Strong & Weak futures
This is list of 10 strong futures:
HTMT Global, Aban, 3I Infotech, Jindal Saw, Yes Bank, Bajaj Hind, Patni, Amtek Auto, Maha Seamles & Bom Dyeing.
And this is list of 10 Weak :
ONGC, Essar Oil, Sterlin Bio, Hind uni Lvr, GT Offshore, Biocon, Ambuja Cem, Colpal, NTPC & ITC.
Nifty is in Up Trend .
NIFTY SPOT
 | 3671.65 | ( 2.18 %) | 78.20 |  |
| | 1 | 2 | 3 |
| Resistance | 3705.98 | 3740.32 | 3794.38 |
| Support | 3617.58 | 3563.52 | 3529.18 |
 | 12173.42 | ( 2.53 %) | 300.51 | |
| | 1 | 2 | 3 |
| Resistance | 12279.07 | 12384.73 | 12549.91 |
| Support | 12008.23 | 11843.05 | 11737.39 |
Weekly Index Outlook 
Sensex (12173.4)
Indian markets have much to rejoice from the verdict of the 15th Lok Sabha elections. Formation of a strong and stable government at the centre would give a big fillip to the market sentiment given the deteriorating economic environment in the country and elsewhere. Sensex was presciently optimistic in the week preceding the election, gaining 296 points and closing well above the 12000-mark.
The opening on Monday morning on Indian stock exchanges is likely to be euphoric. But this feeling can peter out after a couple of sessions as the government gets down to the brass-tacks to tackle the ongoing crisis; sending a grim reality to the markets regarding the economic reality.
And then, there is no getting away from the fact that this rally from the March lows is already 10 weeks old and both global and local indices are currently showing signs of fatigue.
So, how far can a celebratory burst on Monday morning take the Sensex? We have been maintaining that the rally from March low is a counter-trend rally in a bear phase. But since it has moved past the resistance zone between 11600 and 11800, it can now attempt to move on to the next target zone between 12800 and 13000. This zone coincides with the trough made in July 2008 and is also 38.2 per cent retracement of the down-move from 21206.
It is difficult to envisage a move beyond 13200 just yet, but if short-covering exaggerates the up-move, next medium-term target is the 50 per cent retracement of the 2008 crash, at 14500. The 200-day moving average at 11000 would be the key medium-term trend deciding level. Investors should however keep the fact that the medium term up-trend from March lows is already mature and could terminate at any time, in mind, while trading the up-move.
Sensex has been moving sideways between 11600 and 12200 since May 4. This consolidation phase can be followed by an upward thrust to 12524 or 12621. If the rally extends beyond these levels, the subsequent targets would be 12814 and 13203. Short-term supports would be at 11540 and 11350. Fresh purchases should be avoided below the first support.
Nifty (3671.6)
Nifty too is moving in a sideways range between 3550 and 3700 over the last couple of weeks. A break-out next week will take it towards our medium-term target zone around 3800. July 2008 trough at 3816 and key Fibonacci retracement at 3820 makes these two levels very important resistances. If there is a firm close beyond 3850, next target is 4300, that is 50 per cent retracement of the down-move from January 2008 peak.
Short-term targets for the Nifty next week are 3762 and 3790. A firm rally beyond these targets would propel the index to 3946. Supports for the week would be at 3510 and 3460. Fresh longs should be avoided below the second support.
Global Cues
It was a week in which global indices paused their exhilarating rise and retracted slightly. CBOE volatility index moved sideways between 30 and 34 indicating that investors are not unduly perturbed by this correction.
European indices lost between 3 to 5 per cent and the DJ Euro STOXX 50 closed 4 per cent lower. Dow Jones Industrial Average recorded its biggest weekly loss since the rally began in March, closing 306 points lower.
The correction last week has however been quite mild and the index needs to close below 7750 before the current medium-term uptrend would be under threat. Reversal above 8100 would mean that the index would take a shy at 8900 or 9100 before this rally end.
Most Asian markets too began a correction last week. Philippines stock market was the only exception; gaining 3 per cent. —
Infosys 
Infosys recovered from an intra-week low of Rs 1,495 to close with a 5 per cent gain. The stock has been moving in a range between Rs 1,500 and Rs 1,650 since the beginning of this month.
The area around Rs 1,600 is a key medium-term resistance for the stock and a weekly close above this level will indicate an improvement in the long-term outlook. Subsequent medium-term target is Rs 1,900. Close below Rs 1,400 is needed to make the medium-term view negative.
Short-term trend in the stock is positive and it can move higher to Rs 1,635 or Rs 1,650. Another reversal from this zone can result in a sideways move between Rs 1,500 and Rs 1,650 for a few weeks before it breaks out higher.
ONGC 
The 8 per cent weekly decline in ONGC resulted in an evening star formation in the weekly candlestick chart that is a bearish reversal formation.
If the stock is retracing the entire rally from the January low, immediate support is around Rs 800, where the stock is halting currently. 50-day moving average poised at this level will also lend support in the near-term. Decline below this level would give the next support at Rs 735. Short-term investors can hold the stock as long as it trades above the first support.
ONGC would face resistance from Rs 850 and Rs 880 in the week ahead. Inability to move above the first resistance would result in the decline continuing to Rs 770.
SBI 
The sharp sell-off in SBI last Monday resulted in a giant bearish engulfing candle in the daily chart.
The short-term trend in the stock has reversed lower. If it is unable to move above Rs 1,327 next week, then it can decline further to Rs 1,220 or Rs 1,158.
Fresh long positions should be avoided on a decline below Rs 1,200.
Conversely, a move beyond Rs 1,328 will take the stock to Rs 1,390 or Rs 1,475. The point in favour of SBI is that it has managed a close above its 200 day moving average.
Medium-term outlook for the stock stays positive as long as it trades above Rs 1,130. Medium-term target on a break-out above Rs 1,327 would be Rs 1,478 and Rs 1,500.
Maruti Suzuki 
Maruti was unable to move past the resistance at Rs 870 last week and spent it in a narrow band between Rs 810 and Rs 870.
As we have been reiterating, the medium-term trend continues to be up and the stock can fluctuate in the band between Rs 730 and Rs 870 for a few weeks before making an attempt to move higher to the intermediate target of Rs 950. Close below Rs 730 is needed to reverse the positive medium-term view for this stock.
Short-term trend in the stock is sideways and inability to get past the resistance at Rs 870 can result in a decline to Rs 785 or Rs 744. Short-term investors can buy in declines as long as the stock holds above the first support.
Tata Steel 
Tata Steel moved contrary to our expectation, declining gradually to an intra-week low of Rs 253.
Key short-term support for the stock is at Rs 250 and short-term investors can hold their long positions as long as the stock holds above this level.
Short term resistance for the stock is at Rs 283 and Rs 302.
Failure to move above the first resistance would drag the stock price lower to Rs 244 or Rs 229.
We retain a positive medium-term view for the stock as long as it trades above Rs 230. A sideways move between Rs 230 and Rs 300 lasting for a few weeks can be construed as a halt before the stock attempts to break-out higher to Rs 321 or Rs 378.
Reliance 
RIL was extremely volatile in a narrow range between Rs 1,800 and Rs 1,975 and finally closed with a gain of Rs 51. The medium-term trend in the stock continues to be positive and the next e-wave targets for the medium term are Rs 2,020 and Rs 2,236. Fibonacci retracement of the down-move from January 2008 peak gives us the next target at Rs 2,100 and Rs 2,384. An exuberant reaction to the election results can take the stock to the second target.
Short-term trend in the stock is also up. There would be resistance in the zone between Rs 2,000 and Rs 2,020. If this band is crossed, next resistance is at Rs 2,100. Short-term investors can hold the stock with a stop at Rs 1,860.
Thumbs-up for market 
The stock market is sure to give a thumbs-up to the results of the 2009 Lok Sabha elections. Though Indian stocks had been resilient in the weeks preceding the results, there were lurking fears in many quarters that a shaky coalition at the Centre could yet bring reforms to a standstill, worsening the economic contraction.
That such an outcome has been decisively averted would please market participants, both domestic and overseas. The fact that a fortified UPA will form the government is a bonus, as not many expected the ruling alliance to win by such a large and comfortable margin. In its last term, the UPA had to drag its feet on many policy reforms due to pressure from its allies. The going will be easier this time.
Some of the populist policies of the previous UPA did not go down well with the equity market. But it did maintain a tight regulatory environment which ensured that the market functioned efficiently amid the turbulence in 2008. Domestic institutions were largely insulated from global financial woes and the pro-active monetary and fiscal stimuli stemmed the impact of global recession on India; these were well received by the equity market.
The fact that the Left parties would not have a dominant role to play in the current government may also be viewed as a positive by markets, as these parties have been explicit about their 'anti-speculation' stance. They had made it clear in their manifesto that they would increase the Securities Transaction Tax (STT) and reinstate long-term capital gains tax. Investors and traders will, therefore, get a reprieve if the Left's role in the ruling government is whittled down.
Foreign institutional investors will also be benefited with the non-participation of the Left in the Central Government since they were also keen to review double taxation agreement with various countries and close the participatory notes window. Both these measures may also have impacted the portfolio inflows in to the stock market.
Reverse of 2004
The situation now is exactly the reverse of that in 2004. In the last elections, investors expected the ruling NDA government to sweep the elections and there was a panic sell-off when the results turned out to be otherwise. This time around, investors were prepared for the worst — a fractured mandate and a shaky coalition and the result is, the ruling party coming back to power comfortably. A festive rally on Monday morning is in order, given the favourable outcome.
But it needs to be remembered that stock market rebounded sharply on May 18, 2004, the day after the historic crash. The inference is that any reaction to the poll outcome might not be sustainable and investors should think twice before buying in such rallies or selling into such crashes.
FIIs and mutual funds
FII inflows are not likely to be greatly influenced by the outcome of these elections. Overseas fund flow is more a function of the global liquidity and risk appetite among external investors. The equity market pulled back smartly from multi-year lows in March to record 30-40 cent gains.
Risk appetite among global investors has picked up with the recovery in stock prices and signs of a nascent economic recovery. Fund flows into riskier assets, such as emerging markets, picked up over the past month while safe havens such as money market funds and currencies saw outflows.
Since the FII inflows of over $3 billion received in India since this April are more due to the 'India' allocation in global emerging market or BRIC funds and not specifically in to India-dedicated funds, these inflows are not likely to be influenced by the ruling party coming back to power. However hedge funds sitting on the side-lines awaiting the results before entering Indian equities could start investing in the market now.
Domestic mutual funds do not appear to be unduly worried about the Lok Sabha elections anyway. Though they were booking profit in first half of April, they have turned buyers since then. That mutual funds bought about Rs 705 crore in the stock market in May reflects their confidence that the election results would not derail the current rally.
Traders
The trading fraternity has been extremely sceptical of the stock market rally since March. They have been more inclined to sell on every rise to square up at a lower price (short-sell). This strategy has back-fired over and over again in the last two months, helping stock prices move higher. Large accumulation of index put contracts and a high put-call ratio imply that the traders are again betting on a large fall in stock prices after the election results. Given the benign outcome, another bout of short-covering can be expected next week that takes prices higher once more.
The UPA government coming back to power can take Sensex to 13,000. But, as mentioned above, any rally triggered by election results is expected to be short-lived, and after a knee-jerk reaction, the market could start jiving to global tunes once more.
Nifty future to face resistance at higher levels
With the Lok Sabha results decisively favouring the incumbent Government, Nifty future is likely to open on a strong note and meet its immediate resistance level of 3850.
Last week saw the Nifty future swing wildly initially and later close on a better note.
It ended the week at about 3684 points as against its previous week's close of about 3483.
However, as has been the trend in the last few weeks, the Nifty future shed open interest.
Several actively traded stock futures also witnessed a drop in open interest, suggesting that traders were turning cautious.
Follow-up
We had given out two strategies last week. 1) Consider short straddle (selling) using 3600-strike (both call and put); and 2) Short Nifty future with a stop-loss at 3850. While the first strategy would have made only marginal gains for the traders, the latter would have provided ample profit opportunities during the week.
Outlook
With the Lok Sabha results decisively favouring the incumbent Government, Nifty future is likely to open on a strong note and meet its immediate resistance level of 3850.
If Nifty future manages to breach beyond that, its next resistance appears at 4250. But whether the rally from thereon will sustain remains a doubt.
Failure to hold on to at these levels may see the Nifty future fall back to 3550, where it finds major support. So long as it remains above this level, the chances of Nifty reaching higher levels appear bright.
However, a dip below this could weaken it to 3250 levels.
Option monitor
Among the calls, options at 3800 and 4000 strikes saw a sharp accumulation in open interest while among the puts, 3600 and 3400 strikes added healthy open positions. These point at the broader range in which Nifty is likely to move.
Volatility Index
The NSE Volatility index has been off late hitting the 60-point mark quite consistently. But, it ended last week at 49.64 against 57.02 it had recorded the previous week.
Despite the fall in VIX, that is still hovering near the 50-point mark implies that market participants may be expecting higher volatility and so could be accumulating puts either to hedge against their long position or genuinely expecting a fall in the market.
Recommendation
Traders can consider the following strategy.
If Nifty futures opens on a strong note and crosses 3850, traders may be better off not taking any position.
However, if it dips below 3850 or fails to cross the 3850 mark, traders can consider going short on Nifty, keeping that as a stop loss.
In that event, profits can be booked at 3650 and then at 3550.
FII trend
The cumulative FII position as a percentage of the total gross market position in the derivative segment as on May 15 declined to 37.69 per cent. They have been net sellers in recent times, particularly on stock and index futures.
They now hold index futures worth Rs 11,570.93 crore (Rs 12,570.74 crore) and stock futures Rs 16,843.27 crore (Rs 15,493.75 crore).
With respect to index options, FII holding jumped strongly to Rs 31,490.74 crore (Rs 26,543.20 crore).
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 | 15-May-2009 | 2672.13 | 1688.27 | +983.86 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) |
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 15-May-2009 | 1340.6 | 908.13 | +432.47 |
Reading the gaps
In technical analysis, even empty spaces have significance. Such spaces between the price movements where no trade has taken place are called gaps.
Gaps can be seen in charts all time period — hourly, daily, weekly or monthly. They can, however, be observed only on candlestick or bar charts; they cannot be seen online or close-only charts.
Gaps imply highly emotional periods. Most often, they form between a day's close and the next day's opening price. This happens because developments that unfold while the market is closed are absorbed and reflected in the opening price.
While gaps are common in daily charts, they are rare in weekly or monthly charts since a gap can be formed on a weekly chart only between Friday's close and Monday's opening and between a month's closing price and the next month's open on a monthly chart.
Classification and occurence
Gaps can be classified into upward and downward gaps. When the lowest price in a particular trading time period is above the highest level of the previous trading time period, it is known as upward gap.
On the other hand, when the highest price in a particular trading time period is below the lowest price in the previous trading time period is downward gap.
Gaps generally occur in the morning due to overflow of orders. Why do the orders overflow? Reflection of the emotional events that happened after market's close such as news release, earnings reports, order-win, merger or acquisition result in a deluge of orders at a higher or lower level depending on the impact of the development.
Generally, the gaps get filled or closed because market dislikes vacuum. However, some gaps take quite some time to fill, it could be a day or a week or even a month.
Hence, any trading strategies should not be executed on the belief that the gap would be filled or closed in the near feature.
Filling the gaps
Gaps arise repeatedly in the equities markets; but they are rare in the forex market due to its high liquidity and 24-hour trading. On July 8, Amrutanjan announced that it had sold its lands and buildings situated in Tamil Nadu, to LIC for a total consideration of Rs 110 crore. This emotional incident was reflected in the form of an upward gap in the subsequent trading session (Refer chart).
It took almost one month to fill or close the gap. Gaps occurring while the price pattern is in formation are called as common gaps or area gaps. That are usually closed and do not have technical importance.
--
Arvind Parekh
+ 91 98432 32381
