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!!!!