This is list of 10 strong futures:
Praj Ind.
Nifty is in Down Trend.
Monsoon cheer for market— Sensex (14,913)
The day of reckoning for the UPA Government is here. The Union Budget will demonstrate the extent to which the hopes and expectations woven in to the post-election rally will be translated in to action.
Indian equities edged sideways for most part of last week before an innocuous Railway Budget led to a flurry of last-minute buying on Friday afternoon, helping the Sensex close the week in the green. Monsoon spreading its reach also brought a bout of cheer to market.
The caution among market participants is justified since the Sensex is currently up 22 per cent from its pre-election result level of 12,173. Breadth was negative on many days last week and both the BSE mid- and small-cap indices closed the week on a flat note. Lower open interest, around Rs 72,000 crore too implies that traders are wary of holding leveraged positions on July 6. Foreign institutional investors have been nibbling at Indian stocks over the last five sessions.
Sensex moved in a very narrow range between 14,400 and 15,000 last week. This sideways movement has maintained the status quo as far as the oscillator charts are concerned. The 10-day rate of change oscillator that had declined in to the negative zone has clambered back above zero implying a neutral view for the short-term. The 14-day relative strength index continues in the overbought zone at 71.
As explained last week, the medium-term uptrend from the March lows is currently under duress. Sensex has key intermediate resistances at 14,626, 15,284 and 16,179 based on Fibonacci retracement levels of the previous down-move. The index is currently reversing lower from 15,600 positioned between the second and third targets.
A significant peak could already have been formed at 15,600. We, therefore, continue to advise caution from a medium-term perspective. A protracted medium-term down-trend can drag the Sensex down to 12,730 or 10,956 over the ensuing months. However, a decline below 13,300 is required to confirm a medium-term reversal.
A budget induced rally that takes Sensex above 15,600 will give the next medium-term target between 16,179 and 16,332 for the index.
Budget sessionThe only way to predict how the market will react to the provisions of the Union Budget is by gazing at the crystal ball. Since there is no crystal ball at hand, it would be best to be prepared for all three scenarios outlined below:
If the market gets ecstatic with the provisions of the budget, Sensex can rally upwards to 15,600 or 15,874 on the budget day. An unbridled rally will result in Sensex moving towards our medium-term target between 16,179 and 16,332.
A lackadaisical reaction to the budget can result in the rally getting stalled at 15,290 and the index moving lower towards 14,000 again.
An overtly negative reaction will pull Sensex down to 13,360.
To sum up, the medium-term trend from March lows is close to termination but a positive reaction to the budget can make it extend up to 16,300. The path of least resistance is currently downwards and there is a strong possibility of a medium-term down-trend commencing that takes Sensex towards 12,000 or lower.
Nifty (4,424.2)The medium-term trend in the Nifty is also down since the peak of 4,693. If the third leg of this down-trend unfurls after the budget, it can drag the index lower to 4,094, 3,884 or even 3,544. If we consider the retracement of the up-move from the March lows, Nifty will get strong support at 4,051 and 3,876 and short-term traders can watch out for upward reversals around these levels.
On the other hand, a positive reaction to the budget will take Nifty higher to 4,546, 4,693 and 4,728. It needs to be remembered that the index has strong intermediate resistance at 4,646. Once this level is crossed, the next intermediate term target would be 4,904.
Global CuesGlobal equities were unable to make headway last week and closed with marginal losses. CBOE Volatility Index (VIX) spiked higher on Thursday implying that investors were rattled by the sharp spike in the number of jobs cut in the US in the month of June. The VIX closed 7 per cent higher for the week. Asian equity markets were relatively resilient and managed to hold on to most of the gains recorded in the previous week. Shanghai Composite Index was the out-performer with 6 per cent gain.
Thursday's sell-off in the Dow appears to be the commencement of the third leg down from the recent peak at 8,878. The targets of this wave are 8,198 and 7,962. Key support to watch over the next week is at 8,200. A strong close below this level will be the first indication that the medium-term trend is reversing in this index. As mentioned earlier, a close below 7,800 is needed to reopen the possibility of a re-test of the March lows. Target for the S&P 500 on a decline below the immediate support of 880 is 865.
Reliance (Rs 2,025.8)
RIL bounced higher in the early part of the week in line with our expectation but it could not surpass the first resistance at Rs 2,120 and moved sideways with a slight negative bias thereafter. Short-term resistances remain at Rs 2,120 and Rs 2,267 for the next week. Failure to clear these levels would imply that the stock can decline towards Rs 1,900 or Rs 1,800 in the near-term. Target above Rs 2,267 is Rs 2,490.
We remain circumspect about the medium-term view for the stock as long as it trades under Rs 2,267. Medium-term target for the stock is Rs 1,750 and Rs 1,522. Short-term traders can therefore initiate fresh shorts if the stock fails to move above Rs 2,267 on Monday.
State Bank of India (Rs 1,810.6)
SBI moved sideways with a positive bias last week and recorded an intra-week peak of Rs 1,820 on Friday. As explained earlier, a strong close above Rs 1,815 is required to make the short-term view positive. If the stock soars higher on Monday to a strong close, it would give the next target at Rs 1,935. Conversely, a strong decline below Rs 1,750 will imply that the medium-term down-trend has resumed that can take the stock lower to Rs 1,600 or Rs 1,500 in the near-term.
Medium-term view for the stock stays negative as long as it trades below Rs 1,900.
Tata Steel (Rs 438.3)
Tata Steel held above the support at Rs 380 in the early part of the week before moving sharply higher to Rs 442 by Friday. Key short-term resistance for the stock is at Rs 455. The stock needs to move beyond this level to attain the previous peak at Rs 496. Failure to move above Rs 455 will imply an impending decline to Rs 370 or Rs 326. The area around Rs 350 where the 200-day moving average is positioned will also be an important medium-term support in declines.
Key medium-term resistance for the stock is at Rs 460. The stock is currently struggling to move beyond this level. If it succeeds in doing so, next target would be Rs 557.
Infosys (Rs 1,800.9)
Infosys moved sideways last week in the range between Rs 1,750 and Rs 1,830. The medium-term uptrend from the February low of Rs 1,146 continues to be in force. But as explained earlier, the stock faces key intermediate resistance from the zone between Rs 1,850 and Rs 1,900. A downward reversal from here will pull the stock towards Rs 1,400 whereas a strong move above Rs 1,900 will make the long-term outlook positive again for the stock.
ONGC (Rs 1,134.6)
ONGC is also at crossroads. The stock is pausing near the key short-term resistance of Rs 1,130. A strong move above this level will take it to the former peak at Rs 1,219. But a reversal from here can pull the stock lower to Rs 990 again. The stock has strong medium- term support around this level and breach of this support will take ONGC lower to Rs 920 or Rs 850.
Maruti Suzuki (Rs 1,056.8)
MSIL continues to be in a strong medium-term uptrend and this view will be negated only on a weekly close below Rs 950. The short-term trend in the stock is, however, down and it can decline to Rs 1,015 or Rs 980 in the days ahead. Resistances for the week would be at Rs 1080 and Rs 1,120. —
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 03-Jul-2009 | 1985.55 | 1774.73 | +210.82 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 03-Jul-2009 | 1178.03 | 879.45 | +298.58 |
Once again Friday came to the market's rescue helping the Nifty future close the week on a positive note. The Nifty July future closed at 4424.65, gaining 0.9 per cent over the previous week's close of 4384. But the Nifty future ended almost on par with the spot, which ended at 4424.25. Despite firm ending, the Nifty future started shedding open interest, particularly on Thursday and Friday.
Open interest currently stands at 2.20 crore shares for Nifty July future as against 2.16 crore the previous week. During the week, however, open interest position jumped to 2.23 crore shares.
Two recommendations were given last week.
1) Going long on the Nifty future with the stop-loss at 4200 and a target of 4450, 4630 and 4800. The Nifty future almost hit the first target.
2) Setting a long straddle strategy using 4300 strike. This position is also slightly in the money considering the opening (on Monday) and closing (on Friday) prices. As advised, traders could hold on to this position for two more weeks as the Nifty could set clear direction post Budget.
One more week has gone by but the Nifty future has confined itself to the narrow band of 4200-4450. It could, however, take clear direction this week as lot of expectation is getting built with regards to both the budget and the markets.
The 4200 level may still be a crucial support for Nifty futures, breaching which the next important support level appears at 3650, though 4150 and 3800 could lend minor support.
Alternatively, if it is able to sustain the current rally, then the next crucial resistance level appears 4630, breaking which the Nifty could sail all the way to 4800.
With this being the Budget week, the Nifty future is set to see volatile trading pattern at least on Monday. However, the surrendering of open interest (in Nifty July future) and the strong built-up in 3800 level suggests that Nifty could take a negative swing. We advise traders to remain highly cautious during the week.
Trading in options indicates that many traders have adopted strangle strategy. Accumulation has been quite heavy in contracts such as 3600 put and 5300 call.
This suggests that traders are expecting wild swing on Nifty either to 3600 level or 5300 level. Among the calls, it was 4700 strike that has higher open interest suggesting it might act as a strong resistance. Among the puts, strikes at 4200, 3900 and 3800 have seen smart accumulation.
Volatility index ended the week on a strong note. It gained steadily to 45.86 against the previous week's close of 37.99. The gain in volatility index is quite natural with the Budget up ahead.
Traders can consider the following strategy for the week
Consider long straddle strategy using 4400 strike. The 4300 call closed at a premium of Rs 225.10 and the put at Rs 202.45.
This strategy would result in profit only if the Nifty swings wildly in one direction. If the Nifty stays around 4400 levels, then the position would result in loss. Since the premiums are quite high for both calls and puts, it is advised that traders with only a high penchant of risk adopt this strategy.
The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on July 2 was 35.45 per cent. They indulged in alternate bouts of buying and selling.
They now hold index futures worth Rs 8,435.74 crore (Rs 8,878.73 crore) and stock futures worth Rs 18,529.59 crore (Rs 16,869.59 crore). On index options, FII holding increased to Rs 20,785.2 crore (Rs 15,589.4 crore).
The Relative Strength Index (RSI) oscillator determines the strength in the prevailing trend by comparing the magnitude of a stock's recent gains to the magnitude of the recent losses. The graph below shows the RSI plotted below the price chart. The RSI oscillates between the values of 0 and 100. Between 0 and 30 is the 'oversold' zone. When the RSI declines to this zone, it means that the selling might have been overdone and an upward reversal could be around the corner. However, the RSI can stay in the oversold region for prolonged duration. There is no hard and fast rule on the duration for which RSI should feature in the oversold or overbought territory.
Refer to the chart of Sadbhav Engineering. The RSI entered the oversold region in June and remained below 30 till mid-July 2008. The stock price continued to decline during this periodIn November and December 2008, both the stock price and the RSI were declining in tandem. The RSI entered the oversold region in this period and recorded a low at 12 before reversing higher. Thus, it cannot always be concluded that the stock price will reverse upward just because the RSI has entered the oversold region. The indicator can stay oversold for extended periods while the stock continues declining.
Similarly, above 70 and below 100 is the 'overbought' zone. The RSI reaching this zone implies that the stock may be getting overvalued and a pullback or correction is likely soon. From the RSWM chart, it is clear that the RSI remained in the overbought region for a prolonged period in December 2007
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Arvind Parekh
+ 91 98432 32381
