- Supp / Resis SPOT / CASH LEVELS 19TH JULY MONDAY 2010
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
*LTP stands for Last Traded Price as on Friday, July 16, 2010 4:04:56 PM | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#1R1 stands for Resistance level 1 @1S1 stands for Support level 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#2R2 stands for Resistance level 2 @2S2 stands for Support level 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#3R3 stands for Resistance level 3 @3S3 stands for Support level 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The levels given above are with respect to previous closing price on the NSE / BSE. |
Market Snapshot
Weekly Open Interest Gainers
Weekly Open Interest Losers
|
Nifty have stiff resistance at 5,440-5,460 while support for Nifty seems at 5,300. MACD is currently moving in positive zone and on the verge of showing negative crossover and likely to breach neutral line from above indicating correction. Nifty is trading above 7 and 14 day EWMA. If Nifty manages to breach the 7 day EWMA (5,335) decisively then we could see downside probably upto 5,300 (14 day EWMA) first and thereafter upto 5,200 mark.
Derivative Outlook Nifty ended on positive note at 5,393.90 marks gaining 0.77% during the week. The Nifty July futures ended at 5,401.05 with a premium of 8 points. If we look at the derivatives data we could see that Nifty future prices ended in the positive territory along with incline in the cost of carry with incline in open interest, this is an indication of long overall long accumulation at lower levels. Nifty may continue to face resistance at higher levels of 5,430 to 5460 whereas on the downside support is seen at 5,300-5,260. Sector-wise Outlook This week, buying is expected in FMCG and Pharma sectors from lower supports of 5,300 levels. Short positions can be accumulated in Banking, Metals, Realty and IT stocks if the Nifty fails to sustain above 5,350 levels |
| Derivative Strategies for the week:
|
 Corporate News Headline | |
| • | Reliance Infrastructure has signed an agreement with NHAI for developing the Rs. 30.00 bn Delhi-Agra highway project. (BS) |
| • | Tata Steel said its Singapore-based subsidiary NatSteel Holdings has sold about 27% stake in Malaysian firm Southern Steel Berhad for USD 72 mn. (BS) |
| • | Sun Pharmaceutical Industries has received the US health regulator's nod to market a generic version of Flomax tamsulosin capsules, used for treating enlarged prostate, in the American market. (BS) |
| | |
| Economic and Political Headline | |
| • | Food inflation will substantially ease in next two weeks, but non-food inflation is accelerating, Kaushik Basu, chief economic adviser at the finance ministry, said. (BS) |
| • | Global demand for long-term US financial assets slowed in May from a month earlier as investors abroad sold stocks and foreign central banks reduced their holdings of Treasury bills. Net buying of long-term equities, notes and bonds totaled USD 35.4 bn for the month, compared with net purchases of USD 81.5 bn in April, the Treasury Department reported. (Bloomberg) |
| • | Confidence among US consumers tumbled in July to the lowest level in a year, heightening the risk of a slowdown in economic growth. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 66.5, the lowest since August. (Bloomberg) |
| US and European markets | |||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||
Investors should, however, keep looking over their shoulders for developments in global markets. The Sensex could have moved beyond the 18,000 impediment had benchmarks such as Dow, S&P 500 or DJ Euro STOXX 50 maintained their uptrends. But the setback these indices suffered on Friday implies that a choppy period awaits global equities in the weeks ahead. If the correction in developed markets gets deeper, global investors could be tempted to pull money out of emerging markets such as India and Indonesia, where they are sitting on substantial profits.
Volumes were good in both cash and derivatives as stock prices moved resolutely higher. Foreign institutional investors were net buyers last week while the domestic institutional investors adopted a more cautious stance and opted to cash out. Open interest has crossed Rs 1,50,000 crore. And what is worrying this time around is that stock futures make up Rs 42,000 crore, implying heightened retail activity.
The index has moved to a two-year high. But the moot question is if it has the strength to move higher from these levels. Traditional tracking methods signal that the trends along both short- and medium-term time-frames are up. This fact is borne out by the oscillators in daily and weekly charts pointing northward. The index is also above its long-term averages.
The uptrend from the 15,960 low is still going strong. The Sensex would have to decline below 17,300 to negate the positive medium-term view and usher in a deeper correction. But the resistance around 18,000 appears hard to surmount just yet and weakness next week could mean a consolidation phase between 17,300 and 18,200 for a few more weeks before the index makes a decisive move in either direction.
The intermediate-term trend in the index is still sideways. The slightly higher peaks and troughs since last November do impart a positive bias to this up-move but investors need to get wary every time the index nears the upper boundary of its intermediate term range between 15,500 and 18,000. If other global markets go into a deeper decline, the Sensex could head towards its base at 15,500 again.
The index could start the week on the back-foot due to the reversal in US equities on Friday. Immediate supports are 17,690 and 17,395. Short-term investors can hold their purchases as long as the Sensex trades above 17,300. Subsequent supports are 17,053 and 16,795. Resistances for the week would be at 18,167 and 18,323.
Nifty (5,393.9)
The Nifty recorded the intra-week high of 5,453 before reversing lower on Wednesday. The short-term trend in the index is up and supports for this time-frame are at 5,363 and 5,312. Traders can hold their long positions as long as the index trades above the second support. The index could face resistance at the recent high of 5,453 in the days ahead. Target above is 5,500.
But caution is advised from a medium-term perspective since the index is near the upper boundary of its medium term range. Reversal from here would pull it lower to at least 5,200 over the ensuing weeks. Traders should therefore close their long positions on a decline below 5,300.
Global CuesDow moved to the peak of 10,408 before reversing lower on Wednesday. That the index was unable to sustain above its 200-day moving average is a cause for worry.
The lower peaks and troughs formed since the April 26 peak also imply that the medium term downtrend is far from complete.
Immediate support for Dow is 9,950. Breach of this level will take the index to 9,614. Close above 10,650 is required to negate the bearish medium term view.
The pattern in S&P 500 is more worrisome. This index has retraced 38.2 per cent of its prior up-move and is once again moving lower. If this is the third wave from the April peak, the index could even decline to 970.
We suggest traders with a high-risk appetite to consider a covered call on Nifty. You can set this by buying current month Nifty futures and selling July Nifty 5,500 call (closed at Rs 21). While the long position in the index futures would turn profitable as the index trends up, the short leg of the call option would provide you with limited protection against a decline. The short option would also help generate additional income.
However, do note that the strategy would require a high margin commitment from your side. You can time the purchase of the index futures and short call depending on the market opening on Monday.
Exit strategy
In case the market does trend up as expected, you can consider closing the long index futures position at 5,453 levels. The short call option can also be closed before that depending on margin requirements. As for the downside, keep a strict stop-loss depending on your ability to stomach loss and meet margin requirements, and follow it diligently. Cut the long position on hitting the stop-loss; the short call be left open in that case as it would then be in the money.
However, note that selling options is a limited profit transaction. Your maximum profit from the trade would be limited to the initial premium inflow only.
Alternately, traders with a higher-risk appetite can consider selling Nifty 5,300 put (closed at Rs 32) along with the long index future position. While this would be in line with the technical outlook that points to a strong support at 5,300, note that this strategy would require higher margin commitments and constant monitoring.
GAIL India: (Rs 440.8): The stock has been moving in a one-way direction – upwards – in the last five months. However, it recently met with resistance after registering its all-time high at Rs 517.
It appears the stock could face some downward pressure going forward. It finds an immediate resistance at Rs 475 and support at Rs 432. A close below 432 could weaken GAIL India to Rs 411. But as long as it stays above Rs 385, the long-term outlook for the stock appears positive. A close above Rs 475 would however strengthen outlook for GAIL India. That said there is a high possibility of the crucial support being breached this time around. In that event, the fall could be severe.
F&O pointers: The derivative trading presents negative cues for the stock. The stock futures (market lot: 500) closed at Rs 443.1, at a slight premium to the spot. It however accumulated more short positions in open interest. The accumulation of shorts has been quite steady in the last week. Overall, market-wide open interest stood at just 5 per cent.
Option trading suggests negative bias, as GAIL India 460 and 440 calls witnessed strong accumulation of long positions. This indicates the emergence of call writers. On the other hand, the 440 put saw heavy unwinding of open interest.
Strategy: Traders can consider initiating short on GAIL India futures keeping the stop-loss at Rs 461, for an initial target of Rs 410 and then Rs 385. If the stock opens on a weak note, move the stop-loss lower to Rs 440. Traders can also consider writing 440 call, which closed on Friday at Rs 10.90. Note that this strategy is very risky, as it involves higher margin commitment. Besides, the profit would be limited to the premium earned.
Follow-up: Last week, we had advised traders to go long on Hindalco. Though Hindalco futures provided some profit opportunities, it did not hit our recommended targets. We had also advised traders to consider going long on DLF futures or buying DLF 300 call. Both these positions ended with handsome profits.
The stock posted only marginal gains of Rs 7 last week. It therefore continues to trade in a narrow band between Rs 1,050 and Rs 1,100 since June 14. The daily volumes continue to decline. After encountering resistance near our first resistance level of Rs 1,075, the stock started to decline. The near-term resistances for the stock are pegged at Rs 1,075, Rs 1,090, and Rs 1,100.
We reaffirm our prior stance that fresh short position can be initiated on a decline below Rs 1,050, while maintaining stop-loss at Rs 1075 levels. Targets for the stock would be Rs 1020 and Rs 1000.
The stock is in a medium-term downtrend. Inability to move beyond Rs 1100 would imply that a decline to Rs 1000 or Rs 975 is possible.
However, a move above Rs 1100 will push RIL higher to Rs 1,130 or Rs 1,150 in the medium-term.
State Bank of India (Rs 2,441.1)
The stock moved in line with our expectation last week and achieved our initial price target of Rs 2,460. It climbed Rs 72 or 3 per cent during the week, breaching its immediate key resistance level of Rs 2,400. This level now has turned into a significant support for the stock. Short-term traders can hold their long positions as long as the stock trades above Rs 2,400, with target of Rs 2,500. On the other hand, a decline below this support will drag the stock lower to Rs 2,375 or to Rs 2,350. Key support below Rs 2,350 is at Rs 2,300.
The stock may continue to consolidate sideways in the medium term in the broad band between Rs 1,900 and Rs 2,500. An emphatic upward break through can however lift the stock higher to Rs 2,650.
Tata Steel (Rs 509.2)
Though the stock moved up by added Rs 13 in the week, it met with key resistance at Rs 510. We now revise our immediate resistance to Rs 520 from Rs 510. Strong close above Rs 520 can take the stock ahead to Rs 530 or Rs 540 in the upcoming week. Short-term traders can initiate long positions if the stock surpasses Rs 520 with stop at Rs 500. Near-term supports are at Rs 490, Rs 470, and Rs 450.
The medium-term trend is down for the stock. Only an emphatic move beyond Rs 550 would negate that.
Infosys Technologies (Rs 2,778.3)
After recording an all-time high of Rs 2,911.5 on July 12, the stock tumbled in the next trading session forming an evening star candlestick pattern, which is a bearish reversal pattern. The stock declined Rs 93 or 3 per cent, driven by the selling interest bunched up due to the Q1 results that were below analysts' expectations.
It however has been on a medium-term uptrend from its February low of Rs 2,333. Investors with medium-term perspective can stay invested with a stop loss at Rs 2,600. The immediate resistances are pegged at Rs 2,800 and Rs 2,868. Supports for the week are at Rs 2,725 and Rs 2,670. —
In early sessions of last week, Axis Bank surged in anticipation of first quarter results. This up-move prolonged following its Q1 results announced on July 15, which were better-than expectations. The stock advanced 2.4 per cent with good volume on that session. For the week, it surged 7 per cent, conclusively penetrating the key resistance at Rs 1300.
The stock is on an uptrend in all time frames and is forming fresh lifetime highs. The immediate resistance is at Rs 1,400, which is also a significant psychological resistance for the stock. Short-term traders can book profits if the stock reverses from the current levels or from its immediate resistance. Short-term stop loss for the stock can be at Rs 1,310. Medium-term investors can consider holding the stock with stop-loss at Rs 1,180 level. A decline below this level would signal that the stock is heading for a medium-term correction.
UTV Software Comm (Rs 464.1)The stock started to rally on July 14 in anticipation of better Q1 results. It zoomed 8 per cent on Friday after its excellent first quarter results that beat analysts' expectations.
The volume traded in the last three trading sessions was extra-ordinary. The stock gained 14 per cent for the week. It has decisively penetrated its 50 and 200-day averages during this rally.
It now has a near-term resistance at Rs 470. Failure to breach this resistance in the forthcoming week can result in a minor pullback to Rs 450 or 440. Short-term traders can hold the stock with stop-loss at Rs 435. Strong weekly close above Rs 470 can take the stock higher to Rs 495 or to its next target of Rs 520 in the medium-term. Medium-term stop loss for the stock can be at Rs 415.
It is important to understand why you are saving money.
Keep a list of the usual monthly expenses to track each rupee that is spent.
Saving money is one of those tasks that is easier said than done. How much money will you save, how will you do it, and how can you make sure it stays there? Here are five questions to ask yourself to help you get financially fit and achieve monetary success.
What are your financial goals?
Understanding why you want to save money is a fantastic way to start. With your vision in mind it will be easier to make those tradeoffs at the till. (Is that extra pair of shoes really worth it?) Create milestones to make the path look easier and track your progress regularly to know if you need to make any adjustments to get to your goal.
Where's your money going?
Many of us have no idea where we spend our money. In fact, as long as there is enough in the bank to cover the expenses we're fine. Unfortunately, that's not a great way to ensure you are making the most of your wages.
Understanding where you spend is a key step in financial fitness as it helps you determine the percentage of your money that is being spent on necessities and how much is being spent on the non-essentials.
Once you know where your money is going, you can start thinking about what changes you need to make in order to get to your desired financial state.
How much can you spend and where?
Budget. There are few words that are less exciting to hear.
We all know how difficult it is to create a budget and it's often even harder to stick to it. But now that you know what you are saving for and you know where your money goes, it will be easier to set a budget that works for your lifestyle.
Create a list of things you are likely to spend on each month and make sure to track each rupee you spend. Give it a shot for three to four months and before you know it, you're on your way.
Are you sticking to the plan?
Tracking your expenses is a key factor in making your budget work. Keep a tab on how much you are spending across each of your budget categories and see which ones you are overspending in.
Understand why you are overspending and make adjustments accordingly. Revisit your expenses often to be sure you are on track and don't forget to focus on the goal.
Are you rewarding yourself?
It's not an easy path towards financial fitness. It requires a lot of discipline and rigor. Don't forget to reward strong performance. Every milestone you reach means a small success, so treat yourself along the way (within budget, of course!).
This will help you keep your motivation levels up and makes the exercise a little more fun.
We hope that these simple tips do help you in your march towards financial fitness.
Manager selection is important for institutional investors. This refers to the professional expertise offered by investment consulting firms to select portfolio managers who can optimally manage assets for the institutional investors. We believe that manager selection plays an important role for individual investors as well.
Manager selection
Plan sponsors typically hire investment consulting firms to help them select portfolio managers. Suppose a pension fund (plan sponsor) has to invest $ 50 billion in various asset classes including equity and bonds. Further suppose that the pension fund proposes to invest $ 15 billion in equity, spread across three investment styles — large-cap value, mid-cap growth and small-cap blend. The investment consulting firm's mandate would be to select portfolio managers in each style universe.
Suffice it to know that the process is very rigorous. It involves three-steps — performance measurement, performance attribution and performance appraisal. Take the large-cap value universe. The investment consulting firm will first measure the performance of all large-cap value managers. Next, the firm will compare each manager's performance with the large-cap value index.
The performance attribution analysis helps in explaining the factors that helped the portfolio managers generate returns in excess of the benchmark index. Suppose a large-cap value manager generated 16 per cent return while the large-cap value index generated only 10 per cent. The consulting firm will seek reasons as to how the portfolio manager was able to generate the excess return.
Finally, performance appraisal refers to a process where the consulting firm asks the question: Was the excess return due to luck or skill? Can the portfolio manager generate excess returns in the future as well? If the answer is in the affirmative, the investment consulting firm will recommend that the pension fund invest in the portfolio manager.
The question is: How is this three-step process relevant to individual investors?
Fund selection
Consider an individual investor who wants to take exposure to mid-cap stocks. She has a suite of funds to select from, thanks to the proliferation of funds and fund complexes in the country. The problem is more severe when an individual investor wants to buy diversified funds. How should an investor choose such a fund?
Individuals typically use personal finance Web sites that ranks funds according to their past performance; investors tend to select a fund that has been a top-performer in the last three years and five years.
The point is that past is not an indicator for the future. This does not mean past performance is not a useful measure to forecast future alpha. But buying a fund based only on its past performance may not always help the investor; for the fund may just as well perform poorly in the future.
Consider the evidence. The top-performing diversified fund over a five-year period lagged the leaders in its peer universe over a ten-year period. The phenomenon is no different for funds in other style universe such as mid-caps.
This is not all. The top-performing diversified fund over a five-year period returned 28 per cent while the bottom in the list returned 0.50 per cent; even the Nifty index returned 20 per cent during the same period. This suggests that a wrong selection of fund could lead to negative alpha returns. Both these factors suggest that fund selection goes beyond mere ranking of fund returns.
Conclusion
Individual investors should strive to reduce the error of choosing an active manager who has generated excess returns through luck; for luck could well run out in the future. This is possible if investors engage in manager selection as institutional investors do. Such a process would increase the possibility of the investors achieving their stated investment objectives, through optimal passive and active exposure.
Overbought: A technical analysis term for a market in which more and stronger buying has occurred than justified by fundamentals.
Oversold: A technical analysis term for a market in which more and stronger selling has occurred than the fundamentals justify. Oversold happens when commodity prices have declined too steeply and quickly.
Pivot points: It is defined as the average of the high, low and settlement price, and is plotted as the green line across the chart. A resistance line is plotted above the pivot point and is defined as twice the pivot point minus the low price. The support line is plotted below the pivot point and is defined as twice the pivot point minus the high price. Pivot points are used primarily as support and resistance levels with the pivot point the best support resistance level.
Price patterns: These are formations that appear on commodity charts which have shown to have a certain degree of predictive value. Some of the most common patterns include: Head & Shoulders (bearish), Inverse Head & Shoulders (bullish), Double Top (bearish), Double Bottom (bullish), Triangles, Flags and Pennants (can be bullish or bearish depending on the prevailing trend).
Resistance: The price a stock can trade at, but not go higher than over a period of time. It is a level where a security's price stops rising and moves sideways or downward. It indicates an abundance of supply. Because of this, the stock may have difficulty rising above this level.
Stop loss order: An order placed to sell a security when it reaches a certain price. A stop loss order is designed to limit an investor's loss on a security position.
Stop and reverse: A stop that, when hit, is a signal to close the current position and open an opposite position. A trader holding a long position would sell that position and then go short on the same security.
Short covering: Purchasing securities to close an open short position. This is done by buying the same type and number of securities that were sold short. Most often, traders cover their shorts whenever they speculate that the securities will rise.
Support: It is the place on a chart where the buying of futures contracts is sufficient to halt a price decline. In other words, it is a price level at which declining prices stop falling and move sideways or upward. It is a price level where there is sufficient demand to stop the price from falling.
Volume spike: An unusually large volume, graphed on a bar chart as a spike. To locate volume spikes, you need to compare a single day's volume to average volume. If one day's volume is two to three times the average volume, it will appear as a spike. Unusually large volume often foreshadows a major change in price trend.
| Buy / Sell (Jul 16, 2010) | |||||||
| Buy | Sell | Net | |||||
| DII | 1373.89 | 1655.81 | - 281.92 | ||||
| FII | 2803.6 | 2127.16 | + 676.44 | ||||
Arvind Parekh
+ 91 98432 32381
