- Sharp push upward on Friday sees both Nifty and Bank Nifty push to new swing highs and just shy of all-time highs now.
- Option concentrations begin shifting upward in both indices, implying creation of long positions.
Nifty has moved above the largest call OI concentration strike of 7500 and this may trigger more short covering in the week ahead.
- Rupee recovery has been swift and this may continue to remain a positive trigger for index gains in the week ahead.
- Banks may do well leading to possible out performance from BNF.
- Mid and small caps expected to continue to flourish.
INDEX TRADE SUMMARY
- Continue to hold the long NF position now with a revised stop at 7445 (i.e. revised to even)
- Long positions in BNF should have been created on Friday in BNF as it moved clearly past 15425. Hold now with stop at 15300. Add more upon crossing of 15600.
STOCK TRADE SUMMARY
Hind Lever: Traders can look for long positions for the week ahead for a target around 653/677. Stock is of greater interest to investors who should look upon this turning into an even bluer chip across the next 3-18 months. Medium term targets are around 900 while long term targets around 2000 seem possible too.
Bulls gave it all they got towards the end of the week and powered both the Nifty and the Bank Nifty to levels where they are now just short of overhauling the peaks they achieved on May 16th. The way the market ended, it did seem like some very brisk short covering occurred in Nifty and that also triggered some fresh buying in the BNF. The SGX was trading higher during the weekend and it is therefore expected that the market ought to open and trade better as we begin this week. So the possibility is also that Friday’s upward action may well have been some new buying too? If that is the case, then we should see the Nifty future head into the next target zone of 7685-7693 as mentioned in Friday letter (it reached the first target zone on Friday itself). We were anyway looking for the BNF to be bought if it moved past 15400 levels and Friday’s price action in this index too left us with no doubt about market intent. Hence with both the major indices firing, we should continue to remain bullishly biased, looking for the higher targets to be achieved. Adding its own ‘tadka’ to the mix are the Mid and Small cap indices, both of which handsomely outperformed the main indices in the last week. Thus, it appears that traders and investors are currently having a party!
Chart 1 given this week is a study of the weekly Nifty future chart overlaid with Shifted Gann angle technic. The different trendlines that you see on the chart are all 1×1 angle lines drawn off different bottoms aligned to the Oct 2008 bottom. We can note how the market maintains perfect symmetry with the angle lines, with many of them acting as precise support and resistance points. Right now the rise is slamming into a rising angle line that should act as a resistance. So, if the index has to continue higher then it should maintain above 7584 in the week ahead. Weakness can see it drop down to seek support at the lower angle line (at 7275) while continuation higher will open targets upto 7975.
As far as TCD for June goes (I am late by a week in putting this out, apologies), we had the first one on 6th June and that day was a resolute high. Will it be the high for now? I don’t think so. It looks more like a day where the index charged upward afresh. The next dates for June are 12th and 17th. Would look for some highs in that region. June has an astronomical event (Solstice) around 21st and this is always an important point to look for some market peaks and troughs. Cycle-wise, though, I don’t have a match around this date so I am not taking it as such a vital one. I am finding a lot of clusters for the end of the month but these dates are falling on a weekend. Typically then a day prior or later should see some culminations but again no clustering found in those areas so I am not looking at this window just yet. So I am sticking to the 12-17 window as the most potent for the month.
With the index moving ahead strongly, we must look for follow thru and if we do find it then it would indicate that the market may be following the RoadMap sequence. Keep track of that (those that have it), as its pathway is quite encouraging for more. According to that analysis, the run up should be sharp and short. So we need to be active and aggressive to reap the benefits.
Looking at the situation in options, I am finding that the Nifty has now pushed firmly past the call concentration strike of 7500. Maybe part of the buying on Friday was shorts covering here. The call concentration is now shifting towards 7800 and 8000. The Put OI concentration is also getting dragged upward so traders are moving their monthly option gearing upward and that betrays the trend bias ahead. The PCR is moving higher to 0.85 indicates put shorting that would be action of bulls. Similar situation exists for the Bank Nifty. Last Monday I had written about how the important option concentration was at the 15000 levels and although it was briefly penetrated, it appears to have been well defended. What we saw thru the week was addition of puts at 15000 and pushing of the call base higher. The BNF should find it pretty easy to make it towards 16000 levels during this week. In the week just gone by, the index had many more contributors (metals, cements etc) so banks took a bit of a back seat. But I think Banks will be to the fore in the coming week.
The situation today is showing a definite shift towards the Mid cap area. Now we have several indices that map this area and one is not quite sure which one to follow. Checking thru the few that we have, I find that the Bse Mid has moved past 78% retracement of the fall from the 2007 top while the Bse Small cap has risen to the level of 62% pullback. But I think a more widely followed index (as a benchmark) the mutual funds is either the Bse 200 or the Cnx200. These two indices are pretty solidly placed on the bull side, with a decisive thrust to all time new highs in the last month. See chart 2. There is a clear breakout to new highs that has occurred in May which seems to be continuing into June. This is the place to concentrate on rather than the old warhorses like the Mid and Small cap indices. One of the reason for the super performance is that this index includes all the items from the F&O list and many of them have done quite well and not in the Nifty. Also, the list includes erstwhile F&O members too many of which have done very well in recent times, despite exclusion from the F&O list for some reason or the other.
Another possibility to consider is that the other stocks from this stock would probably have the first shot at being included in the F&O list in the future as they already meet many of the criteria for qualification. Thus, this is a happy hunting ground for Funds and hence an area where we should remain focused on as well. Any good news coming out in any of the names should see some buying action from some Fund or the other- hence continued action in the list of stocks here seems quite assured. Stocks in this list seem to recover pretty fast once some bad news is restored (eg Strides Arco) while recovery in the sector seems to be echoing well in this list (Infra, Real Estate etc).
I checked out how the mid and small caps had fared when the last bull market had its run (2003-2007) and found that they gave a higher return in every one fo the legs. No doubt they get walloped when the trend gets done but right now we are talking about beginnings and not the end! So if you are avoiding mid caps etc thinking about their danger when market turns, then you are putting the cart before the horse! In my view having your money anywhere other than in equities for the next few years would be a crime! I had written a blog asking people to invest in the market back in August 2013(see Everything is on sale in the blog section of the website) but I wonder how many read it! The mood was pretty downbeat back then and even if one had read it, how many were really prepared to act? Therein lies the crux of the whole matter. It is not really so difficult to define markets or find suitable candidates to invest. But the conversion of that identification into actual investment is the difference between winners and also-rans.
Which one are you? What are you doing about becoming a winner? It is in your hands, you know, and no one else’s.
One of the things we were looking at in the last week was for some Dollar rally to spike the gains in the index. We were not really looking for much (59.6675) but we were more bullish on the Dollar index chart as it was poised on a breakout that could have turned the tables on Dollar denominated currency pairs. But the ECB action seems to have knocked the wind out of the sails of the Dollar index as can be seen in the chart 3 attached here. This chart is a continuation from the one given a week ago but I have added weekly bar encapsulation on the daily chart so that both time frames can be captured on the same chart.
Dollar could have strengthened had it been able to sustain beyond 80.60 but the attempt was given up later in the week and we can find that the weekly bar (the last encapsulation of five daily candles) has actually closed beneath the resistance angle line. This is a proprietary trendline using angles that I draw and I refer to it as the BasicSlope trendline, as it is derived from the dominant trendline of the instrument. So long as the DX is unable to effect a breakout here, it might actually mean a return to the congestion zones beneath 80 and that would mean some Rupee strength ahead. The rally terminated at around the levels I had indicated in the last letter (reaching 59.8875) and now we should probably see a retest of the lows near 58.32 occur once again. It will be interesting to watch the momentum aspect in the coming move as that will indicate to us what the UsdInr intends to do ahead. If declines accompany the Rupee strengthening in the week ahead, we are possibly looking at new levels for the INR below what we reached a couple of weeks ago. FII inflow into equities as well as debt markets continue and this could pressure the Usd down further in the week ahead as there are no significant global or local data to influence the flows in a big way.
Summing up, outlook remains bullish in both Nifty and Bank Nifty futures. We are already long in both these indices as per the trade advises and aside from revising stops, one can consider adding to the BNF longs further for more gains this week. Watch for short covering to emerge in the options area if the indices maintain an upward trajectory as that would be a good driver of trends. BNF may outperform the NF and action in mid cap area may continue to be dominant.
There is a bit of room no doubt but it appears that this index doesnt seem to have the kind of legs that is needed to hoist itself up to new swing highs. Not just yet. The RSI chart also shows flattening of the line near the overbought area. But note that the daily signals are all still quite positive and we are here talking about intra day chart signals. So whatever lack of strength we are talking about is all for intra day charts. This may or may not translate into something larger. We should jump into that consideration only when prices show an inability to handle resistance successfully. Hence the focus today in the letter is on setting up the resistance levels first so that we have a measuring stick. If it handles the resistance easily, then the bulls are still in the saddle and we can continue with our longs. However, if that is not to be the case, then we will know that we need to take some protection or some evasive action not to get bruised. After that we can begin our search for more signals that may lead us to question the strength of the trend. Not until then.
Summing up, the uptrend in Nifty is surely on while the BNF still struggles a bit. Larger trend is undisturbed but we are about to run into some resistance above for the Nifty while in BNF we are already at one with another looming above. Weekend pressures will add to the woes faced by intra day bulls. No bearish signs of any kind yet so dips will still remain buys. But if indices move into resistance zones as discussed and then start showing some signs of wanting to respect them, we should be ready for evasive action.
Hindustan Unilver : Buy for 900 target.
We heard some fresh rumours of new buyback prices emerge in the market once again and this seems to have driven the prices higher. Volume, open interest, momentum etc are all placed very positively on the charts implying that the rise is doubtless going to continue. Rumors in the market suggest a revised buy back price around 720. Maybe that figure emerged because that was the last high in the stock during the earlier drive higher? But these are all factors for short term play. For the traders the stock is a buy for the next week with a minimum expected target of 652 and 677.
The evidence in the long term chart of the stock points to this one changing orbits. My take is that the long term low is made at around 550-575. Nobody, but nobody is going to give this stock away even if there is to be another round of buybacks. Looking at the patterns, the way it bounces off supports and the momentum setups in monthly and quarterly charts, it seems like it is headed for a minimum target around 865-902. This should take 3-6 months. Even that is just for starters. I expect this stock will join the ranks of the P&G, Gsk Consumer etc and go into long term portfolios and never come out. Already there is a lack of supply and my expectation is that the supply would dry up even further in the coming months. When that happens, stocks generally tend to double from the high levels too. It would not surprise me to see HLL trade well into the 1500-2000 range across a 12-18 month perspective. Invest.