Corporate News Headline
Grasim Industries reported Q3'09 results; total revenue increased 6.27% yoy to Rs. 45.88 bn however, net profit decreased 36.26% yoy to Rs. 4.6 bn. (BS)
Unitech reported Q3'09 results; total revenue decreased 56.48% yoy to Rs. 5.07 bn and net profit decreased 74.12% yoy to Rs. 1.36 bn. (BS)
RIL has been allowed to sell KG basin gas at USD 4.2/mmbtu in the interim period after court lifted the interim stay on RIL till a final verdict is passed. (BS)
Economic and Political Headline
The growth of key infrastructure industries slowed down to 2.3% in December 2008 from 3.2% in December 2007, mainly on account of drop in output of steel and crude oil. (BS)
The US economy contracted by 3.8% annually in the fourth quarter of 2008 with consumer spending, which accounts for about 70% of the economy, dropping 3.5%. (Bloomberg)
China's retail sales during the week- long Lunar New Year holiday climbed to USD 42.4 bn, 14% higher than last year's holiday period. (Bloomberg)
Below 2839 level, expect profit booking up to 2795-2797 zone and thereafter slide may continue up to 2754-2756 zone by non-stop.
Hurdle at 2878 level. Above this level, rally may continue up to 2886-2888 zone.
Above 2927-2929 zone, it can zoom up to 2968-2970 zone and thereafter it will touch 2996-2998 zone and supply expected at around this zone.
On Negative Side, break below 2713-2715 zone can create some panic up to 2672-2674 zone and buying expected at around this zone. Stop Loss at 2644-2646 zone.
Short-Term Investors:
Bearish Trend. 3 closes below 3144 level, it can tumble up to 2312 level by non-stop.
Traders can expect profit booking.
Short-Term Investors:
Short-Term trend is Bullish and target at around 9910 level on upper side.
On Negative Side, corrections up to 8951 level can be used to buy. Maintain a Stop Loss at 8632 level for your long positions too.
Strong & Weak futures
This is list of 10 strong futures:
Polaris, Jindal Steel, Balram Chini, Renuka, STR Tech, Aptech T, Treveni, Matrix Labs, Neyveli Lig & Edelweis.
And this is list of 10 Weak Futures:
Wel Guj, Punj Lloyd, Divis Lab, Aban, Cummins Ind, DLF, Pantaloon R, Gitanjali, NDTV, EKC & Nagar Const.
Nifty is in Up Trend
The Dow Jones Industrial Average closed at 8,000.86. Down by 148.15 points.
The Broader S&P 500 closed at 825.88. Down by 19.26 points.
The Nasdaq Composite Index closed at 1,476.42. Down by 31.42 points.
The partially convertible rupee <INR=IN> closed at 48.87/88 per dollar on Friday, stronger than its previous close of 48.975/985.
 | 2874.80 | ( 1.80 %) | 50.85 |  |
| 1 | 2 | 3 | ||
| Resistance | 2912.50 | 2950.20 | 3019.40 | |
| Support | 2805.60 | 2736.40 | 2698.70 | |
 | 9424.24 | ( 2.04 %) | 187.96 | | |
| 1 | 2 | 3 | |||
| Resistance | 9545.91 | 9667.59 | 9896.86 | ||
| Support | 9194.96 | 8965.69 | 8844.01 | ||
Weekly Market Outlook 2nd-6th Feb 2009
Sensex (9424.2)
Members of India Inc vied with each other in assailing investors with horrendous earnings last week. But if the market's reaction to these numbers is anything to go by, investors' ability to absorb bad news appears to have reached a saturation point. How else can one explain the 750 points rally in Sensex last week?
A surprise rally in global markets on Monday caught traders returning to work after a long weekend on the wrong foot, leading to frantic short-covering that took Sensex higher in the first two sessions of the week. Predominance of short positions in the open interest implies that the current rally can get additional impetus when these positions are squared.
Sensex ended the first month of January on a mildly triumphant note, having warded off a deeper plunge below 8500. Its 2 per cent monthly loss compares favourably with the deeper cuts suffered in other major global indices. Spinning top formation in monthly candlestick chart of Sensex denotes a neutral stance. The trend in the index has been sideways since October 27, 2008. A break-out in either direction is possible. But the positive factor to note is that the index is attempting to build a base around the 66.67 per cent retracement of the prior bull market.
Positive divergence is visible in the weekly oscillators though they continue in the over sold territory. Daily oscillators are on the verge of entering the bullish zone. In other words, we need one more week of a strong up-move to nudge the index in to a medium term up trend.
Elliott Wave counts however are still advising caution. The sideways move from October 2008 trough appears to be forming a symmetric triangle with the 'E' wave in motion since the 8631 trough. This leg can end at 9760 or around 10200. A weekly close above 10700 is needed to make the medium term view positive. Investors can draw heart from the fact that the 8500 level has been a reliable support thus far. It may be recalled that even on October 27, 2008, Sensex closed at 8509 after testing 7697.
Resistances in the week ahead would be at 9548 and 9835. Investors should watch their step in the band between 9750 and 9850. If this zone is surpassed, the next target would be 10200. Supports are at 8800 and then 8631. Close below the second support will herald the end of the short-term up-trend.
Nifty (2874.8)
Nifty too reversed higher to close the truncated week with a 196 points gain. The formation in Nifty is however akin to an ascending triangle due to the two peaks formed at 3160. The up trend from 2661 can take the index higher to 2900 or 2986. In short, the area between 2900 and 3000 is a strong resistance zone. If this zone is crossed, the index can head towards 3150.
But the medium-term view for Nifty would turn positive only on a weekly close above 3150. Conversely, the area around 2500 will continue to act as a good medium term support.
Global CuesStocks rose in the first half of last week before buckling to pressure in the second half. The CBOE Volatility index (VIX) plunged to 33 on Wednesday as investors were betting that the worst was behind them. But another sharp decline in stock prices brought back the trepidation, sending the VIX to 45 on Friday. Support is emerging for Dow Jones Industrial Average every time it approaches the 8000 level. But the inability to move past 8400 implies that the bears continue to hold the upper hand. The index closed the week tantalizingly, at the 8000 mark.
European indices such as CAC and DAX pulled themselves back from the brink just when they appeared to be heading towards multi-year lows. Asian markets traded sideways.
The CRB index that tracks the movement in commodity prices, closed the week on a flat note. Base metals such as aluminium and copper traded weak while precious metals including gold, silver and platinum surged higher.FII DATA FOR 30-Jan-2009
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 30-Jan-2009 | 1301.52 | 1365.67 | -64.15 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 30-Jan-2009 | 1132.93 | 734.54 | 398.39 |
Reliance Ind
RIL did a volte-face and gained Rs 172 last week. Though it grappled with the resistance at Rs 1,274 in the initial part of the week, it closed firmly above this mark on Friday.
Our assumption that the move from Rs 1,350 is continuing, has now been negated. The movement from October 27 trough appears to be a symmetric triangle. The stock could move higher to Rs 1,384 or Rs 1,408 in the near-term. Investors should stay watchful at these levels.
Supports for the week are at Rs 1,205, where the long-term moving averages are positioned and then at the short-term trend line at Rs 1,120.
Short-term traders can buy in declines as long as the stock remains above Rs 1,205.
Maruti Suzuki 
MUL moved contrary to our expectation last week and rallied higher to close with 11 per cent weekly gain.
If Friday's move is the continuation of the move that began at Rs 446, the targets are Rs 614 and then Rs 676.
Considerable short-term resistance can be expected around the previous peak at Rs 607.
Key medium-term support remains at Rs 500.
The stock can move in the upward trajectory as long as it trades above this mark.
The 200-day simple moving average at Rs 640 will be a strong hurdle. If the stock is unable to cross this level, it can move sideways between Rs 450 and Rs 650 for a few more months as the base-building continues.
SBI 
The sharp spurt on Friday helped SBI close the week in green. But the stock continues to trade below the key near term resistance at Rs 1,200.
Though SBI can rally to Rs 1,200 or Rs 1,250 over the short-term, investors should stay watchful as long as it trades below Rs 1,250. A breach of Rs 1,250 will give the next target at Rs 1,376.
We maintain a neutral medium-term view for the stock. It is moving in the range between Rs 1,000 and Rs 1,400 since the last week of October. The presence of strong long-term support at Rs 1,000 will attract long-term investors every time the stock nears this region. A close above Rs 1,380 is required to turn the medium-term view positive.Tata Steel
Tata Steel edged higher against all odds, recording a bullish harami pattern in the weekly candlestick chart.
We maintain a negative short-term view for the stock as long as it trades below Rs 203. The presence of 21-day moving average at that level also makes it a strong short-term resistance.
A reversal below Rs 200 can pull the stock lower to Rs 165 or Rs 146 again.
Upper target beyond Rs 200 is Rs 225.
The medium-term trend for Tata Steel is sideways. The formation of a higher bottom at Rs 165 is a positive. If this is the third leg of the move from Rs 146, the stock can move all the way to the medium-term ceiling at Rs 260.
Infosys 
Infosys put up a strong show last week and is currently knocking at the near-term ceiling at Rs 1,300.
A strong move past the resistance at Rs 1,300 will take the stock to the next resistance band between Rs 1,415 and Rs 1,460. Short- term traders can hold their longs with a stop at Rs 1,240. Near-term support however exists at Rs 1,190.
We revise the medium-term view for Infosys to neutral. The up trend that began on December 29, 2008 is gaining in strength and appears set to take the stock towards the upper end of the medium-term range between Rs 1,000 and Rs 1,500. The impediment at Rs 1,320 needs to be shattered to pave the way for such a move.
ONGC 
The stock has been vacillating in a range since the last week of November 2008. The medium-term trend is down since the November 2008 peak at Rs 2008 and a move lower to Rs 539 is possible once this down move resumes. A close above Rs 750 is required to mitigate the negative medium term view.
The stock is moving just below the 50-day moving average at Rs 672. This will be key resistance in the week ahead. Subsequent hurdles will be at Rs 698 and then Rs 740. The zone between Rs 600 and Rs 620 will be a significant short-term support.
Long-dated options: Slower time decay, higher payoffs
The higher volatility in the stock market has forced many traders to switch from futures to options. Option trading is, however, more risky. What if the trader's view turns right after the near-month contract expires worthless? Unlike futures, options erode capital because of time decay or loss in time value.
This article explains the characteristic of time value and its relation to option maturity. It then shows why traders should look beyond the near-month contract to take a view on the underlying.
Time decay and maturityOption premium consists of time value and intrinsic value. Take the February 2500 calls, which traded at 375 points on Wednesday. With the Nifty closing at 2859, February 2500 calls carried an intrinsic value of 359 points and a time value of 16 points (375-359 points). This is an important point. Typically, in-the-money (ITM) options carry lower time value than at-the-money (ATM) and out-of-the-money (OTM) options.
The reason is not far to seek. Time value is the residual factor (option price less intrinsic value) and is a function of demand and supply for a particular strike.
Now, ATM and OTM options carry higher demand than ITM options because of lower initial outlay. The lower demand for ITM options means that the prices move up primarily due to intrinsic value and not due to demand-related factors. Hence, the lower time value.
There is yet another characteristic of time value that is important. Short-term options lose time value faster than long-term options. On expiry, ATM options and all OTM options expire worthless and ITM options retain only the intrinsic value. This means that the time value in these options tend to zero. And that can happen if they shed time value with each passing day - a measure that is captured by option theta or time decay. Because long-term options have more time to expiry than short-term options, their time decay is slower.
Long-term optionsSuppose a trader is of the view that the S&P CNX Nifty can decline to 1818 by July 2009, a level that the index touched in February 2000. The trader has the following alternatives:
One, she can buy June puts. The problem is that the bid-ask spreads are wide. Besides, what if Nifty does not decline much by June? The June puts will not then be worth much, as time decay will hurt the option.
Second, she can buy either the September or the December 2009 contracts. September contracts are not actively traded and the December contracts are pricey; the 2500 puts trades at an implied volatility of 59 per cent.
Three, she can buy long-dated options. The June 2011 options, for instance, are actively traded than the 2010 contracts for various reasons. The June 2011 3000 puts traded at 620 points on Wednesday at an implied volatility of 49 per cent.
The 3000 puts would be worth 930 points if the Nifty touches 2000 by mid-July. The puts will be worth 330 points if the Nifty closes at 4000 instead; a 50 per cent gain against a 46 per cent loss.
The point is that the 3000 puts will be worth 935 points if the index moves to 2000 even in September. That is the advantage of long-term options — ITM option does not lose much time value even if the price objective is met at a date later than expected.
ConclusionThe high initial outlay makes long-term options prohibitive to some. Traders can consider selling short-term options against the long-term options. This strategy is optimal when the underlying is expected to move sideways in the short-term. The objective is to let the near-month contract expire worthless and use the premium collected on the short option to subsidize the cost of the long option. It is time that traders take fancy to long-dated options and shed the urge to trade only near-month contracts.
--
Arvind Parekh
+ 91 98432 32381
Corporate News Headline
Jindal Steel & Power reported Q3'09 results; total revenue increased 27.29% yoy to Rs. 17.91 bn and net profit increased 1.91% yoy to Rs. 3.25 bn. (BS)
