This is list of 10 strong futures:
Nifty is in Up Trend.
 | 4568.55 | ( 0.99 %) | 44.80 |  |
| 1 | 2 | 3 | ||
| Resistance | 4596.58 | 4624.62 | 4670.48 | |
| Support | 4522.68 | 4476.82 | 4448.78 | |
 | 15378.96 | ( 0.97 %) | 147.92 | | |
| 1 | 2 | 3 | |||
| Resistance | 15475.54 | 15572.12 | 15725.63 | ||
| Support | 15225.45 | 15071.94 | 14975.36 | ||
Sensex took a well-earned break last week; meandering sideways to close with 4 per cent gain. 'Better than expected earnings' was the theme that took stock prices higher in India and elsewhere. Next week promises to be an exciting one as the long-drawn July series in derivative segment rolls to a close against the back-drop of continuing corporate earnings announcements and the Reserve Bank of India's monetary policy review.
High decibel action was already noticeable in the derivative segment last week with turnover hitting the roof in the last three sessions. Open interest is nudging Rs 95,000 crore and high Nifty put call ratio indicates the possibility of few short-covering induced rallies next week as well. Foreign institutional investors, however, were quiet last week.
Momentum indicators in the daily chart are rising in the positive zone that shows strength from a short-term angle. The 10-month rate of change oscillator has moved above the 0 line for the first time since June 2008.
The 14-month relative strength index is also at 57, implying faint signs of a long-term reversal.
The short-term trend in Sensex is up and the index closed the week on a strong note. But it has not yet recorded a strong close beyond the previous peak at 15,600. So our quandary regarding the medium-term trajectory of the Sensex remains unresolved. A reversal from the zone between 15,600 and 15,800 can result in a decline towards 13,000 again as the index forms a broad trading range between 13,000 and 16,000 for few more months.
While close below 13,300 is needed to make the medium-term outlook negative, weekly close above 16,200 is needed to start a bull rampage to 18k.
But wave counts in Dow and European indices show that the rally from March lows could terminate over the next two weeks. In such a scenario, it is difficult to imagine the Sensex thundering past 16,000 just yet.
Heightened volatility is expected in the week ahead as the churn in derivatives makes cash market swing wildly too. A tottering start can see the Sensex taking support at 14,577 or 14,058. If the first support holds, it will imply that the index will have a shy at 15,546 or 15,880 shortly. However, a close below the second support will mean an impending decline to 13,200 again.
Nifty (4,568.5)
Nifty too moved sideways with a positive bias last week before closing 194 points higher. The index is nearing the key resistance zone around 4,700.
A downward reversal from here can drag Nifty down to 3,900 again as the index moves between 3,900 and 4,700 for a few more months. Sharp rally above 4,700 will take Nifty to the next intermediate target at 4,900. Conversely, the medium-term view will turn negative on a close below 3,900.
For the week ahead, Nifty will find support at 4,327 and 4,170. Halt above the first support will be the apt place for initiating fresh long positions by traders.
However, longs are not recommended on a close below 4,170. Upper targets for the week are 4,606, 4,705 and 4,746.
Global CuesIt was a strong week for global equities. Though it was not as spectacular as the previous week, most indices built on the gains and closed 2 to 5 per cent higher. CBOE VIX closed 5 per cent lower at 23 indicating that investors are veering towards the view that the current rally can prolong. This index, however, needs to decline to sub-20 level to indicate investor mood akin to that prevalent between 2004 and mid-2007.
The Dow closed 349 points higher to close at 9,093. The break-out beyond 8,878 implies that the index is in a hurry to complete the third leg of it up-move from March lows that has the first target of 9,575.
Since 38.2 per cent retracement of the down-move from October 2007 highs also occurs around that level, the Dow could halt there. Immediate targets for the S&P 500 are 1020 and 1045.
A medium-term correction can commence from these levels.
European equity markets had a strong run last week. DJ EURO STOXX 50 closed above its June peak with 4.5 per cent gain. Some Asian indices such as Hang Seng, Jakarta Composite Index and Seoul Composite broke away from their June highs to a form a fresh 2009 peak.
Reliance (Rs 2,013.7)
The rally in the early part of the week helped RIL close with weekly gain of Rs 80 though it was grappling with the resistance around Rs 2,070 in the later part of the week. The stock is poised at key short-term resistance and a weak start to the week can result in a decline to Rs 1,860 or Rs 1,718 in the near-term. If market finds something to cheer about in the first quarter earnings declared late Friday, a rally to Rs 2,125 and Rs 2,200.
We retain a circumspect medium-term outlook for RIL. Inability to move above Rs 2,200 will result in the resumption of medium-term down-trend that can pull RIL lower to Rs 1,530 over the medium-term. Weekly close above Rs 2,200 is needed to mitigate the bearish medium term view.
State Bank of India (Rs 1,698.5)
SBI vacillated between Rs 1,650 and Rs 1,750 last week that resulted in the formation of a spinning top candlestick in the weekly chart. This pattern reflects the indecisive short-term view. Short-term resistances for the stock are at Rs 1,730 and Rs 1,780. Reversal below these levels will result in the resumption of the medium-term down-trend that is in motion since June 3. The stock can then move down to Rs 1,490 or Rs 1,410.
Fresh long positions are advised only on a close above Rs 1,780. Traders can initiate fresh shorts on a decline below Rs 1,660. Next support for the stock is at Rs 1,610.
Tata Steel (Rs 439.9)
The 6 per cent gain recorded by Tata Steel on Friday has taken the stock to its short-term resistance at Rs 435. If the stock sustains above this level next week, then it can rally to Rs 461 or even Rs 496 in the short-term. Short-term investors can hold the stock with a stop at Rs 397. Subsequent supports are at Rs 373 and Rs 330.
As explained earlier, Tata Steel is reversing higher from an important support at Rs 330. If the medium term up-trend has resumed, then the stock can move higher to Rs 550 over the medium-term.
Infosys (Rs 2,003.3)
The sharp rally in the first two sessions helped Infosys close with hefty 7 per cent weekly gain. The stock has reached the short-term target zone between Rs 1,900 and Rs 2,000 indicated in this column last week. It needs to be seen if it can sustain above Rs 2,000 over next week. An emphatic weekly close above this level will mean that the stock can rally towards its former peak of Rs 2,439 over the medium-term.
Short-term supports for the stock are Rs 1,877 and Rs 1,784. Traders can buy in declines with a stop at Rs 1,780. Short-term targets are Rs 2,114 and Rs 2,140.
ONGC (Rs 1,126.4)
ONGC too moved higher to an intra-week peak of Rs 1,149. As written earlier, the medium-term view will remain positive as long as this stock holds above Rs 990. It is currently consolidating in the band between Rs 970 and Rs 1,200. Fresh positions are advised only on a break beyond either boundary.
Maruti Suzuki (Rs 1,377.8)
MSL has been on a tear over the last three weeks; gaining a whopping 30 per cent in this period. The stock has surged past the previous all-time high of Rs 1,252 and this level will now turn in to a key support that is investors can hold the stock as long as it sustains above this level. Medium-term targets for this move are Rs 1,422 and then Rs 1,687.
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 | 24-Jul-2009 | 3061.7 | 2398.68 | 663.02 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 24-Jul-2009 | 1302.52 | 1509.07 | -206.55 |
Positive bias persists in Nifty future
Strong global cues coupled with relentless buying by foreign institutional investors helped the Nifty future maintain its bullish momentum throughout last week. The Nifty July future closed at 4,575.45 points, gaining 4.5 per cent over its previous week's close. It also maintained its premium over the Nifty spot close, which ended the week at 4,568.55 points. However, the gains were not accompanied by a rise in open interest. As against 2.14 crore shares in open interest the week before, it fell to 2.04 crore shares last week. Also Nifty futures saw a rollover of about 26 per cent, which is slightly on the lower side.
Follow-up
We had presented two strategies — going long on Nifty futures and short-straddle strategy using 4,400-strike. The first strategy achieved our first target of 4,550; the second one is currently in the money.
Outlook
The Nifty future appears at a critical point. It is now just a shade away from crucial resistance zone of 4,585. If the current rally sustains and manages to breach 4,650 and 4,835 levels with higher volume, it can take Nifty to 5,200 levels. On the downside, only a dip below 4,250 can break the bull momentum. In that event, the key support levels would be 4,065, 3,900 and 3,650.
While the coming week, being a settlement week may see heightened intra-day volatility; it is unlikely to see any drastic fall as poor rollover figures coupled with drop in open interest (July series) indicate. Overall, the bullish sentiment is likely rule and that is despite Reliance Industries' disappointing financial performance. Having said that, we reiterate that a fall, if any could be violent and severe and therefore advise caution to traders.
Option monitor
With the continuous surge in Nifty, accumulation is shifting to higher strikes such as 4,600 and 4,700, while lower strikes are witnessing profit booking. On the other hand, puts of various strikes have been witnessing strong accumulation indicating that writers may be convinced about the market holding its ground. Even the August 4,400 and 4,500 puts witnessed steady accumulation reflecting put writers' confidence. Accumulation in 4,500-4,800 range, in both puts and calls, suggests that the Nifty could move in this range for some time.
Volatility index
Volatility index maintained a flat trend. It closed the week at 36.47 against the previous week's close of 35.89. However, intra-day trading sessions saw the VIX move past the 40-point mark, suggesting that there still may be some traders adopting a cautious stance.
Recommendation
Traders can consider the following two strategies.
1) Consider going long on Nifty future keeping the stop-loss at 4,450. If the Nifty future opens on a strong note, then adjust the stop loss suitably so as to protect profit. Traders can exit from this strategy at 4,635 and 4,800 levels.
2) Traders can also consider short-straddle strategy using 4,500-strike using August month contracts. The maximum profit is the amount of premium collected by writing the options. The premium of Nifty 4,500 August call stood at Rs 237.4 while that of put at Rs 156.1. The short-straddle is a risky strategy as one believes that a stock's price will not move up or down significantly.
FII trend
The cumulative FII positions as a percentage of the total gross market position on the derivative segment as on July 23 remained flat at 31.88 per cent (31.87 per cent). They indulged in alternate bout of buying and selling last week. FIIs increased their index futures holding to Rs 11,075.76 crore (Rs 8,490.59 crore) and stock futures to Rs 21,996.8 crore. Their index options holding also surged to Rs 27,845.26 crore (Rs 25,237.23 crore).
Market Outlook
Avoid chasing the next big idea
The bounce from the lows of March was led by large-cap stocks followed by a more pronounced bounce in mid- and small-cap stocks. Real estate, infrastructure and financial services have been at the forefront. Should investors seek one or two big ideas in terms of the cap curve or sectors to try and catch the next upward move in the market (whenever it takes place)? With many-an-investor having a missed-out mindset, it is quite possible to think on such lines. The temptation will also be there especially since memories of 2003-2007 are still fresh despite the mauling of 2008. There is the possibility that such an approach will only lead to higher risks in a portfolio without commensurate returns. There is no way of telling whether this approach will even deliver. Remember that moving from one big idea to another also results in costs that will definitely show up by way of a cut in returns over the long term.
Take a look at risk, too: Investors should not be consumed just by the absolute returns. To bring risk dimension in, just divide these returns by a simple measure such as standard deviation of daily returns. Then compare the numbers for different options– absolute returns and risk-adjusted returns. Your investment preferences could suddenly appear as - not so attractive. The differential over the broad market would be significantly lower and this tells us that taking too much risk with just one or two spaces in the equity market is not worth the while. Why? In a downturn in equity prices, the parts of the market with higher standard deviation of daily returns will inevitably take a more pronounced pounding. Important to remember & not forget 2008: To ensure that such aggressive investment approaches are given the short shrift at the initial stage itself, it would help if the mauling of 2008 rather than the exuberance of 2003-2007 is at the top of the pecking order in investors' mind space rather than the exuberance of 2003-2007. Just pin up a sheet of how different parts of the market f ared in 2008.
Good, old-fashioned approach is appropriate: This is what should drive an investment decision. This means a sizeable allocation to fixed-income. For the equity part of the portfolio, irrespective of a person's background, large-cap stocks/pure large-cap funds should be the core. Depending on individual preferences, the allocation to this space could be between 60 per cent-85 per cent. Investors with higher risk appetites could consider adding a mid-cap dimension through dedicated funds with a track record to the extent of about 15 per cent-25 per cent of a portfolio. An allocation of 15 per cent to themes that are likely to drive growth in India over the next five-to-ten years could be considered by investors who wish to take higher risks.
Early signs of recovery…
The fiscal and monetary stimulus provided to the economy since October 2008 seems to have trickled down into the real economy. GDP growth of 5.8 per cent YOY in Q4 was better than expectations. India's industrial production rose by 1.4 per cent YOY in April, rebounding after three declines in four months. Manufacturing sputtered but consumer durables jumped 16.9 per cent. The six core industries grew by 2.8 per cent YOY in May 2009 on back of higher production in cement, coal and electricity. This trend gives confidence of the improved economic condition. Meanwhile while the WPI dropped into 'deflation' territory, the CPI still remains in double digits. This makes monetary impetus difficult, almost putting the entire onus of generating growth on fiscal policy.
India has superior growth forecasts and is comparatively better insulated than peers from global economy. After recent rally Indian stock market is now trading at close to its historic PE multiples and we believe that it is now fairly valued on an overall basis. The focus from here is on bottoms up stock selection particularly capturing opportunities in mid cap companies. We believe that worst in the corporate earnings cycle is behind us and with improvement in macro (environment) and extremely accommodating liquidity environment chances of a meaningful downside is limited unless there is another global shock or growth is lower than expectations.
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Arvind Parekh
+ 91 98432 32381
