Will our indices close above 200DSMA indicating 'Trend Reversal"

On Friday, our indices opened flat to marginally negative and traded firm as the day progressed, as it was the first day of new series, April, during which the Q4 results of many corporates would be announced; and also the guidance, outlook for the next fiscal will be indicated. Since, the outstanding postions in new series at the opening of the day were quite low, in fact lowest in 2008 so far, addition of open interest is seen in many index heavy weights, based on advance tax numbers released by 15.03.2008. Inflation data released at 12 noon indicated an untolerable level of 6.86%, which induced traders to go short on the market at crucial resistance levels such as 4925 - 4950 etc., expecting the fall by the end of day, expecting profit booking on week end considerations, since the European Markets are trading negatively and US markets are likely to be weak over night. Fund buying in the last one  hour of trding, forced the traders to cover the shorts, which lead the indices to post good gains on friday.

 

This phenomenon was foreseen and indicated in our posting of 03.03.2008, titled How march Unfolds: "Markets will improve from 28.03.2008, due to NAV prop up by mutual funds, to close the financial year on positive note, and players will look for first quarter results in April 2008, based on advance tax payments made by 15.03.2008." Nifty and Sensex have crossed and closed above the 20DSMA firmly in the process on friday, now today being the last day of financial year, month and this quarter, similar phenomenon can be expected. Further due to clubbing of Settlements on 02.04.2008, as banks will be closed for finalising accounts tomorrow, i.e., 01.04.2008, Buy Today and Sell Tomorrow facility will not be available for investors in tomorrow's trading, for the purchased made today, which forces people to square of the transactions today it self, if one is not interested in taking delivery. Thus, only funds can control the markets today, who have vested interest in prop up of NAV at the end of this day on year end considerations.

 

Any rally, should be viewed from this perspective, as things have not settled in US, and turbulance shall continue for some more considerable time, and with inflation reaching 14 month high, for our economy, government is already, initiated measures like withdrawl of DEPB scheme, reducing tarriffs on imports, for tacklinng the supply - demand mismatch of components of CPI and WPI, for controlling inflation. Many analysts and economists are expecting RBI to initiate measures tinker with interest rates, hike in CRR etc., but in our view, as the inflation is not caused due to liquidity, money supply(M3) and purely due to supply - demand mismatch in a growing economy the monetary measures shall not yield desired results. More over since banks also will be resorting to some window dressing today, which is an usual phenomenon, to present a better picture of performance in terms of Balance Sheet size, RBI may come out with any measures by week end or next week only. FM has indicated that the inflation shall be tackled, at any cost, including compromising on growth, if moderation is required, should be noted with caution, as the current level of inflation reported at 6.86% is way beyond the year end target of 5% and crossed the tolerance level, which is already hurting the consumer in every sphere of life.

 

Nifty might post gains today too, and close positively at the end of the session, but at what level it closes will be interesting for technical analyists? 5000 to 5100 has series of resistances, and a close around 5100 today(which is 200 DSMA) with volumes and participation of all sectors, all category of players in the market shall give some hope and relief for the out performance of markets in April Month. Asian markets are trading in negative territory, taking cues from US markets, and Singapore Nifty futures are trading at discount of 70 points currently, indicate negative opening for our markets and volatility will be the nature of the markets, as usual.

 

Range for Day: Nifty might trade in the range of 4850 to 5050 today.
 

Markets now look for Domestic data on Economy and Corporate Performance!

March series settlement is behind us. Though volatile through out the day, traded in a narrow range, finally nifty almost closed flat while sensex closed marginally negative. We are almost in tune with asian peers and reacting to US markets, as major players are FIIs, every where. US markets closed negative due to dip in corporate performance, and flat GDP growth etc., Asian markets are trading in positive territory, with gains. Singapore Nifty futures indicate negative opening of 60 points for our nifty, since April futures closed at hefty premium of 24 points, indicate advantage to bears at the opening.

 

Inflation data shall be released at 12 noon, will influence our markets in a major way and investors will be looking for building positions in April series based on the expectations of corporate performance, taking into account of the advance tax payments already made. 20DSMA placed at 4861.08(Nifty) & 16205.53(Sensex) will offer immediate resistance, and a close above these levels today will augur well for bulls to take the fight further upwards to 200DSMA levels next week.

 

Caution: Investors should not have any naked positions in derivatives since Nifty is still in indecisive zone, and should completely hedge for protecting the capital and portfolios.

 

Range for the Day: Nifty might trade in the range of 4725 to 4925 today.

 

Strategy for the Day: Since the Long April Futures is running into profit currently, a stoploss of 4796.15 is to be employed for today, or hedge it with 4800 put options of April series available at Rs.159/-.

 

Derivatives Settlement - Volatility to be high!

After a spectacular rally on 25th, markets everywhere had sideways movement, and absence of short positions, gave breather to the indices, and investors in our markets, preferred to book profits, and close long positions, a head of derivatives settlement, and also anothe main consideration, for many, the adjustments to be made while closing the financial year 31.03.2008. Under T+2 settlement system, today is the last day for investors to book profits / losses for this financial year, as the pay out will be by 31.03.2008. The transactions done from tomorrow 28.03.2008, will be accounted for on 02.04.2008, in the next financial year. Huge volatility and fall of prices can be expected at the opening hours till the end of session today, in our view. US markets have opened in negative territory, and closed finally in negative territory on weak economic data. Crude (106$) and Gold (953$) are raising once again would not augur well for equities.

 

Nifty will open with gap down or trade in negative territory, due to profit booking or long roll over today. The mute question shall be what will be the spot closing price at the end of the session? February settlement price was 5285.10 and January was 5137.25, are distinct possibilities to be expected based on the current mood and scenario. While 20DSMA placed now at 4879.57 offers stiff resistance where as 5DSMA 4684.51 should offer support on weakness. Based on the put call ratio for the current series, roll over statastics, Nifty might close around 4725 today.

 

Range for the Day: Nifty might trde in the range of 4625 to 4925.

 

Strategy for the Day: Buy 4900 puts on rallies and 4600 calls on weakness for intra day trading for quick returns in current series.

It is 'Dead Cat Bounce' - Beware of Road Blocks a head!

Taking cues from global markets, as anticipated our markets posted one of the substantial gains yesterday, due to short squeeze, and bulls had upper hand, as FIIs numbers started looking positive since 24th. 5DSMA is held on Nifty, 20DSMA was not tested yesterday. Since our markets are almost aping the global markets, the negative news on home prices front which is down 11.07% lowest in the last 7 years, prompted US markets trade little choppy, finally closing in marginally negative territory. Asian markets have opened slightly negative, and Singapore Nifty futures point to 35 points negative opening for our markets too.

 

The rally of yesterday, can be termed as 'Dead Cat bounce' in technical parlance, and one should remember that we are in a bear phase, since indices are trading well below 200 DSMA, and also below February closing of Nifty 5223.50(it was the settlement price too); Today being the penultimate day of march series settlement, which is due tomorrow, choppiness can be very high today and tomorrow too, fresh long positions, on the assumption that markets have turned to bullishness will be another, gravestone mistake, usually, uninformed investors tend to make, repeatedly. Investors should exit profitable positions, on rallies, as the selling would come and continue once again, uninformed. The 20DSMA is currently placed at 4893.69(Nifty) & 16350.39(Sensex); would offer immediate resistance, for today.Staying liquid and increasing cash levels, always give ample opportunities a head, and one should not forget the golden principle "Cash is King" and I liked the statement of one analyst, recently, advising investors that 'Cash" is also an asset class, which is forgotten by many!

 

Range for the Day: Nifty might trade in a range of 4620 to 4920 today.

 

Strategy for the Day: Buy 4900 puts on rallies and 4600 calls on weakness in current series for intra day trading.