December could be the fourth-straight month where the market may continue to be in range, as depicted by options data for that particular month
Positional range for the Nifty seems to be 4800 on the lower side and 5200-5300 on the higher side. The 5000 put has a maximum build-up, but we believe it’s more of buying and we don’t assign more than psychological weightage to it.
The build-up in 5300 call option, of late, indicates call buying, as implied volatility for the same is around 21% and such low IVs in this long expiry (December 31, 2009) indicates the same. Buying of FIIs in index option also supports the argument. Very rarely, in the history of this market, we have seen the market crashing significantly from its highs if the market spends time near the highs in the form of consolidation as we are doing now. Otherwise, falls are immediate and furious.
Against this backdrop, we would suggest buying at-the-money or slightly out-of-money calls of the Nifty, as indices likely to breach the much-talked about resistance zone of 5180-5200. Having said that, it won’t be a run away rally. The new resistance for the Nifty will be 5300.
So, if the market consolidates in a narrow range, then it will be midcaps which will gather attention. In fact, it has already started. Case in point: Banking and IT. Large caps are consolidating, but mid-caps are showing significant price as well as open interest appreciation. Among large caps, Reliance Industries’ 1080, 1095 and 1110 calls have seen substantial build-up, and we believe this congestion zone is resistance for the stock.
Bharti Airtel has rallied from lower levels predominantly, because of short-covering. Call writing in 320 call suggests upside is limited. BHEL has good support around 2170-2180 levels and good shorts standing in it. We expect short-covering to take place.
By - Siddarth Bhamre, Fund Manager-Derivatives, Angel Broking
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Bull's Eye: Yes Bank, Mahindra Satyam, Tata Motors, Bajaj Hindustan, Nestle
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Reaction from double top
he market tested the 2009 high and corrected last week. The Nifty closed out at 5,108.9 points for a week-on-week gain of 3.4 per cent while the Sensex was up 2.8 per cent at 17,101 points. The Defty gained 4.5 per cent as the rupee hardened sharply.
Advances outnumbered declines and breadth in terms of traded shares was good. But volumes were on the low side of average in both cash and derivatives markets. The FIIs were net buyers while domestic institutions sold in small quantities. The BSE 500 rose 3.9 per cent while the Midcaps were up 5.3 per cent. The Junior was also up over 5 per cent.
Outlook: The market tested the 2009 high of 5,181 and reacted from that level. This is a double-top, which has short-term negative significance. A reaction clearly started on Thursday and Friday. There’s good support above 5,000 and the reaction may end there. The long-term trend and intermediate trends both seem positive.
Rationale: Although the double-top suggests resistance at 5,181 is very strong, the week saw a breakout that established a pattern of higher highs. Coupled to higher lows in the past fortnight, this indicates strongly that the intermediate trend is positive. The long-term trend still appears to be climbing, given a rising 200-day moving average.
Counter-view: Opinions differ on the persistence and strength of a double-top pattern. If the double-top causes just a short-term correction, support will come in just below current levels. However, this was a major top in that 5,181 was a 52-week high. So the correction may have deeper or more long-term implications. If the market closes below 5,000, we will probably see another bout of range-trading between 4,800-5,000.
Bulls & Bears: Friday saw a reaction and the market closed towards the lower end of the day’s trading range. Sectors which appeared to be hard hit included banks and real estate companies – these sectors had both gained strongly in tandem before the correction started. Until the reaction bottoms out, banking and realestate are likely to lose more ground than the Nifty. The engineering, power sector and auto stocks appeared to be weak as well but the trends there were more mixed. For example, GMR Infra gained on Friday, while IVRCL lost and these two normally move together.
The pharma sector seems to be quite strong, with many stocks such as Cipla, Glenmark, Divi’s and Torrent gaining substantially. There was also a lot of interest in media stocks with NDTV, TV-18 and of course, the new listing, Reliance Media World generating huge volumes. Some short-covering is taking place in the beaten-down telecom sector where Idea might outperform in the next couple of sessions.
MICRO TECHNICALS
CIPLA
Current Price: Rs 358.95
Target Price: Rs NA
The stock has been bullish since mid-March when it was trading at around Rs 200. The slope of the rise has got steeper and volumes have expanded in the past week. Impossible to project targets since it is in new territory. Keep a trailing stop at Rs 350 and go long. Raise the stop 10 points for a 10-point rise.
POLARIS SOFT
Current Price: Rs 181.25
Target Price: Rs 174
The stock has started a high-volume reaction from a recent 52-week peak. It is likely to pull back till support at around the Rs 174 level. Keep a stop at Rs 183 and go short. Cover the position below Rs 175. The long-term trend is strongly bullish. Consider reversing the position (double-plus) at Rs 174 when the reaction ends.
ESSAR OIL
Current Price: 145.45
Target Price: Rs 160
The stock has seen gains from support at around Rs 132. It has also seen volume expansion. There’s strong resistance at Rs 150 but that is a minimum target on the bounce. There is potential for Rs 160 to be achieved. Keep a stop at Rs 143 and go long. Book partial profits at Rs 150.
TUBE INVESTMENTS
Current Price: Rs 70.2
Target Price: Rs 80
The stock has shot up on huge volume expansion. It has been hitting resistance at above current levels. If it clears Rs 72-74, it would be at a new high with a target of about Rs 80-85. Keep a trailing stop loss at Rs 67 and go long. Increase the position above Rs 73 and move the stop up 5 units for every 5 unit gain.
AXIS BANK
Current Price: Rs 1,027
Target Price: Rs 990
The stock has support at Rs 1,000-1,010 and that is one possible target. If Rs 1,000 is broken, it could fall to Rs 980. Keep a stop at Rs 1,040 and go short. Partially cover between Rs 1,000-1010. Clear the position below Rs 990.
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Src: Economictimes, Business-Standard, DP Blog