- Supp / Resis 28th June 2010
| Buy / Sell (Jun 25, 2010) | |||||||
| Buy | Sell | Net | |||||
| FII | 1297.86 | 1605.18 | -307.62 | ||||
| DII | 1185.32 | 1631.52 | -446.2 | ||||
 Corporate News Headline | |
| • | Reliance Infra unleashed a public campaign accusing Tata Power of planning to make a profit of Rs. 12 bn at the cost of Mumbaikars, an allegation termed by Tata Power as "malicious" and against the "ethos of competition and consumer interest". (BS) |
| • | Suzlon Energy has received a 48.3-megawatt order from a Chinese wind power producer. (BS) |
| • | Reliance Industries and RNRL signed a revised gas supply agreement, a development that paves the way for government to allocate gas to Anil Ambani group's power plants. (BS) |
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| Economic and Political Headline | |
| • | The government freed up state-subsidised petrol prices and hiked other fuels as high global oil prices and pressure to trim the budget deficit outweighed concerns about the political impact of the measures. The panel said petrol prices would be market driven, rising Rs. 3.50 per litre, while kerosene prices would rise by Rs. 3 a litre. Diesel prices will rise Rs. 2 per litre and will be freed up in the future. Cooking gas prices were raised by Rs. 35 a cylinder. (BS) |
| • | Confidence among US consumers rose in June to the highest level since January 2008, indicating the decline in stock prices prompted by the European debt crisis has failed to weigh on sentiment. The Thomson Reuters/University of Michigan final index of consumer sentiment increased to 76, from 73.6 in May, the group said. (Bloomberg) |
| • | The US economy grew at a 2.7% annual rate in the first quarter, less than previously calculated, reflecting a smaller gain in consumer spending and a bigger trade gap. The revised increase in GDP was smaller than the forecast and compares with a 3% estimate issued last month, figures from the Commerce Department showed. (Bloomberg) |
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Technical momentum indicators currently suggesting correction in Nifty After marking decent move on the very first day of the week Nifty remained highly volatile and choppy for rest of week and traded in narrow range of 100 points in between 5,360-5,260, due to F&O expiry on Thursday of this week. Nifty breached the psychological mark of 5,300 decisively on the very first day of week and managed to sustain above that. Technical momentum indicators are currently suggesting correction in Nifty as most of the indicators has just reversed their directions from bull to bear. RSI (14 Days) has changed its direction from 63.65 and is currently hovering in neutral territory at 56 indicates correction. MACD is also on the verge of giving negative breakout and currently showing maximum divergence. Stochastic Oscillator has also just entered into positive territory from deep positive and crossed mark of 80 from above confirming weakness in Nifty. Nifty is trading above 14 day EWMA, but has closed below 7 day EWMA indicating correction in Nifty in near term. If Nifty manages to breach the 14 day EWMA (5,220) then we could see downside upto 5,100 mark in forthcoming trading sessions. Nifty is currently facing stiff resistance at 5,350-5,360 if this level breached decisively then we could see rally upto 5,450 mark and on the flip side strong support at 5,220 if this level breached then we could see fall upto 5,100 mark. Expecting Nifty to remain range bound in between 5,200 and 5,360 in short term. Nifty is likely to move in tandem with its global counterparts and would remain depended on them for any major breakthrough on either side. However domestic markets factors like today increase in oil prices could hamper the equity market in short term as increase in oil prices could result in higher inflation number. This could force the RBI to raise the key interest rates to curb the inflation implies slowing down of economy growth rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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HPCL (Buy)
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Looking Forward
| Daily Movement of Nifty  Daily Movement of Sensex, Net FIIs & MF investment Weekly return on BSE Sectoral Indices | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| US stocks lower during the week (till Thursday) as pessimism persist following May's historically low new home sales figures and uninspiring economic commentary from the Federal Reserve also seeped into the market. Buying enthusiasm remained subdued amid a lack of encouraging economic data and overhangs from the European debt crisis and the ongoing oil spill in the Gulf of Mexico. Also, weakness came after Fed said financial conditions have become less supportive of economic growth largely as a result of the European debt crisis. The Federal Reserve has left its target for the federal funds rate at a range of zero to 0.25%. Further, market failed to sustain the early Chinese Yuan inspired rally as investors considered the prospect of rising import prices, which could negatively impact bottom lines for US corporations and consequently consumer wallets. Looking ahead to next week, the markets are likely to see movement in reaction to the final reading on first quarter gross domestic product and consumer sentiment. Asian markets were mixed during the week. Though, after making a buoyant start as China's central bank announced plans to loosen the yuan's de-facto peg to the greenback, markets drifted lower in the later part of the week. Commodity stocks came under pressure on concern that the government is extending its tightening measures on commodities to curb overcapacity. Further, weak cues from the US markets also weighed on investors sentiments.However, Hang Seng and SSE Composite managed to end in positive. Meanwhile, inflation in Japan eased 0.9% on year versus forecasts for a 1.1% decline after the 1.2% drop in the previous month. Investors are eyed on the G20 meeting for the positive trigger that could lift the markets. European markets were down during the week. Markets made a buoyant start of the week, continuing the rally from previous week after China's move to allow flexibility in yuan. However, thereafter markets drifted lower led by some weak macroeconomic data. Some profit booking after 9 day rally led the markets to shed some ground. Fall in crude oil prices from one month high weighed on energy shares. Further, downbeat assessment of the U.S. economy by the Federal Reserve weighed on sentiment. Banking and miners were the major decliner during the week. Though, after some pullback markets are hoping to get some breathe back as the Group of 20 will meet to decide on revamping the international financial setup in the aftermath of the global financial crisis. | Weekly return on major Global Indices Data of US and European markets taken from June 17 to June 24, 2010 Data of Asian markets taken from June 18 to June 25, 2010 Weekly Change in the Composites of S&P 500
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| Open Interest in Nifty Future vis-à-vis Nifty  Most Active Contracts  Put-Call Ratio  Volatility Index  FIIs Cumulative trailing 5 day's data
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FIIs & MFs investment in Debt Market
(Source: SEBI) Bond Yield (7.80% CG 2020)
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| INR erased the gains made on People's Bank of China's move to again set its dollar/yuan central parity at 6.8275. The domestic currency ended the week with 0.87% loss against USD and 0.37% loss against Euro. Rupee rose to its highest in more than a month on Monday, after China's move to allow a gradual appreciation of the Yuan lifted major currencies against the dollar. However, rupee fell sharply on Tuesday as USD rebounded sharply against major world currencies as Yuan-induced euphoria faded amid doubts over the overall impact of China's pledge for a more flexible currency. Later, INR continue to lose against the greenback, tracking weak equity markets. Weekly change in INR
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Sensex (17,574.5)
The bear-squeeze did not happen. Instead, the bears wrested control from the bulls before the Sensex could slip past them to a new yearly high. Resurfacing concerns regarding the pace of global economic recovery provided bears with the ammunition to thwart the recovery in stock prices. The Sensex along with its other Asian peers was relatively resilient and managed to end the week 3 points higher.
Indian stocks mainly jived to global tunes though mounting worries on the inflation front and expectation of another policy rate hike contributed to the muted stock price moves last week. Foreign institutional investors were net buyers for most of last week, while domestic institutions kept incessantly selling.
Volumes were high especially on the day of the expiry. High index put call ratio on Friday implies that most of the short positions have been rolled over, that is the bears are expecting the decline in stock prices to continue. July derivative series begins on a very heavy note with open interest above Rs 1 lakh crore, which means more volatility in the month ahead.
Momentum indicators in the daily chart are reversing lower but they continue in the bullish zone denoting that despite the pull-back last week, the uptrend from May 25 low has not ended yet. Weekly oscillators are still tantalisingly poised in neutral zone implying that a break-out is possible in either direction. The doji formation in the weekly candlestick chart further reinforces the ambivalent short-term view.
The Sensex recorded the peak of 17,919 before reversing lower to decline to 17,546 towards the end of the week. The magnitude of this decline is not large enough to reverse the uptrend that is in place since the 15,960 trough. The index could drift downwards to 17,330 or 17,170 in the days ahead. Halt above these levels will imply that the uptrend from May low continues to be in force and can take the index towards 18,000 again.
Strong close below 17,170 is required to send alarm bells ringing since that would denote a propensity to decline to 16,960 or even 16,720.
The medium-term view for the index remains neutral. We stay with the medium-term range between 15,500 and 18,000 for this period. Since the Sensex is reversing lower from the upper end of this trading range, a decline towards 16,700 is quite likely in the ensuing weeks. Weakness in Dow and other global benchmarks also points towards a weak period for equity in the ensuing weeks.
For the week ahead, the Sensex will get support at 17,410 and 17,250. Rebound above these levels will result in a range bound sideways move for rest of the week. Resistances would be at 17,700, 17,790 and 17,920.
Nifty (5,269)
The Nifty too could not make any headway last week and declined to the intra week low of 5,259.9. The short-term trend in the index is down and it can drift lower to 5,247 or 5,213 in the days ahead. However the rally that began from the May 25 low of 4,786 will continue to be in force as long as the index holds above 5,213. Traders can therefore hold their long positions with stop at 5,200. Decline below this level will drag the index to 5,167 or 5,118.
Short-term resistances for the index would be at 5,300, 5,326 and 5,367. Traders can initiate fresh shorts if the index fails to move beyond the second resistance.
We stay with the view that the medium term range for Nifty is between 4,700 and 5,400. Since the index is reversing lower after attempting to test the upper boundary, investors ought to tread carefully at this juncture. Sustained decline can make the index fall to 5,000 over the medium-term.
Global Cues
Global equities reversed lower last week and most benchmarks closed the week in the red. European benchmarks such as the CAC, FTSE, DAX and so on declined sharply indicating that the medium term downtrend that commenced in April is still in motion.
CBOE VIX reversed from the low of 22.8 on Monday to move close to the 30 mark by weekend. These sharp moves in VIX indicate that investors continue to be wary at these levels and even a minor news could set off a decline or an explosive uptrend.
It was a disappointing show by the Dow last week. It reversed from the high of 10,594 on Monday to close 300-points lower. Worse-than-expected numbers on housing, manufacturing and GDP contributed to the decline in this index. Dow is halting at the support at 10,080. If this level is breached, it can decline to 9,757 once again.
GTL Infrastructure (Rs 45.3)
GTL Infrastructure turned red hot last week on the buzz that Reliance Infratel might merge its tower operation with this company. Market is finding it hard to leave 'Reliance' out of the thick of action. The stock shot to the high of Rs 46.3 on Friday, recording a weekly gain of 12 per cent.
This stock has been extremely volatile in the range between Rs 27 and Rs 50 since January 2009. Investors ought to stay wary as the stock is approaching its resistance band in the range between Rs 47 and Rs 50. Some profits can be taken off the table if it fails to penetrate this zone. Next medium-term target for the stock is Rs 55 and the long-term trend will turn positive only if the stock closes above this level.
Key medium-term supports for the stock are at Rs 39 and Rs 35. Fresh purchases should be avoided on a close below the second support.
BPCL (Rs 621.3)
This counter was aflame on Friday on the Government's move to free pricing of petroleum products and rise in retail prices of diesel, petrol, LPG and kerosene. BPCL flared to the intra-day high of Rs 635, up 15 per cent from the previous session's close before giving up some gains.
The stock is in a long-term trading band between Rs 250 and Rs 550 over a six-year period spanning 2003 to 2009. It moved beyond this band in November 2009 and has been oscillating around the upper end of this band since then.
It recorded the peak of Rs 658 this January and momentum generated by Friday's spurt could take the stock towards this peak once more. Short-term investors can book some profit around this region. Target beyond this peak is Rs 774. Stop for medium-term investors can be at Rs 490.
Though the markets witnessed healthy rollovers in the derivatives segment this time around, it seems to have been tilted more towards short positions. This may exert a downward pressure on the index in the near-term. Rollover was also at a discount to spot. While the market may remain within the 5,500-5,200 range for sometime, what with open interest bunched up at 5,500 put and 5,200 call, the short build-up in the 5,300-5,400 strike calls in the current month series suggest that it may take the index a while to scale upwards. Traders can, therefore, consider a bear put strategy on Nifty at strikes 5,400 and 5,300. You can set the spread by buying Nifty June 5,400 put (closed at Rs 173) and selling Nifty June 5,300 put, which closed at Rs 125. The spread will entail an initial cost of Rs 48 a share (or Rs 2,400 per lot).
Risk-reward metric
Note that the bear put would turn profitable only when Nifty decreases in price. For this spread, the maximum profit zone would be hit when the index declines below 5,300 and both options expire in the money. The profit however would be limited to Rs 52 per lot. Maximum loss will occur when the index rises above 5,400. In such a scenario, both options would expire out of money with no value, and so, the entire net debit paid for the spread (Rs 48 per lot) will be lost. The breakeven point for the strategy is at 5,352.
Exit options
Exit the strategy and cut your losses if the index moves decisively past its key resistance at 5,326. Alternately, consider closing the spread if the market provides you with a profitable exit opportunity much before expiry;
Stock Strategy: Shorting GE Shipping may pay-off
GE Shipping (Rs 296): After registering its 52-week high at Rs 345, the stock has been in downward spiral. The outlook for the stock remains negative as long as it stays below Rs 333. It, however, finds an immediate support at Rs 286, a close below which can weaken the stock towards Rs 261, its next major support. The stock appears to be heading towards the immediate support level of Rs 286 presently.
F&O pointers: The GE Shipping futures (market lot: 1,000) closed at a discount at Rs 290.9 against the spot price close of Rs 296. It added 7.5 per cent or 60,000 shares in open interest, suggesting fresh accumulation of short positions. Overall market-wide open interest stood at just four per cent on Friday. The counter witnessed a rollover of about 78 per cent, slightly lower than the three-month average rollover position.
Strategy: Traders can consider initiating short on GE Shipping keeping the stop-loss at Rs 301. If the stock opens on weak note and dips below Rs 291, shift the stop-loss to that level for an initial target of Rs 286. High-risk appetite traders can aim for Rs 261, keeping the stop-loss at Rs 311.
Educomp Solutions (Rs 542.5): The stock has been in a downtrend since October 2009, though in between it did have occasional bouts of marginal pull backs. The outlook for the stock remains negative till it trades below Rs 752. The immediate resistance is pegged at Rs 550, while the supports are at Rs 500 and Rs 471, a close below which could weaken the stock price sharply to Rs 328. The stock seems to be heading towards its immediate support level for now.
F&O pointers: The futures (market lot: 500) closed at a discount (Rs 529) with respect to the spot close of Rs 542.5, indicating the existence of short positions. Rollover to July series stood at 84 per cent. Options are not very active.
Strategy: Traders can consider shorting Educomp Solutions with a stop-loss at Rs 550 for an initial target of Rs 500 and next target of Rs 471. As this stock enjoys high beta, this strategy may best be put to use by high-risk traders only.
Follow-up
Last week, we had advised traders to consider short straddle on Reliance Industries using Rs 1,060 strikes. The strategy ended with reasonable profits.
Reliance Industries (Rs 1,063.2)
RIL moved in line with our expectation, reversing lower in the initial part of the week to achieve the short-term target of Rs 1,050. Friday's bounce however helped the stock erase all the losses and it closed the week 1 per cent higher. Short-term resistances for the stock are at Rs 1,072 and Rs 1,090. Fresh short positions can be initiated on failure to close above the first resistance. Downward target would be at Rs 1,043 and Rs 1,020.
Medium-term trend in the stock is currently down. If the stock continues to struggle to rally above Rs 1,100, it will mean that a decline to Rs 1,000 or Rs 975 could be in the offing.
State Bank of India (Rs 2,300.8)
SBI slid lower in the first four sessions of the week before the sharp cut on Friday resulted in a weekly decline of Rs 82. Sell signal in daily moving average convergence divergence oscillator and 14-day relative strength index declining to 47 implies that the down-trend could sustain in the near-term. The stock could decline to Rs 2,200 or Rs 2,150 in the upcoming sessions. Key short-term resistance stays at Rs 2,400 and fresh long positions are recommended only on a close above it.
Medium-term range for SBI remains between Rs 1,900 and Rs 2,500. As mentioned earlier, since the stock is reversing from the upper end of this range, it can move close to the lower boundary now. The medium-term trend for the stock will turn negative only on a close below Rs 1,900.
Tata Steel (Rs 490)
Tata Steel rose to the peak of Rs 506 on Monday after which it moved sideways in a trading band. Key short-term resistance zone stays between Rs 500 and Rs 510. Once the stock moves above this zone, it can head towards Rs 530 or Rs 550 over the medium-term. Investors can buy the stock in declines with the stop at Rs 482.
Medium-term trend in the stock is currently down and it needs to close above Rs 550 to negate this view.
Infosys Technologies (Rs 2,777.7)
It was a choppy week for the stock in a narrow range between Rs 2,700 and Rs 2,820. Infosys finally ended on a flat note with a star formation in the weekly candlestick chart. The pattern denotes indecision and since it is forming close to the former peak of Rs 2,870, investors ought to be careful with their long positions. Short-term supports for the stock stay at Rs 2,630 and Rs 2,520. Fresh longs are advised only on a close above Rs 2,900.
Pivotals
Reliance Industries (Rs 1,063.2)
RIL moved in line with our expectation, reversing lower in the initial part of the week to achieve the short-term target of Rs 1,050. Friday's bounce however helped the stock erase all the losses and it closed the week 1 per cent higher. Short-term resistances for the stock are at Rs 1,072 and Rs 1,090. Fresh short positions can be initiated on failure to close above the first resistance. Downward target would be at Rs 1,043 and Rs 1,020.
Medium-term trend in the stock is currently down. If the stock continues to struggle to rally above Rs 1,100, it will mean that a decline to Rs 1,000 or Rs 975 could be in the offing.
State Bank of India (Rs 2,300.8)
SBI slid lower in the first four sessions of the week before the sharp cut on Friday resulted in a weekly decline of Rs 82. Sell signal in daily moving average convergence divergence oscillator and 14-day relative strength index declining to 47 implies that the down-trend could sustain in the near-term. The stock could decline to Rs 2,200 or Rs 2,150 in the upcoming sessions. Key short-term resistance stays at Rs 2,400 and fresh long positions are recommended only on a close above it.
Medium-term range for SBI remains between Rs 1,900 and Rs 2,500. As mentioned earlier, since the stock is reversing from the upper end of this range, it can move close to the lower boundary now. The medium-term trend for the stock will turn negative only on a close below Rs 1,900.
Tata Steel (Rs 490)
Tata Steel rose to the peak of Rs 506 on Monday after which it moved sideways in a trading band. Key short-term resistance zone stays between Rs 500 and Rs 510. Once the stock moves above this zone, it can head towards Rs 530 or Rs 550 over the medium-term. Investors can buy the stock in declines with the stop at Rs 482.
Medium-term trend in the stock is currently down and it needs to close above Rs 550 to negate this view.
Infosys Technologies (Rs 2,777.7)
It was a choppy week for the stock in a narrow range between Rs 2,700 and Rs 2,820. Infosys finally ended on a flat note with a star formation in the weekly candlestick chart. The pattern denotes indecision and since it is forming close to the former peak of Rs 2,870, investors ought to be careful with their long positions. Short-term supports for the stock stay at Rs 2,630 and Rs 2,520. Fresh longs are advised only on a close above Rs 2,900.
*Disclosure: I don't have any positions in the above said scrips & NIFTY FUTURES.
Disclaimer: "I do not make any warranties, express or implied, as to results to be obtained from using the information in this e-letter. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report.
Arvind Parekh
+ 91 98432 32381
