that trades are unwilling to take bets on the market's next move, given the high volatility.
Sensex declined 63 per cent from its January peak when it hit the low at 7697 on October 27. This fall exceeds the other declines witnessed in the Indian stock markets over the last three decades. The decline following the dot-com bubble was 57 per cent from the peak while that in 1992-93 was 56 per cent. The correction in 1986-88 was a milder 40 per cent. As per Elliott wave analysis, corrections can be deemed complete if they fulfil either the time or the price criteria. This decline has already met the price criteria and deep corrections generally consume lesser time.
Can we then infer that the market has formed a long-term bottom at 7697? The answer is, no. This decline is akin to nothing that we have seen before and the rule-books of technical analysis would have to be rewritten once this down-trend is through. It is therefore best not to jump to premature conclusions and to let the market show us the way forward.
The 10-day rate of change oscillator is moving in to the positive zone and the 14-day relative strength index too has moved up from over-sold area and is placed at 43. The implication is that the short-term outlook is mildly positive. There are however no buy signals yet in the weekly oscillator charts. A spinning top candlestick pattern was formed in the weekly chart denoting indecision; that is, a move in either direction is possible next week.
Our medium-term view too is ambivalent. Sensex reversed from the peak at 10945 on Wednesday. Our medium-term trend deciding level at 10,700 was breached only fleetingly on that day. This remains an important resistance level and penetration of this level will pave the way for a rally to 11630 or 12879. It is however difficult to envisage a move beyond the second target just yet.
The short-term trend in Sensex is positive. If it holds above last week's trough at 9600, there can be a surprise rally to 10945 or even 11630. Immediate supports for the index are at 9320 and 8930. The index needs to close below the second support to negate this view and re-kindle the gloom and doom scenario.
Nifty (2973)
Nifty reversed from the peak at 3240 on Wednesday and closed the week with an 87 points gain. Our medium-term resistance level was tested very fleetingly and it remains the key level to watch out for. However, the fact that the index is holding above the 2860 in the recent pull-back is a positive for the short-term and if this level holds, Nifty can rally once more to 3240 or even 3471. Support below 2860 would be at 2628. The near-term view will turn overtly negative only on a penetration of this level.
Though the short-term view is positive, the medium-term view is neutral. The zone between 3175 and 3250 will try to thwart any up-move. However, if this level is surpassed, there can be a surge to 3470 or 3740.
Global Cues Global markets rallied in the first half of the week but reversed sharply from Wednesday. However, most of these markets are well-above the lows recorded in the last week of October. The CBOE volatility index declined to 44 on Tuesday, but it rebounded sharply to end the week at 56. Dow Jones Industrial Average recorded an intra-week peak at 9653, below the medium-term resistance at 10,400, indicated last week. The sideways move between 8000 and 10000 appears likely to extend for a few more weeks in this index.
Asian equities put up a relatively stronger performance last week. The Shanghai Composite is the only index that is unable to make headway and is close to its October lows. Commodities gave up most of the gains recorded in the previous week. CRB index that tracks commodity prices declined 2 per cent for the week.
SBI
The stellar rally in SBI in the first half of last week was stalled at the resistance at Rs 1,380.
As explained earlier, failure to move above this level implies that the short-term view remains negative and the stock can decline to Rs 1,140 or even the recent trough at Rs 990 in the short-term.
Short-term investors can hold their long positions with a stop at Rs 1,130.
If the stock holds above Rs 1,180 next week, the current rally can continue to take the stock price higher to Rs 1,417 or even Rs 1,564.
We maintain a neutral medium-term view for this stock and it is likely to move between Rs 1,000 and Rs 1,500 over this period.
ONGC
ONGC rose to Rs 808 by Wednesday and spent the rest of the week moving sideways. The short term trend in the stock continues to be up. Near-term supports for the stock are at Rs 700 and then Rs 640. Short-term traders can hold their trading longs with a stop at Rs 690. The stock could rise higher to Rs 830 or Rs 880 in the near-term.
As explained in our last column, weekly chart patterns are conducive to the formation of a sustainable trough at Rs 538. The bullish weekly candle formed this week fortifies this assumption. Key medium-term resistance is between Rs 800 and Rs 860. A weekly close above this band will set the stock firmly on the road to recovery.
Reliance Ind
RIL reversed downward with a giant engulfing candle formation in the daily chart. The high volumes recorded on this day make it a key reversal day.
The stock is halting at the key short-term support at Rs 1,150. Penetration of this level will drag the stock to its October 27 low once again. Resistances for the week would be at Rs 1,292 and then Rs 1,376. Fresh shorts can be initiated on a downward reversal from either of these levels.
Key medium-term support exists at the long-term trendline at Rs 970 and subsequent support is at Rs 806. The stock could be volatile in the band between Rs 950 and Rs 1,500 for a few weeks before it makes a decisive move in either direction.
Tata Steel
It was another disappointing show by Tata Steel. The sharp decline from the peak at Rs 250 shows that bears have a stranglehold on this counter. It is currently hovering around the key short-term support at Rs 180. If this level holds, the stock can move higher to Rs 238 or Rs 276 in the short-term. Decline below Rs 176 will drag the stock down to Rs 150 or even Rs 136. Fresh short positions can be initiated on a decline below Rs 176.
The dark-cloud cover in the weekly candlestick chart implies that the medium-term view for the stock remains negative. Medium-term resistances would be at Rs 280 and then Rs 360. Fresh investment purchases are recommended only on a close beyond Rs 280.
Maruti Suzuki
MUL built on the gains made in the previous week and went on to an intra-week peak at Rs 635. Though it retracted a little from this level, the short-term view on this stock stays positive.
Near-term supports for the stock are at Rs 574 and then Rs 538. Short-term investors can hold the stock with a stop at Rs 530. A reversal from current levels can take the stock higher to Rs 635 and then Rs 638.
Strong medium-term resistance will, however, be encountered in the band between Rs 750 and Rs 800. Medium-term view will turn positive only on a close above Rs 800. MUL can spend a few more months in the band between Rs 500 and Rs 800 before breaking out in either direction.
Infosys
This stock reversed from the peak at Rs 1,457 on Monday and closed the week with an 8 per cent decline. If we consider the movement of the stock over the last four weeks, it is moving in a band between Rs 1,100 and Rs 1,400. The short-term trend will turn positive only if the stock moves firmly beyond Rs 1,450. If this hurdle is crossed, the stock can rise towards the band between Rs 1,600 and Rs 1,650. Medium-term view will turn positive only on a close above Rs 1,650.
Supports for the short-term will be available at Rs 1,190 and Rs 1,040. Short-term investors can hold the stock with a stop at Rs 1,170. Investors with a long-term investment horizon can accumulate the stock on declines below Rs 1,000.
Nifty future may see sideways movement
Pointers Nifty future fetches premium
Volatility index remains firm
Turnover subdued
Thanks to sharp gains on Friday, the spot Nifty and the Nifty futures were able to end the week on positive notes. Short-covering coupled with additions of fresh long positions, particularly on Thursday and Friday, helped the Nifty future fetch a premium to the spot. It ended the week at 2989.1 points, gaining over 3.7 per cent over its previous week's close. Long positions were added even in select stock futures such as Reliance Industries, SBI, Suzlon Energy and Bharti Airtel.
Follow-up Last week we had presented strategies based on two scenarios 1) if the market opened with a huge positive gap, we had advised traders to go short, with a stop at 3250; going short was also recommended if the market opened flat. Last week, the market did open with a big upside gap on Monday. Though the Nifty future did go on to touch a low of 2883, traders who went short may have borne losses as the Nifty future hit the stop level of 3250 during the pull back rally.
Outlook As mentioned in this column, the Nifty future has a crucial support at 2600-2550 level and a strong resistance at 3250 level. The possibility of Nifty future touching 1880-1950 levels will loom large only if it breaches below 2550 level. On the other hand, any move above the resistance can lift the Nifty future to 3550 levels. That said, one can turn bullish only if the Nifty future moves past its crucial resistance level of 4350.
Recommendation: Despite sharp pull back on Friday, India VIX or Volatility Index, which gauges the likely near-term volatility in the market, still remains high at 67.22. This suggests that the Nifty may be set for another bout of heightened volatility and may even see a sharp slide. However, the accumulation of long positions, both on index and on select front line futures may provide comfort.
Traders with a high-risk appetite can consider the following strategies.
In the coming week, Nifty is likely to move in a narrow band of 2750-3250. And since, we expect it to open on a calm note, traders can consider going long on Nifty future, with a stop-loss pegged at 2750 (this is suggested only if market has a soft opening).
The other strategy that traders can consider is a short straddle. This can be initiated by selling 3200 call and put that ended on Friday at Rs 140 and Rs 255. This strategy can be held for slightly longer period. The only fallout of this strategy is the hefty margin requirement as traders will be required to write options to execute a short straddle.
Stock futures Reliance Industries (1220): After falling heavily from its peak, the stock made a smart turnaround from lower levels. It is now crucially placed; it faces resistance at 1310 and has a strong support at Rs 1,150. Any move above its resistance can lift the stock to 1440-1450 level; on the other hand, a dip below the support can take it to a low of 1020. We expect the latter to happen. Traders can consider going short on the stock future, with a stop-loss at 1350.
FIIs trend The cumulative FII positions as a percentage of total gross market position on the derivative segment as on November 6 decreased to 38.73 per cent. Foreign institutional investors turned net sellers during the later part of the week. They now hold index futures worth Rs 9,136.92 crore (Rs 7,840.38 crore) and stock futures worth Rs 10,731.46 (Rs 8,984.74 crore).Their holding in index options also increased to Rs 13,588.96 crore (Rs 10,004.98 crore), according to latest NSE data
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Arvind Parekh
+ 91 98432 32381
