Strong & Weak futures for 11th May 2009
This is list of 10 strong futures:
Bhushan Steel, Bajaj Hind, TVS Motor, Havells, HDIL, Kesoram Indu, Suzlon, Aurobindo Ph, JSW Steel & WELGUJ.
And this is list of 10 Weak
Hind Petro, Sterling Bio, BPCL, Ambuja Cem, ACC, IOC, Bank Of India, Cipla, Stayam Comp & Bata India.
Nifty is in Up Trend .
Weekly Index Outlook 
Sensex (11876.4)
Positive reading from China's Purchasing Manager's Index provided the impetus to yank Sensex and Nifty above crucial resistance levels last Monday. This lead to another frenetic bout of short-covering that helped the Sensex scale the 12000 level. Indian equities, however, did not participate in the post-stress-test-results rally towards the weekend as market participants suddenly realised that the Lok Sabha election results were just a week away.
Both volumes and breadth were very strong though volatility was to the fore in the last three sessions. Trading interest too continues to be high. Open interest in the derivative segment has already crossed Rs 70,000 crore. FIIs continued to pump in funds.
Negative divergence is apparent in the daily oscillators implying that the going can get turbulent over the short-term. The more worrying factor is the 10-week ROC reaching the level last recorded in November 2007 denoting that the momentum being generated currently is too high to be sustainable. Strong weekly close above the 200-day moving average is however a positive for the Sensex.
The movement of the Sensex as well the other global indices last week leaves no room for doubt that we are in a strong counter-trend rally that is correcting the entire down-move from the 21206-peak. As mentioned in our previous columns, first resistance band for this move is between 11600 and 11800 and the next resistance is between 12800 and 13000. Sensex could try to reach the second band if the rally continues next week.
The medium-term trend from the March trough is still going strong. The prognosis for the medium-term is that the index can move up a little further to the zone mentioned above. But it would do to stay watchful as equities could fall off a cliff at any moment. The positive medium-term view will however reverse only on a strong close below 10700.
The short-term view for Sensex continues to be positive despite the wild gyrations witnessed last Wednesday and Friday. The index can move up to 12330 or 12580 in the upcoming week. July 2008 trough at 12514 and September 2008 trough at 12558 will also provide resistance in the short-term. Supports for the week are at 11630 and 11280. Fresh purchases should be avoided on a close below the first support.
The advice this week is no different from that over the last month – don't fight the trend by initiating short positions before a trend reversal is confirmed. Betting on the Lok Sabha election outcome is a strict no-no. Risk-averse investors can take some money off the table. Fresh purchases can be deferred for a week.
Nifty (3620.7) 
Nifty scaled the 3600 mark last Monday and went on to close the week above this level. Next medium term target zone for Nifty, if we consider the retracement of the down-move from January 2008 peak, lies between 3800 and 4000. July 2008 trough at 3790 will also be keenly watched as a possible resistance. Close below 3270 is needed to mitigate the positive medium-term view for the index.
Short-term outlook for Nifty is also positive and immediate targets are at 3730 and 3794. Supports for the week would be available at 3560 and 3460. Fresh longs should be avoided on a close below the first support.
Global Cues
It was a strong showing by equities last week with most indices breaking out from the narrow range-bound moves to record sharp spikes. CBOE volatility index declined below its previous medium-term trough at 33 signalling that the down-move can continue. In other words, investor sentiment can continue to improve. Next halt for this index can be at 24.
Spectacular moves were recorded by some of the index tracking higher commodity prices or strength in local currencies. Argentina's Merval Index (17 per cent), Singapore's Straits Times Index (16 per cent) and Taiwan Weighted Index (10 per cent) topped the gainers list for the week. Other Latam markets in Brazil, Chile and Mexico too recorded gains exceeding 8 per cent. European indices were up between 3 to 6 per cent. DJ Euro STOXX 50 gained 3.6 per cent.
Dow Jones Industrial Average moved 362 points higher; breaking the resistance at 8100 effortlessly. As we have been reiterating, this index can now head to 9100 or 9500 before it pauses. Corresponding targets for S&P 500 are 943 and 1020. —
SPOT LEVELS FOR 11th May 2009
 | 3620.70 | ( -1.72 %) | -63.20 |  |
| | 1 | 2 | 3 |
| Resistance | 3693.68 | 3766.67 | 3822.08 |
| Support | 3565.28 | 3509.87 | 3436.88 |
 | 11876.43 | ( -1.98 %) | -240.51 | |
| | 1 | 2 | 3 |
| Resistance | 12115.98 | 12355.53 | 12530.99 |
| Support | 11700.97 | 11525.51 | 11285.96 |
Reliance Industries 
RIL raced past the key medium-term resistance at Rs 1,850 last Monday and traded sideways with a positive bias for the rest of the week.
The stock is poised just below Rs 1,920, the trough made in July 2008. If this resistance is shattered, the next medium-term target is Rs 2,100, that is the half-way mark for the slide recorded from the Rs 3,150-peak.
Close below the 200-day moving average at Rs 1,620 is required to reverse the positive medium-term outlook.
The near-term outlook for Reliance Industries is also positive. The stock can move higher to Rs 2,060 or Rs 2,100 once it breaks-out above Rs 1,920. Short-term traders can buy on a breakout above Rs 1,935 with stop at Rs 1,830.
Infosys 
Infosys surged to an intra-week peak of Rs 1,635 on Monday before launching in to a short-term correction. As explained earlier, the stock has a medium-term resistance at Rs 1,580 that is 38.2 per cent retracement of the down-move from February 2007 peak. Failure to move beyond this level can pull it lower towards Rs 1,250 or Rs 1,100 as the stock moves between Rs 1,100 and Rs 1,600 for a few months. Conversely, a weekly close above Rs 1,580 will take the stock to Rs 1,900 over the medium-term.
Near term support for the stock is in the band between Rs 1,420 and Rs 1,450. Short-term traders can buy on a reversal from this zone. Subsequent supports would be at Rs 1,385 and Rs 1,330.
SBI 
Despite the spike to Rs 1,387 in the earlier part of the week, SBI closed within the short-term trading range that has been confining it over the last two weeks - between Rs 1,200 and Rs 1,350.
The stock is moving sideways since April 17 following the sharp upward spurt from the March 13 trough. Since the medium-term trend continues to be up, there can be one leg higher to the band between Rs 1,480 and Rs 1,500. Close below Rs 1,170 is needed to reverse the positive medium-term view in this stock. Short-term trend in SBI is sideways between Rs 1,300 and Rs 1,380. Supports below Rs 1,300 would be at Rs 1,270 and Rs 1,205. Resistances for the week would be at Rs 1,380 and Rs 1,470.
Maruti Suzuki 
Maruti failed to make headway last week and moved in a very narrow band between Rs 790 and Rs 860 instead.
The spinning top in the weekly candlestick chart implies indecision.
But the move recorded over the last five sessions implies that there can be another spike in the near term to Rs 869 or Rs 908.
Traders can hold their long positions with a stop at Rs 795.
The medium-term trend in the stock continues to be up. Key medium-term trend deciding level is Rs 725.
Maruti can fluctuate in the band between Rs 725 and Rs 900 for a few more weeks before breaking out.
Target on an upward break-out is Rs 950.
ONGC 
ONGC too recorded a range-bound movement last week. The stock is hovering in the key medium term resistance band between Rs 860 and Rs 900. An upward break-out from here will take the stock to Rs 965 or Rs 1,060 over the medium-term. But a downward reversal from here will pull the stock lower to Rs 730 or even Rs 650 again.
Medium- term investors can book partial profit on a close below Rs 820.
The short-term trend in the stock is up since April 28 though it is struggling to move above the resistance around Rs 900.
Targets above this level are Rs 936 and Rs 974. Supports for the week would be at Rs 826 and then Rs 804.
Nifty future may remain cautious
The current rally might still have some steam left with which the Nifty can move to 3850-3900 range.
The beginning of the new series was good as Nifty future gained 4.3 per cent and the Nifty crossed the psychological 3500-mark with high volumes. Nifty May future closed at 3623 against the previous week's 3483.10. However, Nifty future is shedding open interest, despite this being the start of new series, indicating profit-taking and a cautious approach adopted by traders.
Follow-up
We had advised traders to initiate a long straddle using 3500-strike.
The position ended on a positive note and provided higher profit opportunities during intra-week trading.
Outlook
We remain cautious on Nifty future ahead of the crucial Lok Sabha election results. The current rally might still have some steam left with which the Nifty can move to 3850-3900 range.
On the other hand, if it reverses from current levels, it will find immediate support at 3500 and below that at 3250 levels.
Option monitor
Both optimism and pessimism have been equally dominant in the market of late. Call options of strike price 4300 have also entered the active zone for the first time in 2009.
While calls in the range between 3600 to 4300 were predominantly traded, ,among the, puts 2900-3800 strikes were more active.
This indicates that one set of traders are expecting Nifty to fall to 2900, while another set is hoping that it touches 3800.
Volatility Index
The NSE Volatility index, which is also called the fear gauge, has been gaining quite consistently. In fact, it rose above 60 during intra-day trading on couple of days last week. India VIX closed the week at 57.02 against the previous week's close of 46.63. The jump implies that market-men are accumulating puts either as a hedge against their long position or in expectation of a a fall in the market.
Recommendations
1) Traders can consider the following two strategies.
1) Short straddle using 3600-strike. This can be done by selling 3600 call, which ended at Rs 180.15, and 3600 put that ended at Rs 159.05. This strategy is quite risky as the maximum profit is the premium collected.
Besides, one has to bear the higher margin requirement for going short.
This strategy is best suited if one thinks the market will remain in a range.
On the other hand, if Nifty makes a directional move (either up or down), this strategy would result in sharp losses.
2) Traders could also consider going short on Nifty future keeping the stop-loss at 3850.
The stop-loss has intentionally been at a higher level. This strategy is also for traders who are willing to take risk.
FII trend
The cumulative FII positions as percentage of the total gross market position on the derivative segment as on May 7 jumped to 39.6 per cent.
They have been net sellers in recent times, particularly in stock futures.
They now hold index futures worth Rs 12,570.74 crore (Rs 11,597.73 crore) and stock futures Rs 15,493.75 crore (Rs 14,534.88). In index options, FII holding stands at Rs 26,543.20 crore (Rs 22,771.88 crore).
US stress test: Relief for some banks
Greater disclosures by the banks for the stress tests may attract private investors to fund their capital requirements.
The cloud of uncertainty that has been hanging over the stability of the US banking system appears to have finally lifted after the US Federal Reserve announced the results of the much-awaited bank stress tests . Ten out of the 19 largest banks evaluated have been asked to raise additional capital as a buffer against potential losses. But the amount to be raised ($74 billion of common equity in total) is not as high as was expected. The results have also made investors more confident that banks will remain healthy even if economic conditions worsen.
What the tests mean
Uncertainty regarding the extent of losses and fears that some banks might become insolvent have constrained banks' access to credit and, in turn, curtailed their lending activity. All banks were painted with the same dark brush of uncertainty, as investors and depositors were unable to distinguish the weak banks from the strong.
To address concerns about the health of the financial system, the 'stress tests' were carried out. Nineteen banks, with assets of over $100 billion each, were required to project revenues and losses in 2009 and 2010, assuming that the economy performed worse than current forecasts. The Federal Reserve evaluated their estimates and arrived at how much more "common capital", the safest form of capital, banks would need to protect their balance sheets from these potential losses.
The tests estimated that the banks could suffer losses of up to $600 billion by the end of 2010 if the economy contracted deeper than expected. Ensuring that banks are adequately capitalised for this loss would ensure that credit flow to the economy remains uninterrupted.
From a market perspective, though the potential loss remains enormous, investors now finally have an estimate of how bad this mess could get; this could mean fewer downside surprises in the quarters to come.
Secondly, the test has separated the stronger banks from the weaker ones. Banks that emerged stronger from the exercise included JP Morgan Chase, Goldman Sachs, CapitalOne and American Express, which do not have to raise any additional capital. On the other hand, Bank of America was asked to raise $34 billion of common capital. GMAC, Citigroup, Wells Fargo and a clutch of regional banks are among the other banks that have to raise more money.
Improving sentiment
Bank stocks have rallied sharply in the last couple of weeks, with leaks of the test results flooding the markets ahead of the announcement. The significant spurt in prices of stocks such as Bank of America and Citigroup have baffled some market participants as the equity offerings and preference share conversions by these banks to raise the required capital are likely to dilute the stake of their common equity shareholders significantly. Yet, investors seem to be focusing on other positives.
Many believe that the greater disclosures made by the banks as a result of the stress tests has resulted in greater transparency and this might help banks attract private investors to fund their capital requirements. That means the Government's stake in these banks might not increase significantly.
Stronger banks that have sufficient capital, such as Goldman Sachs, might also be looking to repay bailout money it received earlier and free itself from Government intervention on matters ranging from executive compensation to dividend payouts.
Also, sections of the market that believe that the stress tests were too stringent are hoping that banks might actually beat these earnings estimates. Lending has become increasingly profitable for banks, as they are able to borrow at near zero per cent interest rates from the Fed Reserve and lend at rates of 3-5 per cent.
Of course, there are sceptics. While the Fed Reserve has assured the market that its assumptions of loss rates were suitably high and that the tests were tough, some still doubt the rigour of the tests.
Concerns
Some analysts also believe that banks might have been too optimistic about their earnings potential. Their ability to earn their way out of their losses depends on the central bank's ability to keep interest rates low. With more liquidity pumped into the markets, inflation remains a not-so-distant threat, which could then result in a spike in interest rates.
Finally, not all banks may be successful in raising money through fresh common share offerings, even though the appetite for bank stocks seems to have improved. The government has indicated that it will support banks with their capital needs. But banks are reluctant to receive any further government aid. And the market tends to frown on it too.
Oscillators 
Oscillators, as the name indicates, are statistical tools that oscillate between overbought and oversold zones. They help to forewarn an investor when a trend is losing momentum and is likely to reverse. The trend, like a motor car, cannot reverse while moving at top speed. It needs to slow down, stop, and then reverse. If we can identify that slowing down phase in advance, we can be one step ahead of the actual reversal. There are hundreds of oscillators currently in use. The most common ones are the ROC, RSI, MACD, and Stochastic.
Oscillators are useful in both non-trending and trending phases. When a stock or index moves sideways, oscillators can be used to identify entry and exit points so that the security can be bought close to the lower end of the range and sold at the upper end.
On the other hand, when the security is in a strong up or downtrend, oscillators can be used to identify short-term overbought or oversold conditions. Oscillators also give warning about and impending trend reversal by exhibiting divergence.
When the stock price is trending sideways or lower while the oscillator is forming higher peaks and troughs, a positive divergence is formed. When the stock price is moving up but the oscillator is moving lower, the divergence is negative.
Oscillators are typically plotted in two ways. They can be plotted within a range between 0 and 100. In this method, the zone between 0 and 30 is considered the 'oversold' zone while the zone between 70 and 100 is considered 'overbought'. The other way to plot oscillators is on either side of a zero line and the oscillator moves between positive and negative values. (Refer the chart below)
Interpretation
When the oscillator reaches an extreme value in any end, either up or down, the implication is that price has moved too fast and too far. This would warn investor to be ready to face a sudden reversal or a period of consolidation or sideways movement. Investors should typically buy when oscillators feature in the lower end of the range and sell when the oscillator line reaches the upper end of the range.
When using oscillators plotted with absolute value, buy signals are generated when the oscillator cuts the zero line from below and the oscillator moving below the zero line from the positive zone would be construed a sell. Another way to make oscillators generate entry and exit points is to plot a moving average on the oscillator chart and use moving average crossovers to derive buy and sell signals.
FII DATA
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) |
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 08-May-2009 | 3108.57 | 3209.46 | -100.89 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) |
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 08-May-2009 | 895.29 | 984.68 | -89.39 |
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Arvind Parekh
+ 91 98432 32381
