Indian equity markets in strong resistance zone, fall likely - 01st June 2010

As we discussed yesterday, Indian Stock Markets remained in a range-bound session throughout the day, albeit it closed the day with a positive bias. Provisional data released by exchanges also gave a positive cue as FIIs have been net buyers by around 600 Crores during the day, while DIIs remained almost unbiased with net sell of around 70 Crores.

But traders need to be cautious at the current levels. If we closely analyze the charts for this year, Nifty has has been hovering around 200 days moving average, but trading below 30 days moving average. RSI has also moved above 50 (closing on over-bought zone) and Awesome Oscillator indicator is also giving negative signals.

Cumulatively, traders can adopt "Sell on Rise" for next few trading sessions. One may sell Nifty June Futures in 5060-5080 range with stop-loss maintained at 5115 and target price of 4980.

Stock specific, one may adopt pair trade by buying Maruti Suzuki futures and selling Hero Honda Futures. Maruti Suzuki share, after sliding in last few months, is trying to build base in 1170-1200 range and has bounced back twice from those levels. Hero Honda on the other side has reached strong resistance zone of 1950-2000 range. One may book the profit / loss in the pair trade under the following cases:

1) Maruti touches 1325 on the upside or 1150 on the downside. (Current Market Price - 1240, lot size - 200)

2) Hero Honda touches 1830 on the downside or 2030 on the upside ( Current Market Price - 1940, lot size - 200).

Wishing you a great trading day tomorrow!!!

Indian Stock Markets lack direction as mixture of positive and negative cues emerge - 31st May 2010

Indian Stock Markets had a good trading session on Friday. After taking positive cues from US markets overnight, benchmark indices had a gap up opening. The market consolidate throughout the day then and finally closed the day at the crucial levels. Nifty is sitting right at the top of its crucial resistance level of 5066 where it is likely to face a stiff resistance, especially in the backdrop of weak US markets and downgrading of Spain sovereign debt ratings.

Provisional data though for FIIs have given a positive cue. FIIs after being net sellers for last few days have finally become net buyers on Friday. As per provisional data released by exchanges, FIIs were net buyers by around 400 crores while Domestic Institutional Investors (DII) have been net buyers by around 350 Crores.

Stock specific, commodities space has done really well. Sterlite Industries recommended on 24th May has closed above its target price of 680. Maruti is also looking good and now making a nice support level in 1150-1200 price range.

One thing which is worth mentioning is the discount in Nifty Futures (-30 pts) which is quite significant. Albeit, the provisional data for FIIs indicate a different picture all around as it indicates a net buying of about 900 Crores in Index Futures. Thus, it seems that domestic institutions and traders are bearish about the markets in the near term while FIIs are anticipating rebound in Indian equity markets.

Technically, Nifty is now standing at the crucial resistance range of 5070-5105. We need to have a closer look at the trading range in next 3-4 days. For Nifty June, 4970- 5000 range is a strong support level. Tomorrow markets are likely to open weak and Nifty may have a gap down opening by 1-1.5% which will directly take Nifty to this support zone. In such a scenario, one may buy Nifty June futures with Stop-loss of 4940 and target price of 5040. Similarly on the upside, one may sell Nifty June Futures in the range of 5060-5080 with Stop-loss of 5115 and target price of 4980. Traders are advised not to take any position in the range between 5000-5050 as markets can take either direction in such case.

Options traders may opt for Bull spread by buying 5000 Nifty Call and Selling 5100 Call and 5300 Call. The strategy can give you gains if markets stay above 5000 or will lead to limited / no loss if Nifty stays below 5000. Though in this case one may ensure to square-off the position if Nifty goes above 5360 levels.

Wishing you a great trading day tomorrow!!!

From Support zone, Indian stock markets head to Resistance Zone - 28th May 2010

As cricketing experts say that "T20-T20 match is the game of momentum. The team that picks up the momentum is likely to win the match.". The analogy can be seen in stock markets as well. Two days back when markets were correcting, every expert on TV talked about further downtrend in the market. Various broking houses had suggested further fall of 10-15% in the markets. Now when markets have made a strong comeback, these voices have been toned down and few have now changed their stances, citing robust Indian economy as evergreen excuse :)

Though fundamentally, nothing much has changed for the equity markets. Indian economy will surely feel the heat of a slowdown in European economy. We also need to take care of infation levels which are too high, thus, probaibility of an Interest rate hike is high. The stocks are trading at high valuations which limit the further upside in the markets.

Technically too we are entering into strong resistance zone that starts from 5070 to 5300. In this resistance zone, there are several levels that will be difficult to break and hence, major upside from the current levels will surely be a slow and tedious task for the markets.

US financial markets have closed with 3% upside overnight and this will surely have a hangover effect on the Asian bourses. In India, we might see a gap-up opening after which we might see some consolidation happening in 5030-5070 levels (for Nifty). The first level of resistance can come in 5070-5105 levels. Once this is breached, the next level to watch out for is 5170-5200 which seems a big resistance zone.

Thus traders can adopt "Sell on Rise" strategy till Nifty breaches 5200 levels on the upside. On the downside, Nifty may find a support at 4930-4950. If this level is breached, then we might see markets heading to 4800 levels again.

June series are expected to be volatile as markets may try to find some direction for itself. Those who want to take a bit of risk may sell both Nifty 5100 Call and Nifty 4900 Put. This will give you premium of around 200 Rs. One may keep stop-loss for the strategy at 5325 on the upside and 4690 on the downside. One may book profits in it when combined premium for the strategy reduces to 80 Rs.

Wishing you a great trading day!!!

Is correction over???? - 27th May 2010

The most fascinating thing about financial markets have been the uncertainity. I completed my yesterday's post at around 12:00 A.M IST and Dow Jones at that time was trading 200 points down. By the time Dow closed after two hours (at 2:00 A.M IST), it was almost flat. It has spoilt my strategy built for the day :(

Anyways, bounce back in US markets from below 10000 gave instant shot of bullishness to the world financial markets today. Indian equity markets had a gap up opening today and gained strength during afternoon once Europe too had a gap up opening by around 2-3%. Finally, Indian bourses closed the day up by around 2.5%.

Commodities specific stocks regained some of the lost ground today. SAIL, Hindalco, Sterlite Industries were up 5-7% each while financial stocks like IDFC, and ICICI Bank too had a good day today, gaining around 2-4%.

Today's gain seems more of a short-covering on the backdrop of immense selling seen in the last few days. Provisional data also indicate lack of fresh buying by Foreign Institutional Investors (FII). According to provisional data, FII have been net-sellers by around 200 crores while Domestic Institutional Investors have bought equities worth 70 crores. This data is not encouraging, especially on the day when bourses were up by 2.5%.

Hence, the traders can adopt "Sell-on-rise" strategy, but close to 5000 levels for Nifty. The traders can sell Nifty June futures in 4970-4980 levels with stop-loss of 5070-5080 and target of 4750. Since tomorrow is expiry day, we might see fresh short positions being created, especially during afternoon session. Hence day traders can sell Nifty May around 1:00 P.M (when European markets open) with stop-loss of 1% from those levels.

Among the stocks, one may buy NIIT Technologies @ 182-185 levels with target price of 207 and stop-loss of 168. The stock fundamentally has been quite a performer in last few quarters, clocking Net Profit Margin of 23-25% which is quite good.

I would like to share one note of experience. If there arises a problem that put every country's economy into danger, then we can sit back and relax, because chances are bright that some way out will be found to tackle the same. In 2008 when global economy came into recession, every major country swung into action and took collaborative action to prevent the same and restore the confidence. Now if Europe issue balloons into a global problem, then one may take risk and invest into Indian stocks because chances are bright that some solution will be found... But.. Only if it derails every economy including USA.

As of now, European issue seemed not putting US economy into danger as various data including Employment, Retail Sales, Housing has shown an encouraging trend. Let's see how coming days / months pan out for Europe and rest of the world... Keep an eye on it...

Wishing you a great day tomorrow as It's TIME TO SAY GOOD BYE TO MAY SERIES!!!!

Panic spooked the Indian bourses, though support zone acts as a cushion - 26th May 2010

If Monday was full of enthusiasm on account of Reliance patch up, then Tuesday was just the opposite. Overnight weak closing in US markets triggered a gap down openings for Indian bourses. The weakness persisted throughout the day and accentuated during afternoon when Europe opened about 2-3% down. Finally, the benchmark Indices - Nifty and Sensex closed the day, down by around 3%.

The opening on US markets is not good either. Dow Jones has already breached 10000 mark and is trading around 9900 levels. If this weakeness persisted till closing, then we are likely to see a major gap down opening in the Indian and other Asian markets tomorrow, as 10000 levels for Dow Jones was crucial to maintain.

In our yesterday's discussion, we talked about major fall in Nifty to 4770 if it breaches 4870. We had just seen the exact happening today with Nifty June contract making a day's low of 4765 before briefly rebounding to 4790. Technically though, we are sitting on the broader support band for Nifty between 4600-4800. Tomorrow possible gap down opening may push Nifty down to 4700 levels during early trades, but one must maintain caution and do not attempt to buy / sell Nifty at those levels. One must take 4700 levels on Nifty to evaluate the strength of the market. If Nifty manages to stay afloat 4680-4710 levels with consistent rebounds, then we may Nifty rebounding to 4850 levels. On the contrary if Nifty breaches 4680 and sustains there for half-an-hour or more, then fresh sell positions on Nifty can be taken with stop-loss of 4725 and target price of 4620.

Options traders can sell both Nifty 4700 Call and 4700 Put and buy 4500 Put to hedge the position. This strategy will come into losses if Nifty crosses 5050 levels. This level can be taken as stop-loss for the strategy. On the downside, the maximum profit if Nifty retains between 4700 and 4500.

There are two stocks that really look interesting at the moment are DCHL and NDTV. Both the stocks have corrected quite a bit in last few days and it is likely to give a small rebound in the coming days. DCHL has already entered its strong support zone of 105-120. One may buy this stock with stop-loss of 102 and target price of 140.

NDTV too looked strong at the current levels. The stock has corrected quite a bit in last few days and now likely to see some rebound in the coming days. One may buy this stock in 93-98 Rs range with stop-loss of 86 and target price of 115.

Wishing you a great trading day tomorrow!!! Shaba Kher...

Short covering RIL-ADAG patchup not able to take Indian stock markets up - 25th May 2010

Sunday brought a much suprised good news for Indian economy in a form of patch up stitched between two warring brothers and owners of two major business houses of the country- Reliance Industries and Anil Dhirubhai Ambani Group (ADAG).

Indian stock markets too reacted positively to the development and had a gap-up opening of about 1.5% each. The markets further made their way up and at one time Nifty was trading above 5000 mark which gave hope to the participants of a consolidation around those levels. But with soft opening in European bourses, markets started loosing its ground and finally closing the day at 4943.

The provisional data released by exchanges indicate selling of around 1000 crores by FIIs, though, it is ably supported by a buy of around 1100 crores by Domestic Institutional Investors (DIIs). It should be noted that FIIs have already sold equities worth 11000 crores in the month of May, which should be a concern for the Indian stock markets.

Another positive factor that might have drived the markets up was "Short-covering". The markets have lost almost 7-8% in this month and it was widely expected that some of the short positions in May series will be covered which can help Nifty move beyong 5000 levels. The initial part of the day saw some of the shorts being covered, but Europe soft opening triggered the fresh round of short positions created in the markets. Though, there are certain indications of short covering happening around 4930-4950 range, which should act as mild support for the markets.

US markets have opened up soft and European markets too have been trading in a narrow range. If the trend persists, we might see a flattish kind of opening for the markets. 4870-4890 should act as a good support level for the Nifty. On the upper side, 5030-5050 acts as a strong resistance. For tomorrow, traders should maintain caution and wait on the sidelines till markets take a definite trend.

If Nifty able to breach 4870 levels on the downside, then traders can open short positions with stop-loss of 4925 and target of 4770. Whilst if Nifty goes up and breaches 5030 on the upside, one may sell Nifty with Stop-loss at 5080 and target price of 4925.

No stock-specific recommendations for now. The previous recommendations for Maruti, Sterlite and Cipla remain intact.

Before we close the article, a note of caution. Many a times we try to do bottom fishing especially during times when markets seem weak and suddenly we see markets rebounding and we end up with nothing in our hands. By now we all know that markets are weak. Almost every analyst is giving bolder levels on the downside. JM Financial has even talked about Nifty @ 4100 in the medium term. But the fact remains is "nobody knows it". Hence, it is advised to pick good quality stocks at every correction.

Another piece of statistics before I close the article. In last one year Dow Jones has actually outperformed Sensex by around 10%. Seems strange!!!! Yes... But its true....

Wishing you a great trading day tomorrow!!! Good night...

Short covering likely to drive Indian equity markets up, but caution advised at higher levels - 24th May 2010

As we have been discussing for last two days, Indian Stock Markets have rebounded strongly from their support levels (Nifty: 4850) on Friday. From its lows of 4840, Nifty rebounded strongly to reach the target of 4925 comfortably and closing the day @4931.

Overnight closing on Dow Jones has been good and we may expect Indian Stock Markets to open at decent note on Monday morning. As it is expiry week, hence it is likely that we might see some degree of short covering coming into the markets which may take Nifty close to 5000 levels, where we may see some fresh short positions built in again. The important resistance levels come at 503-5070 range. If this range if breached on closing basis, we may see Nifty going till 5200. But the probability of this happening is unlikely as global factors are still competitive.

Fundamentally also the recession in Europe will likely to affect almost every major weight in Nifty, thus, valuations may not justify too much upside from the current levels.

Thus, it is advised that traders may go long on Nifty within the range 4920-4950 with a target level of 5040-5060 and stop-loss can be placed at 4870. Once Nifty breaches 5040, one may switch to "sell on rise" strategy where one may sell Nifty in 5040-5060 range with stop-loss at 5160 and target price of 4750. Hence, the risk-reward ratio becomes really lucrative in "Sell-on-rise" strategy.

We had advised traders to buy Maruti in 1190-1210 range on Wednesday with target of 1350 and stop-loss at 1140. The stock has rebounded strongly from 1170 to close on friday at 1240. Fundamentally also, the stock is currently trading at attractive levels and can be bought from long-term perspective.

Technically, Sterlite Industries has entered the strong support zone from where it is expected to take a short term bounce. One may buy Sterlite Industries in 620-640 range with target price of 680 and stop loss of 605. Similarly, one may buy Cipla in 316-318 range with target price of 330 and stop-loss of 305.

Options traders can sell Nifty 4400 Put and Nifty 5300 Call for June series with stop-loss at 5350 on the upside and 4350 on the downside.

Before I adieu, I would like to remind everyone that atleast Indian Stock Markets is still in structured bull phase. We are not as leverage as we were in 2007 that further accentuate the fall. We have come out better than the others from the grip of recession. Though the support drivers for the markets to go up are still not intact but downside too is limited. Henceforth, one may try to adopt stock specific approach and buy good quality stock during corrections.

Wishing you a great investing day and the coming week!!! Hopefully, we again meet with big smile on our faces.. He ha ha :)

Indian Stock Markets looked weak but entering the strong support zone - 20th May 2010

It seems yesterday's discussion seems more relevant for today's post. The support level of 4850-4800 on Nifty didn't tested today, but chances are omnious that it will surely be tested tomorrow when markets open. Dow Jones is currently trading more than 2% down (250 pts). If this weakness persists overnight, then we might see ateast 100 points gap down opening and put market in our set support-zone of 4850.

FIIs data doesn't give encouraging picture either. Foreign Institutional Investors have been net sellers of more than 600 Crores while Domestic Institutions were net buyers of Rs. 700 Crores. Amidst the Nifty, Public Oil Production companies like Oil India, ONGC were up by around 8-9% while IGL was down by 5%.

Over a longer term, investors have some good reasons to be cautious. The recession has gripped the European markets and hence, strategies of some Indian companies to move to Eurozone at the time of US recession seem backfired and hence, profitabilties are likely to hit for several front line companies in Nifty and Sensex. Similarly Asian economies have now been suffering from Inflationary problems which are the offshoots of loose monetary policies adopted by governments during the midst of global recession.

Hence, long term investors need to adopt a stock specific approach and try to concentrate on companies that work on domestic theme and away from inflatonary pressures. One such company is FDC. FDC is a pharmaceutical company that works in the field of Opthalmics and Oral rehydration salts. Electral that we all might have consumed at the time of dehydration is company's flagship product. Besides the company has expanded itself into other areas and pushing its growth plans steadily. The company's exposure to overseas markets is insignificant. The stock is currently trading for Rs. 90 and can be accumulated at around 83-85 Rs (25%), 78-80 Rs (25%) and 70-72 Rs. (50%).

Derivative traders may go long on Nifty around 4825 levels with stop-loss of 4780 and target of 4925. If it breaches 4775 on the downside, one may create fresh short positions with target of 4700 and Stop-loss of 4825.

One may also adopt Pair strategy wherein one may buy Nifty @ 4850 and sell Bank Nifty @ 8980 in te ratio 2:1 i.e., one may buy two lots of Nifty around 4850 and sell one lot of Bank Nifty @ 8980. The target levels for Bank Nifty is 8680 and for Nifty is 4925. If any of these breach, one may close both the positions and book their P/L. On the reverse side, one may close the position if Nifty breaches 4775 on the downside or Bank Nifty reaches 9400 on the upside.

Its a testing time for everyone related to stock market, but one should not drive its money on emotions and rather try to derive their decisions on price and valuations.

Wishing you a great trading day tomorrow!!!!

Amidst the panic, stock markets enter strong support zone - 19th May 2010

ndian Stock Markets, after a stable gap down opening, slide steeply in the latter half of the day and end the day with losses of more than 3%. Provisional data for today indicates strong selling from FIIs @ 1300 Crores. Among the losers, high beta stocks in Nifty like ICICI bank, Sterlite Industries and Tata Motors have slid more than 7%. JP Associates hit its 52-week low of 120 Rs.

The current level augment that markets are now entering the panic phase now. Till the time, Nifty remained above 5000 levels, there seemed a hope that markets will gradually recover and some buying was seen around 5000-5100 levels. But once these levels have been breached, the only way markets finding themselves going is "DOWN".

Amidst such scenario, whats should a trader do now? If we think rationally, Nifty should find some strong support @ 4800-4850 levels. Till the time, markets remain above 4775, there are strong chances that markets can recover till 4950. Hence, traders can now go long on Nifty tomorrow (if markets have gap-down opening) at around 4850 with Stop-loss of 4775 and target of 4950.

Options traders can play on reverse-straddle tomorrow selling both 4800 Call and Put. This should fetch around Rs. 200. One may keep a stop-loss @ 4600 on downside and 5000 on the upper side.

Amongst the stocks, Maruti @ 1200-1210 levels. The stock is currently at its absolute base of last 9 months and should act as a strong support level. One may keep a stop-loss of 1140 and target price of 1350 on the stock. Fundamentally also, the stock has come to the decent levels.

Anyways, time is surely test the nerves of several traders and chances are ominous that short-sellers may find themselves stuck in no-win situation. So temptation to go short should be resisted as market enters its strong support zone of 4800-4850.