The Dow Jones Industrial Average closed at 8,076.29. Up by 119.23 points.
The Broader S&P 500 closed at 866.23. Up by 14.31 points.
The Nasdaq Composite Index closed at 1,694.29. Up by 42.08 points.
The partially convertible rupee <INR=IN> closed at 49.81/82 per dollar on Friday, stronger than its Thursday's close of 49.92/93.
Index Outlook
Sensex (11329) It was a more sedate trading week in Indian stock markets. The minor decline in the first two sessions was arrested at 10700 and the Sensex ended the week well above the 11000 mark. Action is however likely to be explosive next week with just three trading sessions that include the expiry day of the April derivative contracts, slew of corporate earnings and the deadline for deciding Chrysler's fate.
Trading interest is however high in the market though the benchmark is trudging sideways. Open interest in derivative segment has mounted to Rs 95,000 crore, close to the highs recorded towards the end of 2007. Number of option contracts in the open interest is reaching all-time highs. These are signals that the market is overheated. Some degree of comfort can be derived from the high put-call ratio that indicates that many of the traders are betting on a market decline. Short-covering of these positions can take stock prices higher from these levels.
Momentum is slowing down in the daily Sensex chart though weekly oscillators are still bullish. Ten-week rate of change oscillator is firmly entrenched in the positive zone, while the 14-week relative strength index is on the verge of entering the bullish zone implying that the medium-term trend is still positive.
From a long-term perspective, the trend is down since the 21206-peak. However, a strong counter-trend rally is in progress from the low of 8047. The first resistance zone for this move lies between 11600 and 11800. If this level is crossed, next resistance band is between 12800 and 13000. July 2008 trough at 12500 is another hindrance for this rally. The magnitude of correction following this rally will give us the answer to the all-important question – have the equity markets bottomed yet?
Medium-term trend in Sensex is up since the trough at 8047 and is still going strong. Trend following methods dictate that investors should stay on the right side of the move until it reverses. A close below 10200 will be the first indication that the medium-term trend is reversing. But some caution would be handy since Sensex is close to the first long-term resistance zone explained above.
We are ambivalent as far as the short-term outlook is concerned. The short-term trend in Sensex is sideways between 10650 and 11350. Decline below the lower boundary will pull Sensex to 10450, 10200 and 9500. Rally above 11350 can take the index higher to 11600 and 11856.
Nifty (3480.7)
The short-term trend in the Nifty too is sideways between 3300 and 3500. Short-term traders can buy in declines with a stop at 3250. Upper target on a break-out above 3500 are 3550, 3636 and 3684. Supports for the week would be at 3236 and 3170.
A close below 3170 would be the first indication of a medium term trend reversal. As explained earlier, a strong counter-trend rally is in force since 2539. The first target for this move lies between 3480 and 3680. If this zone is crossed, the next target zone is around 3820.
Global Cues Global markets appeared to be biding their time last week, deciding which way to go next. Most global indices moved sideways without making any headway either up or down. CBOE VIX spiked up from a three-month low of 33 to 40 on Tuesday before easing downward to close the week at 36 implying that investors were getting slightly edgy at the rally that is showing no signs of reversing.
After the sharp downward jerk on Monday, DJIA recovered to end with a mild loss. This index has been moving sideways between 7800 and 8100 since the beginning of this month. A break-out beyond either boundary should set the intermediate term direction for this index and rest of the global equity indices.
Tata Steel
Tata Steel too underwent a mild correction in the beginning of the week but it recovered thereafter to end on a flat note.
Momentum indicators in the daily charts are indicating weakness. Short-term resistance for the stock is at Rs 276.
A downward reversal from this level can pull the stock lower to Rs 234 or Rs 212.
Move above Rs 276 will take the stock higher to Rs 297 and then to Rs 341 where the 200-day moving average is poised.
Traders can hold their longs with a stop at Rs 232.
The medium term trend in the stock is up but a sideways move between Rs 240 and Rs 300 is possible for a few more sessions before it breaks out higher to our medium term target of Rs 335 and Rs 360.
Tata Steel
Tata Steel too underwent a mild correction in the beginning of the week but it recovered thereafter to end on a flat note.
Momentum indicators in the daily charts are indicating weakness. Short-term resistance for the stock is at Rs 276.
A downward reversal from this level can pull the stock lower to Rs 234 or Rs 212.
Move above Rs 276 will take the stock higher to Rs 297 and then to Rs 341 where the 200-day moving average is poised.
Traders can hold their longs with a stop at Rs 232.
The medium term trend in the stock is up but a sideways move between Rs 240 and Rs 300 is possible for a few more sessions before it breaks out higher to our medium term target of Rs 335 and Rs 360.
ONGC
ONGC too moved in a very narrow band between Rs 830 and Rs 890 and ended the week with a mild loss. The short-term trend in the stock is down since the peak at Rs 922. Resistances for the week ahead would be at Rs 890 and Rs 922. Failure to move above the first resistance would result in a decline to Rs 816 or Rs 790 in the near term. 200-day moving average present at Rs 816 will be a key support from a medium term perspective. Weekly close below this level would herald a decline to Rs 740 over the medium term. This stock has retraced 38.2 per cent of the down-move recorded from the November 2007 peak. Failure to move above Rs 920 will mean that the stock can move in a wide band between Rs 600 and Rs 900 for the rest of this year.
Maruti Suzuki
MUL declined sharply in the earlier part of the week but it reversed from our medium term support of Rs 740 to close the week on a flat note. Short-term trend in the stock is down.
Immediate resistance for the stock is at Rs 826. Inability to move above this level can cause the correction to prolong and make the stock decline to Rs 735 or Rs 685. A move above Rs 826 will make the short-term trend positive paving the way for a rally to Rs 873.
The medium term trend in the stock is up but it has already retraced half the losses made in the previous down-move.
A medium term reversal is possible from the recent peak at Rs 873.
Move above this level will give the next target at Rs 950.
Infosys
The strong surge witnessed on this counter on Thursday made it close the week with 4 per cent gain.
Infosys has been repeatedly testing the resistance at Rs 1,450 over the last three weeks.
As explained in our last column, the stock has key resistance at Rs 1,450. Downward reversal from here will make it decline to Rs 1,000 whereas a rally beyond this level will give the stock next medium term target of Rs 1,587.
Fresh purchases from a trading perspective are therefore recommended only on a strong move above Rs 1,450. Subsequent short-term target is Rs 1,527.
Supports for the short term are at Rs 1,380 and Rs 1,350. Medium term trend will turn negative only on a close below Rs 1,300.
Reliance
RIL moved sideways between Rs 1,700 and Rs 1,800 last week.
Though it declined to Rs 1,670 on Tuesday, it recovered to close on an optimistic note.
As explained in our last column, the stock faces strong resistance in the band between Rs 1,800 and Rs 1,850 and a medium term reversal is possible from here.
But if RIL holds above Rs 1,600 over the next two weeks, there can be another leg of up-move that can take the stock higher to Rs 1,886 or Rs 2,020.
Next Fibonacci retracement level if RIL breaks past Rs 1,850 is Rs 2,100.
Short-term traders can hold the stock with a stop at Rs 1,660.
Swing traders can hold with a deeper stop at Rs 1,580.
SBI
SBI declined sharply from the resistance at Rs 1,350 indicated last week to an intra-week trough at Rs 1,202.
But the strong recovery from this level implies that the medium term trend in the stock continues to be up. Though the stock can move between Rs 1,200 and Rs 1,350 for a few more sessions, there can be an upward break-out that takes it higher to Rs 1,433 or Rs 1,577.
Investors however need to tread cautiously till the stock closes above Rs 1,350.
The medium-term view for SBI will stay positive as long as it trades above Rs 1,100.
Repeated attempts to cross above Rs 1,600 between July and September 2008 makes this level a possible ceiling for this calendar.
Nifty future may see range-bound movement
Despite the sharp recovery, we feel that the Nifty future lacks conviction to move above the immediate resistance zone of 3515-25 level.
After opening on a weak note, Nifty future found strong support at lower levels and reversed the direction to end on a positive note.
The Nifty April future ended 2.2 per cent higher at 3482.05 against the spot close of 3480.7. The Nifty May future finished at 3491.05 and witnessed a rollover of about 38 per cent.
The rollover was lower when compared with the previous month's figure, as traders preferred to book profits. The market-wide rollover is in the region of 35-38 per cent.
Follow-up
We had advised trades to go short on Nifty future if it dips below 3325 and had also advised them to buy 3300 put. Both these strategies would have yielded sharp losses.
We had also advised trades to go short on HDIL. This also would have resulted in losses as it touched the resistance level of Rs 150.
Outlook
Despite the sharp recovery, we feel that the Nifty future lacks conviction to move above the immediate resistance zone of 3515-25 level. If it sustains the momentum and closes above the 3525, then it has the potential to go up to 3660, which is the next crucial resistance zone. On the other hand, if it fails to sustain the current momentum, it has the potential to reach the immediate support level of 3225.
A dip below that (on a closing basis) can take it to 2925, which appears rather remote at this point of time.
Option monitor
The calls saw activity centered around 3300-3500 strikes while the puts witnessed trading activity around 3200-3500.
Among May options, 3500 and 3600 calls were active indicating the resistance zone for Nifty. Interestingly even in June call options - strikes of 3400 and 3700 - were in the active zone. On the other hand, puts saw activity in 3200-3400 range in Nifty. This indicates the broad range of Nifty between 3200-3700.
Volatility Index
Though the volatility index weakened slightly on Thursday and Friday, it is continuing to advocate a cautious outlook. The index, which is famously known as fear gauge, ended at 47.78 against the previous week's close of 50.8. But during intra-day trading it peaked at 63 points.
Recommendations
We advice traders to adopt the following strategies.
Consider short straddle using 3400 strike, as we expect the Nifty to move in a tight range of 3300-3500.
While the 3400 call closed on Friday with a premium of Rs 105.4, the put ended at 34.8.
While the maximum profit in this strategy is the premium earned, the loss is unlimited if Nifty moves sharply in one direction. Writing options involve higher margin requirements.
FII trend
The cumulative FII positions as percentage of the total gross market position on the derivative segment as on April 23 is 35.21 per cent. They indulged alternate bout of buying and selling in derivative segment.
They now hold index futures worth Rs 13,286.71 crore (Rs 12,743.48 crore) and stock futures Rs 18,447.89 crore (Rs 16,370.08 crore).
Their holding in index options continued to be at record high. They now hold Rs 34,658.94 crore worth index options against the previous week level of Rs 27,150.9 crore.
Falling three and rising three methods
Yoganand D.
We have discussed some of the important bullish and bearish Japanese candlesticks reversal patterns in this column. A look at continuation candlestick patterns this week.
One of the important candlestick continuation patterns is the three methods pattern. These can be falling three methods pattern or rising three methods pattern. These candles are formed with five candles. Other continuation patterns in Japanese candlestick study are bullish separating lines and bearish separating lines.
The falling three methods candlestick pattern is a bearish continuation pattern and the rising three methods is a bullish continuation pattern. Both signal a small break or halt in the prevalent trend and no do not signal a trend reversal.
The falling three methods pattern is formed in a downtrend, with a long black candle (first) followed by a chain (three) of candles reacting upward.
These three candles are formed with smaller bodies, but should be within the range of the large black candle. Generally, these smaller bodies would be white.
The last (fifth) candle should be same as the first candle (large black candle). This candle should open lower than the close of the previous candle (fourth candle) and should close at a new low.
The rising three methods pattern is seen in an uptrend. The first candle is a long white candle followed by a chain of three candles, reacting downwards. These three candles are formed by smaller bodies, but should be within the range of the large white candle.
Typically, these smaller bodies would be black as the large or original candle is white. The fifth candle should be identical to the first (large white candle). The final candle should open higher than the close of the previous candle (fourth candle) and should close higher than the first long white candle (Refer diagram).
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Arvind Parekh
+ 91 98432 32381
