This past week we saw the market open at 5354 levels and rose till 5382 before ending at 5262. We witnessed decent buying from the FIIs in the market but a sell off from the DIIs and other entities. At these levels (5262) we believe that will find severe resistance at 5300 on the upside and will take a major earnings upgrade to go beyond 5300. On the downside we believe that the Nifty will find support directly at 5195 – 5150. After eight straight weeks of rise for the Nifty, we believe that a correction is on its way to ensure healthy markets. This week is a news heavy week with several results expected and the Indian Monetary policy on the 20th of April 2010. Hence for this week we believe that all investors and traders should not engage in any leveraged positions and rather than going naked long/short on the market stay cash heavy. On Friday we saw a major bearish pattern on the Nifty weekly chart being formed which indicates a trend reversal to the downside. We strongly believe that all investors and traders should have booked profits by now and if not start booking losses or be ready to average in the market.
On the daily too we saw a major break down from the 5270 levels and if 5250 does not hold then the index has its next support at 5150 – 5160. The daily indicators such as the RSI and the MACD remain in sell mode while the stochastic oscillator seems to be slowing entering the buy zone. However we believe that there is still some downside left on the Nifty and 5200 should act as a strong support due to major PUT concentration.
Globally, we saw a major chunk of bad news hitting the markets. Earnings in the US disappointed and Goldman Sachs (one of the largest remaining companies in the BFSI space) was charged by the SEC of a fraud. This caused a major panic in the US with the investors jittering and was reflected by a 125point cut in the DJIA. 8 banks in US were shut down taking the number to a year high of 50 banks already. EU too remains a concern with unsettled issues on Greece and Deflation. Unemployment still remains at a lifetime high, with the Jobless claims rising and hence credit growth will not begin in the near future. This will directly impact the revenues of all the US companies For the week we believe that the Nifty will drag lower before there is any upside. The US treasuries seem to be on the rise too which indicates a direct worsening for the equity markets. In the commodities space we are seeing a sell off not only because of the US dollar strength but also because of predominant selling by the investors.
On the options end we saw the following activity:
• Call Writing: Shedding at higher levels with marginal writing at 5200CE indicates some bounce back can be seen in next few trading sessions. Major activity was seen at 5300CE (Shedding of 4.4 lacs) and 5200CE (Fresh writing of 2.4 lacs contracts). Major concentration of open interest is still observed at 5400CE strike price of 87 lacs shares.
• Put Writing: Consecutive fourth trading session of shedding across the strike prices with majority at 5300PE implies markets would not sustain above 5300PE. Shedding of more than 10 lacs contracts was observed at 5300PE. Major concentration of open interest is still observed at 5,200 of 88.9 lacs shares
Implications: The activity in this week suggests markets to trade in a narrow range of 5200 and 5300 with limited upside potential.
This week will be bad for the commodities market too. We believe that since the dollar is rising and there is a predominant pressure of profit booking on various bad news a sell off is bound to occur in the commodities market. We have attached the inventor to price graphs for 4 of the leading commodities globally. Aluminum, Zinc, & Copper should fall this week by at least a 2% along with Lead. Gold will continue to fall as well due to profit booking pressures. This week is the week for treasuries and bonds. Crude oil seems to be consolidating and is poised for a downfall to around $80/bbl levels. We would like to believe that Mr. Jim Rogers is right and that crude oil will fall till $65/bbl.
View on Indices - Weekly Outlook
1. Bank Nifty
a. This index saw a major sell off where it began at 9661 but finally closed at 9353 before making a low of 9266. We believe that on a daily basis we might see some bounce back due to lower closes since the past 6 sessions but the overall outlook still remains negative. This index has its next support placed at 9180 – 9200 levels. However if the results of all the banks continue to surprise the street on the upside as Indusind bank did then we can expect a bounce back to 9400 levels for this week.
i. As mentioned this index opened lower almost 100 points but then recovered by making a day high of 9357 (prev. close at 9353) before ending at 9302. We believe that if the monetary policy and US support this index then 9400 could be taken out tomorrow itself.
2. CNX 100
a. This index is trading at 5200 levels which is a breakdown from the support zone for this index. We believe that now the index will see a sell off on a weekly basis but similar to Bank Nifty it might see a short term bounce back to 5250. Supports for this index lie directly at 5100 but 5150 should act as its support as well.
i. No bounce back for this index and it saw a major sell off of almost 1.12% to 5100 levels before closing at 5148
3. CNX IT
a. This index has formed a bearish pattern and we believe that it might be time that this index starts its down trend. We believe that investors should book profits in the stocks that comprise of this index. This index is trading at 6142 and can witness a sell off till 6100 – 6080 levels.
i. This index too witnessed a sell off as expected and made a low of 6026 before closing at 6064.
4. Nifty Midcap 50
a. This index is trading at 2764 and we believe that it should find support at 2750 levels. However if 2750 is broken on a closing basis then we should see a down fall to 2730 / 2700 levels.
i. As mentioned this index could not sustain the 2750 level and fell by almost 1.5% to 2708 levels before closing at 2724.
5. S&P CNX Nifty
a. This index is trading at 5262 and has broken down from its daily support at 5280 levels. On a weekly basis too we saw a bearish candle being formed. We believe that this index will tread lower and head down to levels of 5200 / 5190 / 5180. However as previously mentioned the Nifty should take support at 5200 levels due to a major put concentration.
i. Nifty completed all the mentioned targets with a day low of 5160 but then as mentioned it took support at 5200 and closed at 5203.
Trading Stocks Ideas
1. Kotak Bank
a. This stock can be bought at 724 for a target of 740.
2. Maruti Udyog
a. This stock can be bought at 1350 for a target of 1374.
3. Sesa Goa
a. This stock can be bought at 469 for a target of 483.
Most of the stocks look weak but the index heavy weights such as ICICI Bank, HDFC Bank, L&T
Reliance etc. have entered their support zone. We would advise you to buy Nifty PUTs rather
than shorting the Nifty naked and hedge it with stock longs.
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