The state of the financial markets last week was reminiscent of the last quarter of 2008. Rising risk aversion led to the yen strengthening above 90 against dollar, CBOE VIX, the volatility gauge, spiked to 55 and financial institutions in the US began queuing up for being bailed out again. Volumes plunged lower in Indian equity markets and FIIs resumed pulling out funds.
Though there were two incursions below 9000, Sensex held above this support for most part of the week. The index oscillated in a narrow range between 8950 and 9400, just below the 50-day simple moving average that is poised at 9500. The short-term trend in the index is down since the January 7 peak at 10,469. Weakness in the momentum indicators imply that this down move can continue further.
The sideways move recorded over the past week appears to be a halt before the downtrend from 10,469 resumes to pull the Sensex lower to the zone between 8400 and 8500. Target below this support band is at 7866. A close above 9858 is required to mitigate the negative short-term view.
Interestingly the pattern is the same whether one looks at the chart of the Sensex or the DJIA or the FTSE 100. All these indices have eased lower and are poised at the 61.8 per cent retracement of the up-move from November 2008. A step lower will take them to the 2008 lows again and recovery from current levels will start the third leg of the up-move from November 2008 trough.
In other words, bulls have the room to manoeuvre the Sensex higher as long as it does not close below 9000. The week ahead should make the medium-term trajectory of the Sensex more apparent.
Volatility is likely to persist in the week ahead. Key resistance for the short-term is at 9509. Failure to rally beyond this level will imply that the index is bracing for another plunge lower to 8429 or 8316. Resistance beyond 9509 would be at 9858.
Nifty (2828.4)
Nifty recorded an intra-week low at 2701 last week but our key trend-deciding level of 2750 was not penetrated decisively. The index was instead moving in a narrow band between 2750 and 2850 for most of the week. The short-term trend in the index is down and the current sideways move appears to be a halt before the down trend resumes taking the index lower to 2574 or 2414 over the medium term.
Resistances for the week would be at 2860 or 2960. Failure to move past the first resistance would be the cue for short-term traders to initiate fresh short positions with a stop-loss at 2980. Strong medium-term support around 2500 should act as a good support in sharp declines.
The Dow declined below 8500 but it steadied itself around the medium-term trend deciding level at 8060 indicated last week. A close below this level is needed to imply an impending move towards the previous trough at 7449. Corresponding level in S & P 500 is at 820.
Strong & Weak futures
This is list of 10 strong futures:
Balram Chin, Neyveli, Triveni, Renuka, Maruti, M&M, Nuclues, Moserbaer, Infosystech & Hind Petro.
And this is list of 10 Weak Futures:
Rolta, Sasken, TVS Motors, Sterlite Tech, Pantallon, DLF, Uni Tech, Purva, Siemens & Punj Llyod.
Nifty is in Down Trend.
NIFTY & SENSEX SPOT LEVELS FOR MONDAY
2828.45 | ( 3.35 %) | 91.75 | ||
1 | 2 | 3 | ||
Resistance | 2868.00 | 2907.55 | 2979.45 | |
Support | 2756.55 | 2684.65 | 2645.10 | |
9323.59 | ( 3.06 %) | 276.85 | ||
1 | 2 | 3 | ||
Resistance | 9402.16 | 9480.72 | 9618.98 | |
Support | 9185.34 | 9047.08 | 8968.52 | |
Reliance Industries
RIL rallied higher from the intra-week trough at Rs 1,067 to close the week with a 6 per cent gain. The short-term trend in the stock continues to be down. It is poised just below the 50-day moving average that will act as a key resistance in the near-term. If this resistance is surpassed, the next resistance is at Rs 1,274. However caution is advised as long as the stock trades below Rs 1,274. A downward reversal below this level will pull the stock to Rs 1,067 or Rs 1,021.
The medium-term trend in the stock stays neutral. Swing traders can buy the stock close to the lower boundary of the medium-term trading range at Rs 950 with a stop at Rs 920.
SBI 
It was a roller-coaster ride for investors in SBI last week. It declined below the key near-term support at Rs 1,140 on Monday and spent the rest of the week gyrating in a narrow sideways range.
Near-term view for this stock is bearish. The stock will face resistance at Rs 1,213 and Rs 1,277 in the week ahead. A movement in the band between Rs 1,140 and Rs 1,220 is likely for a few sessions before the stock declines to Rs 995 or Rs 940. Traders should wait for a firm breach of the support at Rs 1,140 before initiating fresh shorts. An upward reversal from Rs 1,140 will mean that the medium-term rally from the December trough is unfolding a fresh leg higher.
Maruti held on to the gains recorded in the previous week though it could not progress beyond Rs 607. A 1:1 extrapolation of the move from Rs 446 trough gives us the target at Rs 608. Fifty per cent retracement of the prior down-move too indicates resistance at Rs 600. In short, a correction is likely to ensue from current level that pulls the stock to Rs 540 or Rs 526. Resistance beyond Rs 600 is at Rs 635.
The stock is moving within the range between Rs 450 and Rs 700 over the medium-term. Move past Rs 640 will drag the stock towards the upper boundary of this range. On the other hand, reversal below Rs 640 will drag it down to Rs 500 again.
ONGC 
This stock declined to our first short-term target at Rs 627 last week. But the strong support in the band between Rs 600 and Rs 620 halted the decline. ONGC needs to record an emphatic close below Rs 600 to pave the way for next leg of the medium-term down trend that can pull the stock to Rs 539. Else, it can continue to vacillate in the band between Rs 600 and Rs 750.
The short-term trend in the stock is down since January 6. It will face resistance from Rs 660 or Rs 690 in the near- term.
Short-term traders can initiate fresh shorts on downward reversal from either of these levels.
Infosys 
Despite the wobble on Tuesday when Infosys announced its quarterly earnings, the stock surpassed the resistance at Rs 1,200 to achieve our near-term target at Rs 1,307.
High volume recorded on this counter during last week's up-move denotes that buyers are interested in adding to their holdings at lower levels.
The stock, however, faces strong near-term resistance from the band between Rs 1,300 and Rs 1,320.
Reversal from this level can drag Infosys down to Rs 1,100 again. Fresh long positions are advised only on a close above Rs 1,320. Subsequent targets for the stock are Rs 1,355 and Rs 1,457.
Tata Steel 
Tata Steel moved in a narrow range between Rs 190 and Rs 215 last week.
The stock is at a critical point from a near-term perspective.
The near-term trend will turn down only when the stock moves below the 50-day moving average at Rs 198 and the key short-term support at Rs 190. Conversely, a reversal above Rs 190 can take the stock higher towards Rs 260 again.
Short-term traders should initiate fresh shorts only on an emphatic breach of Rs 190. The stock is poised half-way down its medium-term range and a breach of the support at Rs 190 will drag it lower towards its previous trough at Rs 146.
Nifty futures under downward pressure
The 'snakes and ladders' game continued in the bourses last week as well, with the Nifty future recovering a good part of its early losses. After dipping to a low of 2697 points during the week, Nifty futures closed the week on a better note at about 2815, though still 1.66 per cent short of its previous week's close.
The sharp recovery on Friday also helped narrow down the gap between the Nifty future and spot prices. From trading at about 20 points discount to the spot last week, the Nifty future now trails by only 13 points.
That said, the day's rally did not enjoy very high volumes.
While there was a marginal improvement in open interest positions on a weekly basis, there was also heavy unwinding of positions in Nifty futures intra-week.
Follow up
We had presented two strategies for traders last week. Shorting Nifty future with 3050 stop and buying 2800 put. Both the strategies would have yielded generous profit opportunities during the week.
Outlook
Nifty future failed to scale above 3250 in the recent rally, which suggests that the days ahead for it can be painful.
Though it briefly broke the 2750 support, it managed to recover on Friday, to close above that level quite comfortably.
But despite the pullback, we remain doubtful of its ability to break past 3250.
While a move past 3250 can take it to 3550, a fall below 2750 can take it to 2250, though it may face a minor support at 2550.
Friday's rally however may have been driven mainly by short covering.
The pruning of the discount between Nifty's future and spot prices validates that.
There was also an accumulation of open interest positions of calls at strikes 2800 and 2900, while puts at strikes 2700 and 2800 saw the emergence of writers.
This suggests that Nifty futures may have a strong support around these levels.
Heightened trading activity in 2500 and 2600 puts also highlights the confused mindsets of traders.
Volatility Index
India VIX or Volatility Index, which had bounced back last week, lost some of its steam this week.
It ended on Friday at 44.3 (47.82) after closing above the psychological 50-point mark on Wednesday.
This indicates that traders may not be sure of the market direction.
Recommendation
We expect the Nifty future to open on a soft note.
But since we reckon that the market may be under a tight bear grip, we suggest that traders consider going short on Nifty future, with a stop-loss at 2950.
Stop-loss can be adjusted suitably depending on how the markets moves as October lows may be retested again.
Traders can book profits at 2700, 2650 and 2550, depending on their risk-taking abilities.
FII trend
The cumulative FII positions (as a percentage of the total gross market position on the derivative segment) as on January15 improved to 34.94 per cent against the previous week's close of 31.94 per cent.
Foreign institutional investors, however, were predominantly net sellers during most part of last week.
They now hold index futures worth about Rs 9,553 crore (Rs 7,276 crore) and stock future worth about Rs 11,092 crore (Rs 10,384 crore).
Their index options holding have now improved to about Rs 11,263 crore (Rs 9,96.74 crore).
FII trading activity on NSE and BSE on Capital Market Segment
Domestic Institutional Investors trading activity on NSE and BSE on Capital Market Segment
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Bharti Airtel - Upside expected of 25% from CMP.
Unitech - Upside expected of 150% and even more from CMP.
Suzlon - Upside expected of 50% or more from CMP.
R Com. - Upside expected of 30% or more from CMP.
LNT - Upside of 25% to 40% from CMP.
Sun Pharma - Upside of 20% from CMP
Ranbaxy - Upside of 35% from CMP.
HDIL - Upside of 40% from CMP.
NTPC - Upside of 25% from CMP.
And just remember FD would have given you 10% returns in one year. And just see what these stocks can possibly give you.
--
Arvind Parekh
+ 91 98432 32381
Corporate News Headline
TCS reported Q3'09 results, total revenue rose 24.13% yoy to Rs. 72.77 bn, and net profit increased 2.68% yoy to Rs. 13.62 bn. (BS)
