Ranbaxy - Sell on rise and buy on dips strategy - 19th June 2013

1) Ranbaxy has been in the news for several wrong reasons in the last few days. US Drug Authority ban, Daichi (its promoter) blame on previous promoters for company's mis-management has done no good for the company. Also, recent speculation that US Drug Authority (USFDA) may inspect some other plants of Ranbaxy put further question marks on company's future growth prospects.

2) Derivatives data for yesterday indicate huge build up on Short side. Around 4 Lacs new shares have been added on the futures side. Also, tremendous Put accumulation at strike prices of 300, 290 indicate the kind of levels traders have been anticipating in this counter.

3) Though technically on charts, a long term support has seen between 320-340 Rs range on 10-year chart. Also the stock has corrected steeply twice in the last few months. Further correction would require much larger force from the bears than the previous two correction. (View Chart)

Support Levels

Resistance Levels

4) Also, the shorts accumulated in derivatives segment, may go for cover up before expiry which may take the stock upward.

5) On the upside though, a resistance exists around 375-380 levels. The stock consolidated around these levels in the last 3-4 days before correcting again. These levels are the perfect resistance levels for the counter.

6) Hence, considering all bad news already open in the market, the further downside may be limited, though, upside too is not much to be excited upon, given the fundamental reasons which prompt exit at every rise in the stock.

7) Hence, we recommend buying the stock in the range of 335-340 Rs with stop-loss of 315 and target levels of 360 and 375. Similarly if it goes up from here, then one may sell it in the range of 360-365 Rs with stop loss of 385 and target levels of 340 and 330.

8) F&O traders can go sell both 300 Put and 380 Calls for June expiry and exit if it goes in-the-money.

Sell IDFC on rise around 142 with stop-loss at 148 and target of 136 and 131 - 11th June 2013

1) IDFC, govt backed infrastructure financing organization, has been correcting from 158 Rs levels to 140 levels today.

2) This selling though, seem not stopped right now.

3) Derivatives data indicates fresh call writing in 140 and 150 strikes. 1 Lakh shares in 140 call and 1.2 Lakh shares in 150 Call have been added. Premiums too have declined.

4) IDFC July futures have too seen strong build up on short side. The July futures have been trading at the discount to June futures which indicate short build up.

5) On the charts as well, the stock has broken two key support levels (Ref chart below) which indicates strong resistance on the rise.

6) Sell the stock on rise around 142-143 Rs levels with possible targets of 136 and then 131.

REC Ltd - a short sell with target levels of 210 and 202 and stop-loss of 228.

1) REC Ltd is a govt undertaking and India's leading company into Power transmission into rural areas.

2) The stock has seen an uptick of 7% over the last one month, coinciding with upside in overall equity markets. But this rise is not well paced with its peers which have shown more strength. For ex. PTC and NHPC have shown rise of 10% in the last one month.

3) The stock has now corrected from an intermediate high of 225 to 215. The level of 225 is crucial for the stock as the downward trend line of peaks made in the last one year falls at this level. Also 34 Day EMA, 5 day EMA falls at this level. So it seems a crucial resistance zone for the stock.

4) In yesterday's trading (22nd April 2013), the stock has seen increase in Open Interest by 12% and price too fallen by 1% which further indicates weakness in the stock.

5) Basis these criteria, we recommend sell in the stock with stop-loss at 228 (above 225 resistance zone) and possible targets of 210 and 202.

Wishing a profitable trading!

Buy Maruti Put Options for May (Strike Prices 1450, 1460, 1480 and 1500) Yen based benefits overstretched - 22nd April 2012

1) Maruti Suzuki has seen a tremendous rise of around 20% (maximum among its peers) in the last one month due to bounce back in the equity markets and decline in Yen against all major global currencies including Indian Rupee. The yen depreciation has provided benefits in terms of Interest expenses as payout would now involve paying less in Rupee terms. (See 1 Year Yen-Indian Rupee graph)

Yen to Indian Rupee graph (1 Year)

Maruti Suzuki Price Graph (1 Year)

2) On the flip side, domestic auto market is going through its worst slowdown. After a decade or so, the auto sales have declined last month. The amount of freebies offered by the companies failed to bring enthusiasm among car buyers.

3) Few hopes that may bring support to the car makers are interest rates cut by RBI in May 4 meeting along with fall in commodities including crude which may bring car buyers back to the buying spree.

4) In the context of it, we feel that the current rise in stock prices are ahead of fundamentals and anticipate correction. RSI which indicates sentiments in the stock is trading above 80 which indicates over-bought scenario.

5) One may buy Maruti Put options for May for Strike Prices 1450, 1460, 1480 and 1500. One may book loss if Maruti closes above 1620. The profits can be booked at the levels of 1480 and then 1420.

Wishing you a profitable trading!!!