Weekly Report As On 05-07-2008

Dear Investors,

It has been a volatile week for the market, at one point it appeared like giving up all those gains but we have survived the inflation scare at least for the moment. The Nifty is now almost at the land of 4,000 once again.Sugar sector stocks remained in limelight because it has once more. The most interesting thing we saw inFriday’s trade was that the Nifty future discount was around 40- 45 points. The clear-cut direction that we found was most investors were hedging their positions because there was a lot of buying or open interest build-up in many of the momentum stocks, and there was no strike below 3,700 that got introduced in the market. People are hedging their positions by shorting the Nifty. There is an addition of around 20 lakh shares in the Nifty futures.It’s been slowly accumulating up just through the trading week, and then managed to bounce back. So we are not suggesting that the market is out of the woods but all that one has seen for the last2-3 sessions seems to indicate that the market is at least trying to put in some support at around 12800 or 13000 levels, we are notsure as to whether it will hold but for the moment at least an attempt is made.Now the news regarding new high inflation and crude has become common but it is seriously affecting the interest of the investor.The market will remain under pressure due to political uncertainty. The Left will launch a national campaign from July 14 against the nuke deal and inflation and it has set 7th July, 2008 as deadline for nuke deal. The whole scenario will influence the market trend. Let’s see how things pan out on political front and the market as well.

BSE Sensex: - (134542)

The market declined for a seventh successive week, with the Sensex finishing 2.52% or 348 points lower, and the Nifty losing 2.91%. The CNX Mid cap was hit particularly hard, plunging 4.97%. It was the turn of record highs in crude oil prices coupled with political crisis in the center to take the blame for last week's tumble. BSE Metal Index was the worst hit among all Indices, lost 9.44%. BSE Auto Index, BSE FMCG Index, Reality Index and Banking Index followed the fall, all lost between 5% and 7%. Only two Indices closed in the green were BSE Capital Good Index and BSE IT Index, gained 2.34% and 1.59% respectively. Among the Sensex stocks ACC and Maruti were the major looser, lost 17.49% and 14.65% each respectively. Grasim, REL, TISCO, Tata Motor also dropped sharply, lost more than 10%. BHEL and JP Asso were the major gainers among the Sensex stocks, gained 8.68% and 7.46% respectively. ONGC, Satyam, L&T, Ranbaxy,Infosys, NTPC also did well and closed well in the green. Jet Airways and JSW was the worst hit stocks, lost 31.58% and 23.29% respectively. Followed by Adlab, MRPL, Sun Tv, ACC, Rajesh Exp, Suzlone, Nag.Fert, Arvind, all dropped more than 15%. Major gainers among F&O list was Triveni Eng, gained 23.55%. Ansal Infra, India Info, Orchid, GTL, Peninsula also performed well, all gained more than 10%.


Price Pattern View: -
This week we found ‘Hammer pattern’ on the weekly candle stick chart. This is a bullish reversal pattern. Psychology behind this pattern suggests that the failure of the market to continue the selling reduces the bearish sentiment, and most traders will be uneasy with any bearish position they might have. The importance of this pattern is to a large extent because it is developed after nearly 5000 points fall in the Sensex but the confirmation is definitely required. It would be a higher open with yet still higher close on the next trading week.

Trend Analysis: -

-->The intermediate downtrend that began on May 5 when the Sensex topped out at 17,736 continues. The intermediate downtrend is already nine weeks old and now it is at matured level. The levels above which the downtrend would end remain 14,450 for the Sensex, 4,325 for the nifty, and 5,698 for CNX Mid cap. Last week we found bullish Engulfing long white candle in the daily chart on Wednesday followed by two inside day pattern on the following two days of the week. This whole pattern indicates that the range is getting lower. Market is in indecisive mode and waiting for some news from political front or Global front to react sharply. The levels to watch carefully are 13712 on the upper side and 12822 on the lower side. Either side cross over will establish a short term trend. The odds are in favor of advance. After decisive cross over of 13700 levels thechances of a pull back rally will emerge. When the indices were falling during the last few weeks, there were gaps created and these gaps will act as resistance to the next intermediate rally. The gaps by the Sensex are between 14128-14197, 14511-14519 and 15260-15391. These gaps will act as strong resistance levels to the next rally which the traders must keep in mind.
-->Our indices are making new yearly low and have been exhibiting descending intermediate tops and bottoms. This confirms the continuation of the major downtrend and the bear market since January. Majority of the markets around the world are also in an intermediate downtrend and are also in a major downtrend i.e. a bear market. Bear markets here have lasted for six months to more than one and a half years. The current bear market is already six months old and there are no immediate signs of the current major downtrend ending. The earlier intermediate top for the Sensex and the Nifty are at 17,736 and 5,299. These will have to be crossed in the next intermediate rise, if the major trend has to turn ‘up’. As these levels are far away, this is not likely to happen soon and the next intermediate rise will be a rally within the major downtrend. The equivalent level for the CNX Mid Cap index is at 7,192.40.

Momentum Indicator: -

Relative strength index (RSI) on the daily chart is in the extreme oversold zone and giving positive divergent. It has also crossed its moving average and giving short term buy signal. Short term moving averages is along with the price but medium term moving averages is well above the price and they are falling sharply signaling that the market will take much more time for the medium term trend to turn up. 20 DMA is 14461 and 50 DMA is 15851 as of now. MACD on the daily chart is exhibiting lower tops and lower bottoms signaling weakness for the medium term.

Tactics: -

Long term player should wait for this intermediate downtrend to get over. For the intraday traders it is very difficult to trade in the market as the volatility is at its historical peak. So they should wait for volatility to get settle first and then trade. Aggressive swing traders can go long in the market after crossing the level of 13712 for the Sensex with a stop below 13000.
Resistance: 13700, 14000. Support: 13000, 12800.

Derivative Analysis
<->July month Nifty futures closed at 3979.05 with discount rate of 37 points as compared to spot closing of 4016. NSE's futures & options (F&O) segment turnover was Rs 44,222.20 crore, which was lower than Rs 51,604.28 crore on Thursday, 3 July 2008.

<->On weekly basis Nifty future made high of 4108.90 and new 2008 low of 3810. Heavy short covering was seen in sectors like Realty, Banking and Capital Goods stocks, which were under pressure from last few weeks.Nifty future was trading in narrow range from last few days due to political uncertainty.

<->Levels to watch in Nifty future are 4100 and 3800 levels, any where break out may clear the trend for the Nifty future for the up coming days.

<->Come to the options market side it seems to be dealing with its own bout of pessimism. Heavy unwinding was seen of the 4000 and 4100 Nifty Put options. This indicates that traders do not expect the index to trade at those levels in the short term. And heavy build up of positions on the Nifty Put Options with strike prices of 3700 and 3800. The Nifty Put Option with a strike price of 3700 got activated in trade yesterday and saw 10 lakh shares being added in Open Interest.

Future & Option Strategies for the Week
For Nifty future 4100 and 3800 are the trend change levels. For that one can make strategy of “Short Strangle Strategy” to earn profit from option market.Sell Nifty July 4200 Call at Rs 83 and sell Nifty July 3700 Put at Rs 81. Trade will be profitable when Nifty will be close in the range of 3620 -4280.Maximum gain in this strategy is Rs 8200/- and risk in this strategy is unlimited if Nifty future closed above or below the range of 3620 -4280.

{Max. Return: Rs. 8200/-.Max. Risk: Unlimited (If closed above the range of 3620 -4280).* The above mention strategy will remain effective on the basis of time factor and premium rate which mention in above table.* Brokerage and Margin are not considered on above strategy.}