Positional traders
WE HAVE BEEN SHORTING FROM 4390 AGAIN.
CARRY 80% SHORTS FOR TOMMOROW.
NIFTY TARGETS 4160,4110.
OTHERS STOCKS TARGETS WILL ALSO BE REVISED DOWNWARDS.
Sent on my BlackBerry® from Vodafone Essar
Thursday, August 28, 2008
OUTLOOK FOR TODAY 28TH AUG
Positional traders
WE HAVE BEEN SHORTING FROM 4390 AGAIN. CARRY 80% SHORTS FOR TOMMOROW. NIFTY TARGETS 4160,4110. OTHERS STOCKS TARGETS WILL ALSO BE REVISED DOWNWARDS.
NIFTY FUT: If downtrend continues then it will fall up to 4205.05-4207.05 zone. Rallies up to 4271.70 can be used to sell. SL at 4293.05 level.
POSITIONAL TRADERS
SHORT MORE OF SAME STOCKS AND BUY MORE PUTS NEAR 4300-4330 LEVELS.
IF RELIANCE TRADES BELOW 2130,TGT 2100,2075. ELSE CARRY ALL OLD SHORTS FOR TOMMOROW.
POSITIONAL TRADERS
AVERAGE YOUR EDUCOMP SHORTS IF TRADES BELOW 3500.
HOLD ALL OTHER SHORTS/NIFTY PUTS.
SHORT ITC FOR A TARGET OF 178,174.REST CARRY ALL SHORTS.
NIFTY FUT: Sell with a Stop Loss of 4293.05 level. Target at 4237.05-4239.05 zone.
Cash Market Intra-Day: FSL (NSE Cash CMP 44.50) going up. Sentiment is weak and take a risk and sell. Stop Loss at 45.50 level.
Cash Market Intra-Day: RNRL (NSE Cash CMP 92.95) going up. Buy with a Stop Loss of 91.95 level.
NIFTY FUTURES (F & O) Above 4312 level, expect short covering up to 4344-4346 zone and thereafter expect a jump up to 4376-4378 zone by non-stop.
Support at 4281 level.
Buy if touches 4269-4271 zone. Stop Loss at 4237-4239 zone.
On Positive Side, if crosses & sustains at above 4430-4432 zone then uptrend may continue.
-----------------------------------------------------
(Correction: Yesterday we made a mistake by not adding one more resistance zone at 4387.20-4389.20 zone. Error is regretted.)
Short-Term Investors:
Short-Term Upward Target at 4462-4464 zone.
Short-Term Support at at 4205-4207 zone.
--
HINDALCO INDS (NSE Cash): Likely to Zoom.
Suspicion is that yesterday's movement might be false signal.If crosses & sustains at above 148 level then uptrend may continue.
Support at 131 level. Should not be allowed to break at any cost.
TATA STEEL FUTURES (NSE): Likely to Zoom.
Suspicion is that yesterday's movement might be false signal.If crosses & sustains at above 623 level then uptrend may continue.
Support at 575 level. Should not be allowed to break at any cost.
----
The Dow Jones Industrial Average closed at 11,502.51. Up by 89.64 points.
The Broader S&P 500 closed at 1,281.66. Up by 10.15 points.
The Nasdaq Composite Index closed at 2,382.46. Up by 20.49 points.
The partially convertible rupee ended at 43.71/72 per dollar on yesterday, stronger
than 43.84/85 at close on Tuesday.
-----Book Profits in SENSEX Stocks
----
Strong & Weak futures
This is list of 10 Strong Future Stocks:
Rolta , Punj lioyd, MPHASIS, HDFC, Crompton, SAIL, Strides, AIA Eng. Edu Solution & Indian Bank.
And this is the list of 10 Weak stocks
;Housing Dev., NDTV, Aban, Amtek Auto, Baongaigaon, Chennai Petrol, Indian Infoline, Suzlon energy, HTMT Glob & Rel Comm.
Nifty is in Down Trend.
---Trading Calls 28th Aug 2008
Counters in the +ve Bajaj-Auto, Aprind, Fortis, Gujfluoro, Mangalam and Nelcast, Brigade, IBN18, NIITECH
Use Strict SL For All Trade
Short Renuka-120 below 119 for 116-114 with sl 120.50
Short Welguj-318 below 315 for 300 with sl 320
Buy Hindzinc-564 for 574 with sl 560
Short IFCI-44.30 below 44 for 42-40 with sl 45
Short ABB-875 below 870 for 857 with sl 880
+ve to Market
1. Us Market 2. Asian Market(mixed) 3. F&O short covering 4. Rs.vs$
-ve to Market
1. Profit Booking 2. Inflation worries 3. continuous FII selling.
--
Arvind Parekh
+ 91 98432 32381
Wednesday, August 27, 2008
Headlines for the day
Corporate News Headline
TCS received a multi-million dollar contract from Singapore Airlines Cargo for a five-year period. (ET)
BHEL bagged order worth Rs. 1.4 bn for supplying two gas turbine generating units of 42 MW each to International Energy Resources, a UAE-based. (BS) SAIL would set up a Steel Processing Unit in Gwalior at an investment of Rs. 830 mn to meet the rising demand of the the product. (ET)
Economic and Political Headline
The steel exports fell 25% to 2.75 MT in the first four months of the fiscal year that began in April after the government imposed a tax on overseas sales in May. (ET) The Prime Minister Manmohan Singh said that the Eleventh Five-Year Plan was basically a knowledge investment plan and the government´s effort has been to create the next big wave of investment in higher education. (BS) The US Consumer confidence index rose to 56.9 from 51.9 in July as cheaper gasoline improved Americans´ moods and National Home Price Index posted a record 15.4% decline in home prices in the second quarter from a year earlier. (Bloomberg)
sell index
sell nifty more
NIFTY FUT: If downtrend continues then it will fall up to 4278.00-4280.00 zone. Rallies up to 4319.45 can be used to sell. SL at 4371.75 level.POSITIONAL TRADERS
NEAR 3430-3450,SHORT EDUCOMP AGAIN.CARRY OTHER SHORTS/PUTS.SHORT TCS TGT 808,790.SHORT INFOSYS TGT 1660,1620.SHORT ITC TGT 180,176.SHORT SBI TGT 1335,1300.
CASH MKT
Cash Market Intra-Day: RNRL (NSE Cash CMP 94.65) going down. Sentiment may favour and Buy with a Stop Loss of 93.65 level.
now sell @ 4336! 1st tgt achieved
NIFTY FUT: If downtrend continues then it will fall up to 4295.45-4297.45 zone. Rallies up to 4336.85 can be used to sell. SL at 4371.75 level.
Cash Market Intra-Day: FSL (NSE Cash CMP 46.65) going down. Sell with a Stop Loss of 47.65 level. SMS
NIFTY FUT: Sell with a Stop Loss of 4371.75 level. Target at 4321.60-4323.60 zone. SMS sent at 09.59 AM.
Sent on my BlackBerry® from Vodafone Essar
Sent on my BlackBerry® from Vodafone Essar
Tuesday, August 26, 2008
Headlines for the day
Corporate News Headline
Corporate News Headline
Infosys Technologies agreed terms for a recommended cash offer for a leading UK-based SAP consulting company, Axon Group, in a deal value at Rs. 33 bn. (BS)
Reliance Industries is planning to transfer 80% of its participatory interest in the famous D6 block in the KG basin to four unlisted subsidiaries. (ET)
ONGC is planning to spend Rs. 4.5 bn to enhance its exploration and production capabilities. (ET)
Economic and Political Headline
State-run oil firms have proposed Rs. 57 per litre price for diesel they sell to industrial users as against Rs. 34.80 a litre currently, as use of the fuel in sectors like power generation had seen an unprecedented growth. (BS)
FDI inflows are likely to expand by 144% in 2008-09 to USD 40 bn, as against USD 24.57 bn in the last financial year. (BS)
The US Home resales rose 3.1% to a 5 mn annual rate from 4.85 mn during June. (WSJ)
ONLY POSITIONAL TRADERS
CARRY ALL YOUR SHORTS FOR TOMMOROW AND ALSO CARRY NIFTY 4300 PUTS.
AS TOLD YESTERDAY,WE HAVE TO SHORT TILL 4420 LEVELS.
AS TOLD YESTERDAY,WE HAVE TO SHORT TILL 4420 LEVELS.
ONLY POSITIONAL TRADERS
SHORT EDUCOMP FOR A TARGET OF 3220,3120.
IF SUZLON TRADES BELOW 206,
SHORT IT FOR A TARGET OF 198,193.OR SHORT IT NEAR 211.
CARRY ALL OTHER SHORTS AND NIFTY PUTS
INTRADAY>>>>NIFTY FUT: If uptrend continues then it will zoom up to 4354.20-4356.20 zone. Corrections up to 4315.25 can be used to buy. SL at 4298.30 level.
INTRDAY BUY >>>>NIFTY FUT: Buy with a Stop Loss of 4298.30 level. Target at 4328.80-4330.80 zone.
POSITIONAL TRADERS
KEEP HOLDING SHORTS FOR NEXT 2-3 DAYS.CHANCES ARE NIFTY WILL HIT 4220,4190 AND MORE ALSO.
AT HIGHER LEVELS NEAR 4350-4390,SHORT MORE OF SAME STOCKS/NIFTY
AT HIGHER LEVELS NEAR 4350-4390,SHORT MORE OF SAME STOCKS/NIFTY
POSITIONAL TRADERS
YOU ALL CAN STILL SHORT SAIL FOR TARGET OF 144,142.
SHORT BANKINDIA TGT 253,246.
BUY NIFTY 4300 SEPTEMBER PUTS TGT 190,220.
PLEASE DO ALL TRADING IN SEPT SERIES
----------------
Cash Market Intra-day: KSOILS (NSE Cash CMP 72.55) looks good. Buy with a Stop Loss of 71.55 level
Cash Market Intra-day:GTLINFRA (NSE Cash CMP 40.95)looks good.Sentiment not good.Take a risk and Sell with a Stop Loss of 41.95 level.
POSITIONAL TRADERS
SHORT RELIANCE TGT 2150,2130.
SHORT RCOM TGT 395,390.
SHORT ONGC TGT 1002,985.
SHORT ICICI BANK TGT 630,620.
CARRY YESTERDAY SHORTS OF SAIL,RCAP,RINFRA,SAIL,PUTS
OUTLOOK FOR TODAY 26TH AUG
NIFTY FUTURES (F & O)
Profit booking may continue up to 4315-4317 zone for time being.
Hurdles at 4347 & 4354 levels. Above these levels, buying may continue up to 4363-4365 zone and thereafter it will touch 4380-4382 zone.
Above 4388-4390 zone
, it can zoom up to 4405-4407 zone and supply expected at around this zone. Stop Loss at 4430-4432 zone.On Negative Side, rebound expected at around 4290-4292
zone. Stop Loss at 4273-4275 zone.Short-Term Investors:
Reversal (Positive)
is seen. Avoid Short Selling at lower levels.Short-Term Upward Target at 4456-4458 zone.
Short-Term Support at 4247-4249 zone.
--------
JINDAL SAW (NSE Cash):
Avoid Short Selling in this scrip. Bulls may come back at any moment.Support at 526 level.
Expected to rebound at around this level. If not, then problem for bulls too.Hurdle at 574 level. Bulls need to clear this level for uptrend.
NATL ALUM FUTURES (NSE):
Avoid Short Selling in this scrip. Bulls may come back at any moment.Support at 377 level. Expected to rebound at around this level. If not, then problem for bulls too.
Hurdle at 421 level. Bulls need to clear this level for uptrend.
------------
The Dow Jones Industrial Average closed at 11,386.25. Down by 241.81 points.
The Broader S&P 500 closed at 1,266.84. Down by 25.36 points.
The Nasdaq Composite Index closed at 2,365.59. Down by 49.12 points.
The partially convertible rupee ended at 43.79/80 per dollar, weaker
than Friday's close of 43.425/435.
---------------
Sell METAL INDEX Stocks
----------------
NIFTY FUTURES (F & O)
Profit booking may continue up to 4315-4317 zone for time being.
Hurdles at 4347 & 4354 levels. Above these levels, buying may continue up to 4363-4365 zone and thereafter it will touch 4380-4382 zone.
Above 4388-4390 zone, it can zoom up to 4405-4407 zone and supply expected at around this zone. Stop Loss at 4430-4432 zone.
On Negative Side, rebound expected at around 4290-4292 zone. Stop Loss at 4273-4275 zone.
Short-Term Investors:
Reversal (Positive) is seen. Avoid Short Selling at lower levels.
Short-Term Upward Target at 4456-4458 zone.
Short-Term Support at 4247-4249 zone.
--------
JINDAL SAW (NSE Cash): Avoid Short Selling in this scrip. Bulls may come back at any moment.
Support at 526 level. Expected to rebound at around this level. If not, then problem for bulls too.
Hurdle at 574 level. Bulls need to clear this level for uptrend.
NATL ALUM FUTURES (NSE):Avoid Short Selling in this scrip. Bulls may come back at any moment.
Support at 377 level. Expected to rebound at around this level. If not, then problem for bulls too.
Hurdle at 421 level. Bulls need to clear this level for uptrend.
------------
The Dow Jones Industrial Average closed at 11,386.25. Down by 241.81 points.
The Broader S&P 500 closed at 1,266.84. Down by 25.36 points.
The Nasdaq Composite Index closed at 2,365.59. Down by 49.12 points.
The partially convertible rupee ended at 43.79/80 per dollar, weaker
than Friday's close of 43.425/435.---------------
Sell METAL INDEX Stocks
----------------
Monday, August 25, 2008
FII DATA
FII25/08: 62.92 Cr. (Prov)
DII25/08: 96.26 Cr. (Prov)
Headlines for the day
Corporate News Headline
Era Infra Engineering bagged a Rs. 1.11 bn contract for upgradation, renovation, and new construction for Commonwealth Games 2010 in the city-based J N Stadium Sports Complex. (BS)
Thermax decided to set up a new Rs. 5 bn manufacturing plant for large boilers of capacity 100 MW to 800 MW for power plants. (ET)
JK Lakshmi is embarking on an expansion plan to set up five ready-mix concrete plants, which could entail an investment of up to Rs. 10 bn by the end of this fiscal. (BS)
Economic and Political Headline
India has set an ambition of achieving USD 660 bn merchandise exports by 2015, maintaining an annual growth rate of at least 23%. (ET)
The Centre asked steel producers to cut prices as and when there was further fall of rates in the global markets. (ET)
The UK gross domestic product was flat at 1.4% to the quarter in April-June, as construction fell, the decline in production accelerated, and growth in the service sector softened. (WSJ)
Strong & Weak futures
This is list of 10 Strong Future Stocks:
Polaris, Indian bk, Ansal prop, Bata, Cummins, Aptech, Bongaigaon, Rolta, Strides arcolab & AIA Eng.
And this is the list of 10 Weak stocks ;
Bajaj auto, Housing dev, Aban, NDTV, Gitanjali gems, indn hotels, cnx100, Tisco, I-Flex &Bombay dyein.
Nifty is in Down Trend.
FII25/08: 62.92 Cr. (Prov)
DII25/08: 96.26 Cr. (Prov)
Headlines for the day
Corporate News Headline
Era Infra Engineering bagged a Rs. 1.11 bn contract for upgradation, renovation, and new construction for Commonwealth Games 2010 in the city-based J N Stadium Sports Complex. (BS)
Thermax decided to set up a new Rs. 5 bn manufacturing plant for large boilers of capacity 100 MW to 800 MW for power plants. (ET)
JK Lakshmi is embarking on an expansion plan to set up five ready-mix concrete plants, which could entail an investment of up to Rs. 10 bn by the end of this fiscal. (BS)
Economic and Political Headline
India has set an ambition of achieving USD 660 bn merchandise exports by 2015, maintaining an annual growth rate of at least 23%. (ET)
The Centre asked steel producers to cut prices as and when there was further fall of rates in the global markets. (ET)
The UK gross domestic product was flat at 1.4% to the quarter in April-June, as construction fell, the decline in production accelerated, and growth in the service sector softened. (WSJ)
Strong & Weak futures
This is list of 10 Strong Future Stocks:
Polaris, Indian bk, Ansal prop, Bata, Cummins, Aptech, Bongaigaon, Rolta, Strides arcolab & AIA Eng.
And this is the list of 10 Weak stocks ;
Bajaj auto, Housing dev, Aban, NDTV, Gitanjali gems, indn hotels, cnx100, Tisco, I-Flex &Bombay dyein.
Nifty is in Down Trend.
FII DATA
FII
25/08: 62.92 Cr. (Prov)
DII
25/08: 96.26 Cr. (Prov)
Headlines for the day
Corporate News Headline
Era Infra Engineering bagged a Rs. 1.11 bn contract for upgradation, renovation, and new construction for Commonwealth Games 2010 in the city-based J N Stadium Sports Complex. (BS)
Thermax decided to set up a new Rs. 5 bn manufacturing plant for large boilers of capacity 100 MW to 800 MW for power plants. (ET)
JK Lakshmi is embarking on an expansion plan to set up five ready-mix concrete plants, which could entail an investment of up to Rs. 10 bn by the end of this fiscal. (BS)
Economic and Political Headline
India has set an ambition of achieving USD 660 bn merchandise exports by 2015, maintaining an annual growth rate of at least 23%. (ET)
The Centre asked steel producers to cut prices as and when there was further fall of rates in the global markets. (ET)
The UK gross domestic product was flat at 1.4% to the quarter in April-June, as construction fell, the decline in production accelerated, and growth in the service sector softened. (WSJ)
Strong & Weak futures
This is list of 10 Strong Future Stocks:
Polaris, Indian bk, Ansal prop, Bata, Cummins, Aptech, Bongaigaon, Rolta, Strides arcolab & AIA Eng.
And this is the list of 10 Weak stocks ;
Bajaj auto, Housing dev, Aban, NDTV, Gitanjali gems, indn hotels, cnx100, Tisco, I-Flex &Bombay dyein.
Nifty is in Down Trend.
--
Arvind Parekh
+ 91 98432 32381
YE
sell sell sell
NIFTY FUT: If downtrend continues then it will fall up to 4304.60-4306.60 zone. Rallies up to 4371.40 can be used to sell. SL at 4392.80 level.
RELIANCE FUTURES (Update): SL triggered. Bears dominated. If does not cross 2274.30 level then unwinding may continue.
intrday sell nifty too
NIFTY FUT: Sell with a Stop Loss of 4392.80 level. Target at 4336.70-4338.70 zone.
POSITIONAL TRADERS
SHORT BANKINDIA TGT 253,246.
SHORT SAIL TGT 146,142.
CARRY ALL FOR TOMMOROW.
SHORT IN SEPTEMBER SERIOUS AND BUY NIFTY SEPTEMBER PUTS.
CARRY TILL TOMMOROW.SHORT NIFTY SEPT,TGT 4330,4280.
SHORT TILL 4450.BUY 4300 SEPT PUT TGT 170,190.
SHORT RINFRA TGT 970,930.
SHORT RCAP TGT 1220,119
RELIANCE FUTURES (Update): SL triggered. Bears dominated. If does not cross 2274.30 level then unwinding may continue.
intrday sell nifty too
NIFTY FUT: Sell with a Stop Loss of 4392.80 level. Target at 4336.70-4338.70 zone.
POSITIONAL TRADERS
SHORT BANKINDIA TGT 253,246.
SHORT SAIL TGT 146,142.
CARRY ALL FOR TOMMOROW.
SHORT IN SEPTEMBER SERIOUS AND BUY NIFTY SEPTEMBER PUTS.
CARRY TILL TOMMOROW.SHORT NIFTY SEPT,TGT 4330,4280.
SHORT TILL 4450.BUY 4300 SEPT PUT TGT 170,190.
SHORT RINFRA TGT 970,930.
SHORT RCAP TGT 1220,119
US ECONOMIC VIEW THIS WEEK- (1) MONDAY: Data related to Existing Home Sales.(2) TUESDAY: Data related to New Home Sales along with zconsumer confidence data.(3) WEDNESDAY: EIA Petroleum Status Report.(4) THURSDAY: Corporate Profits, GDP Preliminary data, Jobless Claims and Money supply data will be revealed
INTRADAY CASH MARKET
Futures: RELIANCE FUTURES (NSE CMP 2272.00) going up. Technically weak, surprisingly going up. Take a risk and Buy with a Stop Loss of 2249.00 level.
Cash Market Intra-day:NAGARFERT (NSE Cash CMP 41.30)looks good.Sentiment not good.Take a risk and Sell with a Stop Loss of 42.30
Cash Market Intra-day: RNRL (NSE Cash CMP 97.30) looks good. Buy with a Stop Loss of 96.30 level.
Cash Market Intra-day:NAGARFERT (NSE Cash CMP 41.30)looks good.Sentiment not good.Take a risk and Sell with a Stop Loss of 42.30
Cash Market Intra-day: RNRL (NSE Cash CMP 97.30) looks good. Buy with a Stop Loss of 96.30 level.
INTRADAY CASH MARKET
Cash Market Intra-day:NAGARFERT (NSE Cash CMP 41.30)looks good.Sentiment not good.Take a risk and Sell with a Stop Loss of 42.30
Cash Market Intra-day: RNRL (NSE Cash CMP 97.30) looks good. Buy with a Stop Loss of 96.30 level.
Cash Market Intra-day: RNRL (NSE Cash CMP 97.30) looks good. Buy with a Stop Loss of 96.30 level.
BUY CASH MARKET
Cash Market Intra-day:
RNRL (NSE Cash CMP 97.30) looks good. Buy with a Stop Loss of 96.30 level.
Sunday, August 24, 2008
Some useful links of The Hindu Businessline
Index Outlook
Sensex (14401.4)
It was an irresolute trading week on the Indian bourses. There were no positive triggers to enthuse the market participants. On the other hand, the plethora of negatives that have been analysed thread-bare, do not appear to have the power to surprise or scare the markets anymore. Sensex closed the week with a 300 points loss.
Extremely low volumes in both cash as well as the derivatives segment reflect the lackadaisical attitude among the investors and traders. FIIs turned net sellers last week. Nifty put call ratio too implies that the market is equally divided between the bull and bear camps.
The short-term trend has turned negative with the decline in the Sensex last week. The 14-day Relative Strength index is poised at 47 while the Rate of Change index has moved in to the negative zone implying the Sensex could be under pressure in the near-term again. The weekly oscillators are rising in the bearish zone indicating that the medium- term outlook continues to be cloudy.
Though the index can decline in the near-term, the presence of key supports at 14300 and 13700 can cause sudden reversals that can catch bears unawares. The index is currently hovering around the 50-day simple moving average at 14284.
Reversal from current levels can result in a sideways move between 14300 and 15500 for a couple of weeks more. Such a move could be the halt before the index moves beyond 16000 over the medium-term. This view will stay until the Sensex closes decisively below 13700.
In e-wave terms, the down-move from 15579 could be the minor 'b' of the correction since 12514. The minor 'c' can take the index higher to the area between 16000 and 17000. But as we have been reiterating, it is very difficult to guess the pattern of a correction while it is unfolding. The mind-whirring number of counts makes such phases a nightmare for traders.
Sensex could move higher to 14831 or 15116 in the early part of next week. But turbulence caused by the expiry of the August contracts can arrest the rally at these levels. Supports will be at 14050 and then 13690.
Nifty (4327.4)
Nifty continued its losing streak by declining 103 points last week. The index is currently pausing just above its 50-day moving average at 4280. A move higher to 4443 or 4522 is possible next week. Reversal from either of these levels would provide shorting opportunity to short-term traders. Move beyond the second target is needed to make the near-term outlook positive.
However, the medium-term view for the index remains positive as long as it holds above 4115. Reversal from 4220 or 4120 would imply that that the index can rally to the zone around 5000 over the medium-term.
Global Cues
The crude, dollar and gold troika dominated the financial markets last week as analysts went nuts trying to explain how these affected each other and the equity markets.
With the dollar pausing its meteoric rise, crude moved between $111 and $120. Friday's sell-off that came after a 30 per cent retracement of the decline from the recent peak at $147, implies that the support at $110 would be under severe pressure in the near term.
Dow Jones Industrial Average reversed higher from an intra-week trough at 11290, above the key short-term support at 11230 that we have been watching over the last couple of weeks. The S & P 500 is also putting up a resilient show. The key support for this index is at 1240. Though European and Latin-American markets stabilised last week, Asia remained turbulent. Many of the Asian indices such as Hang Seng, Shanghai Composite, Seoul Composite and Straits Times Index recorded new 2008-lows last week.
Infosys
Infosys slid gently to the intra-week trough at Rs 1,646 forming a double top in the daily chart. The stock is clearly having trouble moving beyond the resistance at Rs 1,750.
The current short-term decline can drag the stock lower to Rs 1,620 or Rs 1,590. Fresh long positions are recommended only on a rally above Rs 1,750. Subsequent target for the near-term would be Rs 1,815.
We stay with our positive medium-term outlook for Infosys. It appears to be building a base between Rs 1,500 and Rs 1,600 from where the third leg of the up move from the March trough can kick off. A close below Rs 1,500 is required to negate this view.
SBI
State Bank of India declined to our second near-term support at Rs 1,320 last week. The 50-day moving average line is also poised here. Next support is at Rs 1,245. Short-term investors can hold their long positions as long as this level holds.
Resistances for the week ahead would be at Rs 1,440 and then Rs 1,520.
As we had been reiterating, SBI faces medium-term resistance in the zone between Rs 1,500 and Rs 1,600. Since the stock failed to surpass this level, a decline to Rs 1,250 or even Rs 1,007 is possible in the medium-term. However, a reversal above Rs 1,250 would mean that the bulls still stand a chance to take the stock to Rs 1,700.
Unitech
Unitech declined to the key short-term support at Rs 156 on Friday.
As explained last week, reversal from this zone will imply that the move from the Rs 135 trough would resume to take the stock towards Rs 191 or Rs 212 again.
Conversely, a close below Rs 156 would pave the way for re-testing the Rs 135-trough. Traders can hold their longs with a stop at Rs 150.
The medium-term outlook is still positive but a decline below Rs 156 will imply an impending sideways move between Rs 130 and Rs 190 for a few more months.
Investors can make staggered purchases below Rs 150.
Tata Steel
This stock was floundering near its long-term support in the zone between Rs 580 and Rs 620. The pattern formed last week appears to be a running correction, which has bearish connotations.
The stock can decline to Rs 557 or Rs 525 in the near term. Resistances for the week would be at Rs 650 or Rs 700.
The medium-term trend in the stock is sideways. Retracement of the entire bull phase from 2001 trough gives the key support for the stock at Rs 600.
If this level is breached, the next long-term support is at Rs 505. The long-term view will be resolved only if the stock moves breaks-out of the current range between Rs 580 and Rs 700.
Reliance Infra
Reliance Infrastructure is halting just above the key support at Rs 940. The presence of the 50-day moving average at this level makes it highly likely that the stock can reverse from here and rally towards Rs 1,052 or Rs 1,108 again. Subsequent near-term supports are at Rs 896 and then Rs 840.
The medium-term trend in the stock is positive. It is correcting the up move recorded from Rs 660 to Rs 1,122 since the beginning of July. This correction can consume a few weeks as the stock moves between Rs 900 and Rs 1,100 before moving higher. Decline below Rs 840 will negate our positive medium-term view.
Reliance Ind
RIL moved in an extremely narrow band between Rs 2,190 and Rs 2,250 last week. Our medium and short-term view for this stock thus remains unaltered. The stock is moving in the island between the long-term averages. RIL has strong medium-term resistance in the band between Rs 2,450 and Rs 2,550. A reversal from here would result in a broad trading range between Rs 2,000 and Rs 2,400 for a few more months.
The near-term trend in the stock is down. But short-term supports exist at Rs 2,150 and then Rs 2,100. Short-term traders can watch for buying opportunity on reversal from these levels. Resistances for the week would be at Rs 2,300 and then Rs 2,375.
Derivative strategies: Using puts for discount buys
Traders typically place limit orders to buy stocks at a discount. But this is not always possible. This article discusses two alternative strategies that will enable traders to buy stocks at a discount. Both strategies involve setting up trades in derivatives.
Traders extensively use limit-orders to buy a stock at a discount to the market price. The present market structure does not allow traders to use Good Till Cancelled (GTC) order to buy or sell a stock at a certain price. Everyday, a trader has to place a limit order till the request is filled. At times, this becomes an arduous task. Fortunately, limit-orders are not the only alternative available to traders seeking to buy stocks at a discount.
This article discusses two derivatives strategies that help traders reduce their cost of buying a stock. The first involves using puts and the second, ratio put-spread. Traders can choose a strategy depending on their near-term view on the underlying.
Trade set-up
Suppose the trader wants to buy Reliance Industries whose current market price is Rs 2,235. Assume the trader is of a view that the stock will not decline below Rs 2,125 before the expiry of the August contracts. She wants to buy 75 shares of Reliance for her core portfolio, which is equivalent to one option contract.
Puts as alternatives
The trader can decide to short the August 2160 puts at 20 points premium. If the puts expire worthless, the trader can use this premium to acquire the stock at a discount to the market price.
Selling puts does not come without risks. What if the underlying declines to Rs 2,150 just two days thereafter? The August 2160 puts could jump to 35 points, causing a 15-point loss.
What if the trader had sold the August 2200 puts instead? The Indian options market follows a cash-settled design. This means that the put seller does not have to buy the underlying if the buyer exercises her right under the contract. The transaction is cash-settled.
The trader can, hence, change her mind about acquiring the stock because of its near-term weakness. She will then incur a loss of 15 points against 85 points if she had bought the underlying at Rs 2,235.
If the put seller decides to buy the stock, her cost would be Rs 2,165- stock price of Rs 2,150 and loss of 15 points on the puts. If the stock instead moves up to Rs 2,250 in two days, the put option could drop to 9 points. The trader can cover the puts at 11-point profits but will have to buy the stock at Rs 2,250. The effective cost would be Rs 2,239.
Short puts can be effective when the trader expects the stock to move up marginally or trade sideways in the near- term. But what if the trader strives to profit from the near-term decline in the underlying price?
Ratio put spreads
Suppose the trader decides to buy one contract of August 2220 puts, sell one contract of August 2190 puts and sell one contract of August 2100 puts. The ratio spread can be set-up at no cost without including brokerage commissions. This is because the long-leg will be subsidised by the two short-legs.
If the underlying declines to Rs 2,150 in two days after the trade set-up, the spread could generate five points profit not adjusting for trading costs. The trader can now buy the stock at Rs 2,150.
The ratio put spread will generate maximum profits if the underlying expires at Rs 2,190. The August 2220 will then carry 30 points while the short options will expire worthless. The trader can use the 30 points profits to subsidise the cost of the stock. The underlying can be acquired for a total cost of Rs 2,160, which is Rs 2,190 less 30 points profit.
It is preferable to set-up the long-leg with at-the-money puts or near at-the-money puts. A ratio put spread is more suitable than short puts if the stock is expected to decline marginally in the near term. Besides, the risk is lower than short puts.
But why set-up short puts or long ratio put spreads when a trader can simply execute a limit order?
Conclusion
Only a small proportion of traders buy stocks at the market price. Most place a limit order to buy a stock at a lower price. Using limit-order has its problems. Sometimes, a stock may climb up without filling the limit-order. In such cases, the trader has to revise her order and buy at a higher price. At other times, the stock may go down in value after the trader purchases it.
Short puts enable a trader to reduce the cost if the stock trades in a range or moves up marginally. Long ratio put spread subsidises the cost significantly if the stock moves down. Both these strategies are alternatives to buying a stock using limit order. A trader should decide on the optimal strategy based on how she expects the underlying to move in the near-term.
Don't fall for tips
While there is no sacrosanct way to filter stock advice, tips and so-called 'insider info' that you get, there are a few easy filters that can help you be 'better safe, than sorry'.
The world of stocks is no different from that of cricket — every second person you meet will have an "expert" opinion on it! While cricket fans would enjoy such an information extravaganza, investors may just end up confused, especially if they have just begun investing.
So, how then do you decide who to believe? While, without doubt, doing your own homework on companies and picking up stocks would be the right way to go about the whole exercise, it may not be the most practical way to begin — after all, why learn from your mistakes, when you can learn from that of others!
That brings us to the moot question — how to decide whose advice to put into action? While there is no sacrosanct way to filter the advice, tips and so-called 'insider info' that you get in your lifetime, there are a few easy filters that can help you be 'better safe, than sorry'.
Have your 'thinking cap' on
There is no dearth of stock tips in this age — be it your favourite news channel, news paper, stock broker or even friends and colleagues. There may not be any pressing need to act on such tips if you are a long-term investor, as long-term investments may not be as price-sensitive as the short-term ones.
But if you are a short-term investor, what should you look for when you receive a "buy" tip? Instead of blindly following the tip, try to study the report in detail.
Look out for details on the company's business, its estimated valuation and target price.
The urge to immediately act on such tips can be irresistible, but do stop to make a back-of-the-envelope calculation of the risk-return payoff.
Even if the tip-offs do not come with reasonable exit points, it may pay for you to keep a targeted return on both the upside and the downside. Considering that some of these tip-offs come with unreasonably high target prices, makes the case for keeping your own target returns.
That said, even seasoned investors can fall prey to wrong tips or advice. A case in point — the various IPO analyses floated freely over the internet via blogs and mail groups that can be shallow or even worse, one-sided. So, even if you cannot analyse company balance-sheets, analysing the credibility of your information source is a necessity for a successful stint in equity investments.
If it's free, think twice
More often than not, the 'hot tips' that you get on stocks that would 'run up quickly, if you do not invest soon' are for free. Beware of these 'tips' that are given to you for free. Why? Because no sane person would give you stock ideas that are immediate 'multi baggers' without charging something for it! Remember the world of investments does not run on charity, so what is given without charge may come with a hidden cost.
Your tipper could just be passing on the information to you, to help him prop up the share price of his own holdings.
Worse, the tipper could be but a pawn in the hands of someone else and may be giving away mis-information to everyone, unknowingly paving way for somebody else to dump his stock. For those who have read Jeffrey Archer's book Not a Penny More, Not a Penny Less, understanding how and why such tips may be given would be easy.
That said, always be on guard whenever making money in the stock markets appears easy.
Even if it is not free, don't stop thinking
If you think that paying for advice will insulate you from such 'vested interest' tip-offs, there is still the possibility that 'wrong' tip-offs will find their way to you.
Remember there have been cases, both in India and the rest of the world, where investment advisors with considerable clout have played foul. Investment bankers, after managing a company's IPO, come up with 'buy' reports after the company lists; broking outfits with both an institutional and retail window can produce reports on companies that their institutional clients are stuck with or vice-versa — the list of such probabilities is endless.
While per say, none of these can be termed unethical unless proved, the very awareness of such possible discrepancies can help you peg a value to your tipper's credibility.
But the ultimate test of your tipper's credibility lies in acting on it. Just like the Chinese proverb that says, "never test the depth of water with both your feet", to begin with invest only in small amounts.
That would give you sufficient leeway to step up investments once you gain conviction or to cut your losses if they backfire.
Index Outlook
Sensex (14401.4)
It was an irresolute trading week on the Indian bourses. There were no positive triggers to enthuse the market participants. On the other hand, the plethora of negatives that have been analysed thread-bare, do not appear to have the power to surprise or scare the markets anymore. Sensex closed the week with a 300 points loss.
Extremely low volumes in both cash as well as the derivatives segment reflect the lackadaisical attitude among the investors and traders. FIIs turned net sellers last week. Nifty put call ratio too implies that the market is equally divided between the bull and bear camps.
The short-term trend has turned negative with the decline in the Sensex last week. The 14-day Relative Strength index is poised at 47 while the Rate of Change index has moved in to the negative zone implying the Sensex could be under pressure in the near-term again. The weekly oscillators are rising in the bearish zone indicating that the medium- term outlook continues to be cloudy.
Though the index can decline in the near-term, the presence of key supports at 14300 and 13700 can cause sudden reversals that can catch bears unawares. The index is currently hovering around the 50-day simple moving average at 14284.
Reversal from current levels can result in a sideways move between 14300 and 15500 for a couple of weeks more. Such a move could be the halt before the index moves beyond 16000 over the medium-term. This view will stay until the Sensex closes decisively below 13700.
In e-wave terms, the down-move from 15579 could be the minor 'b' of the correction since 12514. The minor 'c' can take the index higher to the area between 16000 and 17000. But as we have been reiterating, it is very difficult to guess the pattern of a correction while it is unfolding. The mind-whirring number of counts makes such phases a nightmare for traders.
Sensex could move higher to 14831 or 15116 in the early part of next week. But turbulence caused by the expiry of the August contracts can arrest the rally at these levels. Supports will be at 14050 and then 13690.
Nifty (4327.4)
Nifty continued its losing streak by declining 103 points last week. The index is currently pausing just above its 50-day moving average at 4280. A move higher to 4443 or 4522 is possible next week. Reversal from either of these levels would provide shorting opportunity to short-term traders. Move beyond the second target is needed to make the near-term outlook positive.
However, the medium-term view for the index remains positive as long as it holds above 4115. Reversal from 4220 or 4120 would imply that that the index can rally to the zone around 5000 over the medium-term.
Global Cues
The crude, dollar and gold troika dominated the financial markets last week as analysts went nuts trying to explain how these affected each other and the equity markets.
With the dollar pausing its meteoric rise, crude moved between $111 and $120. Friday's sell-off that came after a 30 per cent retracement of the decline from the recent peak at $147, implies that the support at $110 would be under severe pressure in the near term.
Dow Jones Industrial Average reversed higher from an intra-week trough at 11290, above the key short-term support at 11230 that we have been watching over the last couple of weeks. The S & P 500 is also putting up a resilient show. The key support for this index is at 1240. Though European and Latin-American markets stabilised last week, Asia remained turbulent. Many of the Asian indices such as Hang Seng, Shanghai Composite, Seoul Composite and Straits Times Index recorded new 2008-lows last week.
Infosys
Infosys slid gently to the intra-week trough at Rs 1,646 forming a double top in the daily chart. The stock is clearly having trouble moving beyond the resistance at Rs 1,750.
The current short-term decline can drag the stock lower to Rs 1,620 or Rs 1,590. Fresh long positions are recommended only on a rally above Rs 1,750. Subsequent target for the near-term would be Rs 1,815.
We stay with our positive medium-term outlook for Infosys. It appears to be building a base between Rs 1,500 and Rs 1,600 from where the third leg of the up move from the March trough can kick off. A close below Rs 1,500 is required to negate this view.
SBI
State Bank of India declined to our second near-term support at Rs 1,320 last week. The 50-day moving average line is also poised here. Next support is at Rs 1,245. Short-term investors can hold their long positions as long as this level holds.
Resistances for the week ahead would be at Rs 1,440 and then Rs 1,520.
As we had been reiterating, SBI faces medium-term resistance in the zone between Rs 1,500 and Rs 1,600. Since the stock failed to surpass this level, a decline to Rs 1,250 or even Rs 1,007 is possible in the medium-term. However, a reversal above Rs 1,250 would mean that the bulls still stand a chance to take the stock to Rs 1,700.
Unitech
Unitech declined to the key short-term support at Rs 156 on Friday.
As explained last week, reversal from this zone will imply that the move from the Rs 135 trough would resume to take the stock towards Rs 191 or Rs 212 again.
Conversely, a close below Rs 156 would pave the way for re-testing the Rs 135-trough. Traders can hold their longs with a stop at Rs 150.
The medium-term outlook is still positive but a decline below Rs 156 will imply an impending sideways move between Rs 130 and Rs 190 for a few more months.
Investors can make staggered purchases below Rs 150.
Tata Steel
This stock was floundering near its long-term support in the zone between Rs 580 and Rs 620. The pattern formed last week appears to be a running correction, which has bearish connotations.
The stock can decline to Rs 557 or Rs 525 in the near term. Resistances for the week would be at Rs 650 or Rs 700.
The medium-term trend in the stock is sideways. Retracement of the entire bull phase from 2001 trough gives the key support for the stock at Rs 600.
If this level is breached, the next long-term support is at Rs 505. The long-term view will be resolved only if the stock moves breaks-out of the current range between Rs 580 and Rs 700.
Reliance Infra
Reliance Infrastructure is halting just above the key support at Rs 940. The presence of the 50-day moving average at this level makes it highly likely that the stock can reverse from here and rally towards Rs 1,052 or Rs 1,108 again. Subsequent near-term supports are at Rs 896 and then Rs 840.
The medium-term trend in the stock is positive. It is correcting the up move recorded from Rs 660 to Rs 1,122 since the beginning of July. This correction can consume a few weeks as the stock moves between Rs 900 and Rs 1,100 before moving higher. Decline below Rs 840 will negate our positive medium-term view.
Reliance Ind
RIL moved in an extremely narrow band between Rs 2,190 and Rs 2,250 last week. Our medium and short-term view for this stock thus remains unaltered. The stock is moving in the island between the long-term averages. RIL has strong medium-term resistance in the band between Rs 2,450 and Rs 2,550. A reversal from here would result in a broad trading range between Rs 2,000 and Rs 2,400 for a few more months.
The near-term trend in the stock is down. But short-term supports exist at Rs 2,150 and then Rs 2,100. Short-term traders can watch for buying opportunity on reversal from these levels. Resistances for the week would be at Rs 2,300 and then Rs 2,375.
Derivative strategies: Using puts for discount buys
Traders typically place limit orders to buy stocks at a discount. But this is not always possible. This article discusses two alternative strategies that will enable traders to buy stocks at a discount. Both strategies involve setting up trades in derivatives.
Traders extensively use limit-orders to buy a stock at a discount to the market price. The present market structure does not allow traders to use Good Till Cancelled (GTC) order to buy or sell a stock at a certain price. Everyday, a trader has to place a limit order till the request is filled. At times, this becomes an arduous task. Fortunately, limit-orders are not the only alternative available to traders seeking to buy stocks at a discount.
This article discusses two derivatives strategies that help traders reduce their cost of buying a stock. The first involves using puts and the second, ratio put-spread. Traders can choose a strategy depending on their near-term view on the underlying.
Trade set-up
Suppose the trader wants to buy Reliance Industries whose current market price is Rs 2,235. Assume the trader is of a view that the stock will not decline below Rs 2,125 before the expiry of the August contracts. She wants to buy 75 shares of Reliance for her core portfolio, which is equivalent to one option contract.
Puts as alternatives
The trader can decide to short the August 2160 puts at 20 points premium. If the puts expire worthless, the trader can use this premium to acquire the stock at a discount to the market price.
Selling puts does not come without risks. What if the underlying declines to Rs 2,150 just two days thereafter? The August 2160 puts could jump to 35 points, causing a 15-point loss.
What if the trader had sold the August 2200 puts instead? The Indian options market follows a cash-settled design. This means that the put seller does not have to buy the underlying if the buyer exercises her right under the contract. The transaction is cash-settled.
The trader can, hence, change her mind about acquiring the stock because of its near-term weakness. She will then incur a loss of 15 points against 85 points if she had bought the underlying at Rs 2,235.
If the put seller decides to buy the stock, her cost would be Rs 2,165- stock price of Rs 2,150 and loss of 15 points on the puts. If the stock instead moves up to Rs 2,250 in two days, the put option could drop to 9 points. The trader can cover the puts at 11-point profits but will have to buy the stock at Rs 2,250. The effective cost would be Rs 2,239.
Short puts can be effective when the trader expects the stock to move up marginally or trade sideways in the near- term. But what if the trader strives to profit from the near-term decline in the underlying price?
Ratio put spreads
Suppose the trader decides to buy one contract of August 2220 puts, sell one contract of August 2190 puts and sell one contract of August 2100 puts. The ratio spread can be set-up at no cost without including brokerage commissions. This is because the long-leg will be subsidised by the two short-legs.
If the underlying declines to Rs 2,150 in two days after the trade set-up, the spread could generate five points profit not adjusting for trading costs. The trader can now buy the stock at Rs 2,150.
The ratio put spread will generate maximum profits if the underlying expires at Rs 2,190. The August 2220 will then carry 30 points while the short options will expire worthless. The trader can use the 30 points profits to subsidise the cost of the stock. The underlying can be acquired for a total cost of Rs 2,160, which is Rs 2,190 less 30 points profit.
It is preferable to set-up the long-leg with at-the-money puts or near at-the-money puts. A ratio put spread is more suitable than short puts if the stock is expected to decline marginally in the near term. Besides, the risk is lower than short puts.
But why set-up short puts or long ratio put spreads when a trader can simply execute a limit order?
Conclusion
Only a small proportion of traders buy stocks at the market price. Most place a limit order to buy a stock at a lower price. Using limit-order has its problems. Sometimes, a stock may climb up without filling the limit-order. In such cases, the trader has to revise her order and buy at a higher price. At other times, the stock may go down in value after the trader purchases it.
Short puts enable a trader to reduce the cost if the stock trades in a range or moves up marginally. Long ratio put spread subsidises the cost significantly if the stock moves down. Both these strategies are alternatives to buying a stock using limit order. A trader should decide on the optimal strategy based on how she expects the underlying to move in the near-term.
Don't fall for tips
While there is no sacrosanct way to filter stock advice, tips and so-called 'insider info' that you get, there are a few easy filters that can help you be 'better safe, than sorry'.
The world of stocks is no different from that of cricket — every second person you meet will have an "expert" opinion on it! While cricket fans would enjoy such an information extravaganza, investors may just end up confused, especially if they have just begun investing.
So, how then do you decide who to believe? While, without doubt, doing your own homework on companies and picking up stocks would be the right way to go about the whole exercise, it may not be the most practical way to begin — after all, why learn from your mistakes, when you can learn from that of others!
That brings us to the moot question — how to decide whose advice to put into action? While there is no sacrosanct way to filter the advice, tips and so-called 'insider info' that you get in your lifetime, there are a few easy filters that can help you be 'better safe, than sorry'.
Have your 'thinking cap' on
There is no dearth of stock tips in this age — be it your favourite news channel, news paper, stock broker or even friends and colleagues. There may not be any pressing need to act on such tips if you are a long-term investor, as long-term investments may not be as price-sensitive as the short-term ones.
But if you are a short-term investor, what should you look for when you receive a "buy" tip? Instead of blindly following the tip, try to study the report in detail.
Look out for details on the company's business, its estimated valuation and target price.
The urge to immediately act on such tips can be irresistible, but do stop to make a back-of-the-envelope calculation of the risk-return payoff.
Even if the tip-offs do not come with reasonable exit points, it may pay for you to keep a targeted return on both the upside and the downside. Considering that some of these tip-offs come with unreasonably high target prices, makes the case for keeping your own target returns.
That said, even seasoned investors can fall prey to wrong tips or advice. A case in point — the various IPO analyses floated freely over the internet via blogs and mail groups that can be shallow or even worse, one-sided. So, even if you cannot analyse company balance-sheets, analysing the credibility of your information source is a necessity for a successful stint in equity investments.
If it's free, think twice
More often than not, the 'hot tips' that you get on stocks that would 'run up quickly, if you do not invest soon' are for free. Beware of these 'tips' that are given to you for free. Why? Because no sane person would give you stock ideas that are immediate 'multi baggers' without charging something for it! Remember the world of investments does not run on charity, so what is given without charge may come with a hidden cost.
Your tipper could just be passing on the information to you, to help him prop up the share price of his own holdings.
Worse, the tipper could be but a pawn in the hands of someone else and may be giving away mis-information to everyone, unknowingly paving way for somebody else to dump his stock. For those who have read Jeffrey Archer's book Not a Penny More, Not a Penny Less, understanding how and why such tips may be given would be easy.
That said, always be on guard whenever making money in the stock markets appears easy.
Even if it is not free, don't stop thinking
If you think that paying for advice will insulate you from such 'vested interest' tip-offs, there is still the possibility that 'wrong' tip-offs will find their way to you.
Remember there have been cases, both in India and the rest of the world, where investment advisors with considerable clout have played foul. Investment bankers, after managing a company's IPO, come up with 'buy' reports after the company lists; broking outfits with both an institutional and retail window can produce reports on companies that their institutional clients are stuck with or vice-versa — the list of such probabilities is endless.
While per say, none of these can be termed unethical unless proved, the very awareness of such possible discrepancies can help you peg a value to your tipper's credibility.
But the ultimate test of your tipper's credibility lies in acting on it. Just like the Chinese proverb that says, "never test the depth of water with both your feet", to begin with invest only in small amounts.
That would give you sufficient leeway to step up investments once you gain conviction or to cut your losses if they backfire.
Action shifts from futures to options
An interesting shift is taking place in the trading pattern in the derivatives segment of the National Stock Exchange (NSE).
Volume in index options has increased sharply while the trading interest in the riskier stock futures is on the wane.
This implies that participants in the futures and options (F & O) segment are graduating to more complex derivative instruments that can minimise risk and lead to better capital preservation. It also signals higher participation by informed investors in F&O.
High volumes
The share of index options in the traded value of the derivatives segment has increased from 12 per cent in February to 30 per cent in July, while the share of stock futures trading has declined from 46 per cent to 32 per cent.
Daily traded volume in index options touched an all-time high on July 23 this year.
The dominance of stock futures, both in terms of trading volumes and open interest, was one of the strange quirks of the Indian derivatives market. Index futures came second, with options a poor third.
This opposed trends in developed markets where options are preferred due to their lower risk and initial outlay.
The market crashes in May 2006 and again in January this year were prompted by large-scale unwinding in stock and index futures held by novice traders.
Limiting losses
What has brought about this change?
Mr Sandeep Nayak, Senior Vice-President and Head - Private Client Group Dealings, Kotak Securities, points out that lower appetite for risk has triggered this shift.
"The vicious and abrupt collapse of the market in January and increased volatility thereafter had resulted in investors adopting a more cautious approach, with higher emphasis on limiting losses." "In contrast to trading the stock and index futures where risk is unlimited, a purchase of a call option where the premium cost is the maximum possible loss enhances the trader's ability to withstand higher volatility without undue panic."
Lower retail presence
Many of the novice traders who were more comfortable with the futures have exited the markets, badly singed in the first quarter of this year.
"The reduced presence of retail investors is clearly reflected in the lower cost of carry of futures (futures are trading at 60-70 bps higher than their underlying spot) as compared to late 2007/early 2008 when cost of carry was 100/120 bps".
"The higher cost of carry was due to presence of retail investors who were doing leverage trading to make quick money," says Mr Sandeep Singal, co-head, institutional derivatives business with Emkay Global Financial Services.
With portfolio hedging becoming an imperative in a protracted down trend, the long-dated options introduced six months ago, have been thriving of late.
"Currently, there is more than Rs 9,000 crore of open interest in options expiring on or after December 8. There are institutional investors active in these long-dated options",
STT changes
Changes in the securities transaction tax on options in the Union Budget of 2008 is the other reason he attributes to the option trading seeing more action.
Traders are also forced to look at adopting more complex trading strategies including a mix of futures and options, arbitrage, time value stripping and so on to play the current non-trending market.
The fact that the National Stock Exchange has become the fourth largest exchange in the world in daily traded value in index options is a fall-out of this change in trading style among the Indian investors.
--
Arvind Parekh
+ 91 98432 32381
Weekly Outlook
Some useful links of The Hindu Businessline
Index Outlook
It was an irresolute trading week on the Indian bourses. There were no positive triggers to enthuse the market participants. On the other hand, the plethora of negatives that have been analysed thread-bare, do not appear to have the power to surprise or scare the markets anymore. Sensex closed the week with a 300 points loss.
Extremely low volumes in both cash as well as the derivatives segment reflect the lackadaisical attitude among the investors and traders. FIIs turned net sellers last week. Nifty put call ratio too implies that the market is equally divided between the bull and bear camps.
The short-term trend has turned negative with the decline in the Sensex last week. The 14-day Relative Strength index is poised at 47 while the Rate of Change index has moved in to the negative zone implying the Sensex could be under pressure in the near-term again. The weekly oscillators are rising in the bearish zone indicating that the medium- term outlook continues to be cloudy.
Though the index can decline in the near-term, the presence of key supports at 14300 and 13700 can cause sudden reversals that can catch bears unawares. The index is currently hovering around the 50-day simple moving average at 14284.
Reversal from current levels can result in a sideways move between 14300 and 15500 for a couple of weeks more. Such a move could be the halt before the index moves beyond 16000 over the medium-term. This view will stay until the Sensex closes decisively below 13700.
In e-wave terms, the down-move from 15579 could be the minor 'b' of the correction since 12514. The minor 'c' can take the index higher to the area between 16000 and 17000. But as we have been reiterating, it is very difficult to guess the pattern of a correction while it is unfolding. The mind-whirring number of counts makes such phases a nightmare for traders.
Sensex could move higher to 14831 or 15116 in the early part of next week. But turbulence caused by the expiry of the August contracts can arrest the rally at these levels. Supports will be at 14050 and then 13690.
Nifty (4327.4) Nifty continued its losing streak by declining 103 points last week. The index is currently pausing just above its 50-day moving average at 4280. A move higher to 4443 or 4522 is possible next week. Reversal from either of these levels would provide shorting opportunity to short-term traders. Move beyond the second target is needed to make the near-term outlook positive.
However, the medium-term view for the index remains positive as long as it holds above 4115. Reversal from 4220 or 4120 would imply that that the index can rally to the zone around 5000 over the medium-term.
Global CuesThe crude, dollar and gold troika dominated the financial markets last week as analysts went nuts trying to explain how these affected each other and the equity markets.
With the dollar pausing its meteoric rise, crude moved between $111 and $120. Friday's sell-off that came after a 30 per cent retracement of the decline from the recent peak at $147, implies that the support at $110 would be under severe pressure in the near term.
Dow Jones Industrial Average reversed higher from an intra-week trough at 11290, above the key short-term support at 11230 that we have been watching over the last couple of weeks. The S & P 500 is also putting up a resilient show. The key support for this index is at 1240. Though European and Latin-American markets stabilised last week, Asia remained turbulent. Many of the Asian indices such as Hang Seng, Shanghai Composite, Seoul Composite and Straits Times Index recorded new 2008-lows last week.
Infosys
Infosys slid gently to the intra-week trough at Rs 1,646 forming a double top in the daily chart. The stock is clearly having trouble moving beyond the resistance at Rs 1,750.
The current short-term decline can drag the stock lower to Rs 1,620 or Rs 1,590. Fresh long positions are recommended only on a rally above Rs 1,750. Subsequent target for the near-term would be Rs 1,815.
We stay with our positive medium-term outlook for Infosys. It appears to be building a base between Rs 1,500 and Rs 1,600 from where the third leg of the up move from the March trough can kick off. A close below Rs 1,500 is required to negate this view.
SBI
State Bank of India declined to our second near-term support at Rs 1,320 last week. The 50-day moving average line is also poised here. Next support is at Rs 1,245. Short-term investors can hold their long positions as long as this level holds.
Resistances for the week ahead would be at Rs 1,440 and then Rs 1,520.
As we had been reiterating, SBI faces medium-term resistance in the zone between Rs 1,500 and Rs 1,600. Since the stock failed to surpass this level, a decline to Rs 1,250 or even Rs 1,007 is possible in the medium-term. However, a reversal above Rs 1,250 would mean that the bulls still stand a chance to take the stock to Rs 1,700.
Unitech
Unitech declined to the key short-term support at Rs 156 on Friday.
As explained last week, reversal from this zone will imply that the move from the Rs 135 trough would resume to take the stock towards Rs 191 or Rs 212 again.
Conversely, a close below Rs 156 would pave the way for re-testing the Rs 135-trough. Traders can hold their longs with a stop at Rs 150.
The medium-term outlook is still positive but a decline below Rs 156 will imply an impending sideways move between Rs 130 and Rs 190 for a few more months.
Investors can make staggered purchases below Rs 150.
Tata Steel
This stock was floundering near its long-term support in the zone between Rs 580 and Rs 620. The pattern formed last week appears to be a running correction, which has bearish connotations.
The stock can decline to Rs 557 or Rs 525 in the near term. Resistances for the week would be at Rs 650 or Rs 700.
The medium-term trend in the stock is sideways. Retracement of the entire bull phase from 2001 trough gives the key support for the stock at Rs 600.
If this level is breached, the next long-term support is at Rs 505. The long-term view will be resolved only if the stock moves breaks-out of the current range between Rs 580 and Rs 700.
Reliance Infra
Reliance Infrastructure is halting just above the key support at Rs 940. The presence of the 50-day moving average at this level makes it highly likely that the stock can reverse from here and rally towards Rs 1,052 or Rs 1,108 again. Subsequent near-term supports are at Rs 896 and then Rs 840.
The medium-term trend in the stock is positive. It is correcting the up move recorded from Rs 660 to Rs 1,122 since the beginning of July. This correction can consume a few weeks as the stock moves between Rs 900 and Rs 1,100 before moving higher. Decline below Rs 840 will negate our positive medium-term view.
Reliance Ind
RIL moved in an extremely narrow band between Rs 2,190 and Rs 2,250 last week. Our medium and short-term view for this stock thus remains unaltered. The stock is moving in the island between the long-term averages. RIL has strong medium-term resistance in the band between Rs 2,450 and Rs 2,550. A reversal from here would result in a broad trading range between Rs 2,000 and Rs 2,400 for a few more months.
The near-term trend in the stock is down. But short-term supports exist at Rs 2,150 and then Rs 2,100. Short-term traders can watch for buying opportunity on reversal from these levels. Resistances for the week would be at Rs 2,300 and then Rs 2,375.
Derivative strategies: Using puts for discount buys
Traders typically place limit orders to buy stocks at a discount. But this is not always possible. This article discusses two alternative strategies that will enable traders to buy stocks at a discount. Both strategies involve setting up trades in derivatives.
B. Venkatesh
Traders extensively use limit-orders to buy a stock at a discount to the market price. The present market structure does not allow traders to use Good Till Cancelled (GTC) order to buy or sell a stock at a certain price. Everyday, a trader has to place a limit order till the request is filled. At times, this becomes an arduous task. Fortunately, limit-orders are not the only alternative available to traders seeking to buy stocks at a discount.
This article discusses two derivatives strategies that help traders reduce their cost of buying a stock. The first involves using puts and the second, ratio put-spread. Traders can choose a strategy depending on their near-term view on the underlying.
Trade set-up
Suppose the trader wants to buy Reliance Industries whose current market price is Rs 2,235. Assume the trader is of a view that the stock will not decline below Rs 2,125 before the expiry of the August contracts. She wants to buy 75 shares of Reliance for her core portfolio, which is equivalent to one option contract.
Puts as alternatives
The trader can decide to short the August 2160 puts at 20 points premium. If the puts expire worthless, the trader can use this premium to acquire the stock at a discount to the market price.
Selling puts does not come without risks. What if the underlying declines to Rs 2,150 just two days thereafter? The August 2160 puts could jump to 35 points, causing a 15-point loss.
What if the trader had sold the August 2200 puts instead? The Indian options market follows a cash-settled design. This means that the put seller does not have to buy the underlying if the buyer exercises her right under the contract. The transaction is cash-settled.
The trader can, hence, change her mind about acquiring the stock because of its near-term weakness. She will then incur a loss of 15 points against 85 points if she had bought the underlying at Rs 2,235.
If the put seller decides to buy the stock, her cost would be Rs 2,165- stock price of Rs 2,150 and loss of 15 points on the puts. If the stock instead moves up to Rs 2,250 in two days, the put option could drop to 9 points. The trader can cover the puts at 11-point profits but will have to buy the stock at Rs 2,250. The effective cost would be Rs 2,239.
Short puts can be effective when the trader expects the stock to move up marginally or trade sideways in the near- term. But what if the trader strives to profit from the near-term decline in the underlying price?
Ratio put spreads
Suppose the trader decides to buy one contract of August 2220 puts, sell one contract of August 2190 puts and sell one contract of August 2100 puts. The ratio spread can be set-up at no cost without including brokerage commissions. This is because the long-leg will be subsidised by the two short-legs.
If the underlying declines to Rs 2,150 in two days after the trade set-up, the spread could generate five points profit not adjusting for trading costs. The trader can now buy the stock at Rs 2,150.
The ratio put spread will generate maximum profits if the underlying expires at Rs 2,190. The August 2220 will then carry 30 points while the short options will expire worthless. The trader can use the 30 points profits to subsidise the cost of the stock. The underlying can be acquired for a total cost of Rs 2,160, which is Rs 2,190 less 30 points profit.
It is preferable to set-up the long-leg with at-the-money puts or near at-the-money puts. A ratio put spread is more suitable than short puts if the stock is expected to decline marginally in the near term. Besides, the risk is lower than short puts.
But why set-up short puts or long ratio put spreads when a trader can simply execute a limit order?
Conclusion
Only a small proportion of traders buy stocks at the market price. Most place a limit order to buy a stock at a lower price. Using limit-order has its problems. Sometimes, a stock may climb up without filling the limit-order. In such cases, the trader has to revise her order and buy at a higher price. At other times, the stock may go down in value after the trader purchases it.
Short puts enable a trader to reduce the cost if the stock trades in a range or moves up marginally. Long ratio put spread subsidises the cost significantly if the stock moves down. Both these strategies are alternatives to buying a stock using limit order. A trader should decide on the optimal strategy based on how she expects the underlying to move in the near-term.
Don't fall for tips
While there is no sacrosanct way to filter stock advice, tips and so-called 'insider info' that you get, there are a few easy filters that can help you be 'better safe, than sorry'.
Srividhya Sivakumar
The world of stocks is no different from that of cricket — every second person you meet will have an "expert" opinion on it! While cricket fans would enjoy such an information extravaganza, investors may just end up confused, especially if they have just begun investing.
So, how then do you decide who to believe? While, without doubt, doing your own homework on companies and picking up stocks would be the right way to go about the whole exercise, it may not be the most practical way to begin — after all, why learn from your mistakes, when you can learn from that of others!
That brings us to the moot question — how to decide whose advice to put into action? While there is no sacrosanct way to filter the advice, tips and so-called 'insider info' that you get in your lifetime, there are a few easy filters that can help you be 'better safe, than sorry'.
Have your 'thinking cap' on
There is no dearth of stock tips in this age — be it your favourite news channel, news paper, stock broker or even friends and colleagues. There may not be any pressing need to act on such tips if you are a long-term investor, as long-term investments may not be as price-sensitive as the short-term ones.
But if you are a short-term investor, what should you look for when you receive a "buy" tip? Instead of blindly following the tip, try to study the report in detail.
Look out for details on the company's business, its estimated valuation and target price.
The urge to immediately act on such tips can be irresistible, but do stop to make a back-of-the-envelope calculation of the risk-return payoff.
Even if the tip-offs do not come with reasonable exit points, it may pay for you to keep a targeted return on both the upside and the downside. Considering that some of these tip-offs come with unreasonably high target prices, makes the case for keeping your own target returns.
That said, even seasoned investors can fall prey to wrong tips or advice. A case in point — the various IPO analyses floated freely over the internet via blogs and mail groups that can be shallow or even worse, one-sided. So, even if you cannot analyse company balance-sheets, analysing the credibility of your information source is a necessity for a successful stint in equity investments.
If it's free, think twice
More often than not, the 'hot tips' that you get on stocks that would 'run up quickly, if you do not invest soon' are for free. Beware of these 'tips' that are given to you for free. Why? Because no sane person would give you stock ideas that are immediate 'multi baggers' without charging something for it! Remember the world of investments does not run on charity, so what is given without charge may come with a hidden cost.
Your tipper could just be passing on the information to you, to help him prop up the share price of his own holdings.
Worse, the tipper could be but a pawn in the hands of someone else and may be giving away mis-information to everyone, unknowingly paving way for somebody else to dump his stock. For those who have read Jeffrey Archer's book Not a Penny More, Not a Penny Less, understanding how and why such tips may be given would be easy.
That said, always be on guard whenever making money in the stock markets appears easy.
Even if it is not free, don't stop thinking
If you think that paying for advice will insulate you from such 'vested interest' tip-offs, there is still the possibility that 'wrong' tip-offs will find their way to you.
Remember there have been cases, both in India and the rest of the world, where investment advisors with considerable clout have played foul. Investment bankers, after managing a company's IPO, come up with 'buy' reports after the company lists; broking outfits with both an institutional and retail window can produce reports on companies that their institutional clients are stuck with or vice-versa — the list of such probabilities is endless.
While per say, none of these can be termed unethical unless proved, the very awareness of such possible discrepancies can help you peg a value to your tipper's credibility.
But the ultimate test of your tipper's credibility lies in acting on it. Just like the Chinese proverb that says, "never test the depth of water with both your feet", to begin with invest only in small amounts.
That would give you sufficient leeway to step up investments once you gain conviction or to cut your losses if they backfire.
Action shifts from futures to options
Lokeshwarri S.K
Chennai, Aug. 23 An interesting shift is taking place in the trading pattern in the derivatives segment of the National Stock Exchange (NSE).
Volume in index options has increased sharply while the trading interest in the riskier stock futures is on the wane.
This implies that participants in the futures and options (F & O) segment are graduating to more complex derivative instruments that can minimise risk and lead to better capital preservation. It also signals higher participation by informed investors in F&O.
High volumes
The share of index options in the traded value of the derivatives segment has increased from 12 per cent in February to 30 per cent in July, while the share of stock futures trading has declined from 46 per cent to 32 per cent.
Daily traded volume in index options touched an all-time high on July 23 this year.
The dominance of stock futures, both in terms of trading volumes and open interest, was one of the strange quirks of the Indian derivatives market. Index futures came second, with options a poor third.
This opposed trends in developed markets where options are preferred due to their lower risk and initial outlay.
The market crashes in May 2006 and again in January this year were prompted by large-scale unwinding in stock and index futures held by novice traders.
Limiting losses
What has brought about this change?
Mr Sandeep Nayak, Senior Vice-President and Head - Private Client Group Dealings, Kotak Securities, points out that lower appetite for risk has triggered this shift.
"The vicious and abrupt collapse of the market in January and increased volatility thereafter had resulted in investors adopting a more cautious approach, with higher emphasis on limiting losses." "In contrast to trading the stock and index futures where risk is unlimited, a purchase of a call option where the premium cost is the maximum possible loss enhances the trader's ability to withstand higher volatility without undue panic."
Lower retail presence
Many of the novice traders who were more comfortable with the futures have exited the markets, badly singed in the first quarter of this year.
"The reduced presence of retail investors is clearly reflected in the lower cost of carry of futures (futures are trading at 60-70 bps higher than their underlying spot) as compared to late 2007/early 2008 when cost of carry was 100/120 bps".
"The higher cost of carry was due to presence of retail investors who were doing leverage trading to make quick money," says Mr Sandeep Singal, co-head, institutional derivatives business with Emkay Global Financial Services.
With portfolio hedging becoming an imperative in a protracted down trend, the long-dated options introduced six months ago, have been thriving of late.
"Currently, there is more than Rs 9,000 crore of open interest in options expiring on or after December 8. There are institutional investors active in these long-dated options", added Mr Naik.
STT changes
Changes in the securities transaction tax on options in the Union Budget of 2008 is the other reason he attributes to the option trading seeing more action.
Traders are also forced to look at adopting more complex trading strategies including a mix of futures and options, arbitrage, time value stripping and so on to play the current non-trending market.
The fact that the National Stock Exchange has become the fourth largest exchange in the world in daily traded value in index options is a fall-out of this change in trading style among the Indian investors.
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Arvind Parekh
+ 91 98432 32381
Friday, August 22, 2008
Headlines for the day
Corporate News Headline
Exide Industries would pump in Rs. 3 bn on expansion of its production capacity, besides entering new overseas markets with an aim to double its exports this fiscal. (BS)
Nagarjuna Construction bagged three orders worth Rs. 4.74 bn for development of sports facilities. (BS)
Welspun Gujarat Stahl Rohren decided to increase the capacity of its pipe plant by 75% to 1.75 MT to meet growing demand for oil pipelines. (ET)
Economic and Political Headline
Economic and Political Headline
Inflation surged to 12.63% for the week ended August 9 from 12.44% a week ago due to an increase of prices of food items like fruits, vegetables, and milk. (BS)
The government would bring iron ore producers and steel manufacturers to the negotiating table to ensure that the raw material is supplied at a reasonable cost. (BS)
The UK retail sales unexpectedly rose 0.8% in July as consumers shunned department stores in favour of discounted goods and snapped up mobile phones. (Bloomberg)
cash buy
Cash Market Intra-Day: GTLINFRA (NSE Cash CMP 41.35) expected to go down. But going up. Interesting and Buy with a Stop Loss of 40.35 level.
buy buy
NIFTY FUT: If uptrend continues then it will zoom up to 4384.20-4386.20 zone. Corrections up to 4293.25 can be used to buy. SL at 4258.80 level.
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