Sunday, March 1, 2009

Stage set for another topsy turvy week… Update for 02 Mar 09

Okay – we had a major bad news last week where the GDP growth showed a sharp drop. Was it expected to be below 6%? Frankly I had not expected it and it came as a shocker. Did the market accept it? well the way the market showed resilience I might not be able to place a bet but somehow the markets seemed to show that they had catered for such a contraction otherwise the fall would have been much more severe. – That is what I feel. 5.3% growth is below the expectation and it should shake me up from the denial mode that we are well off with the world in recession. What still holds out is the only fact that this is still growth and there are sectors that were expected to be weak and have survived the so called onslaught of recession. Another thing that comes to my mind is that the DII’s have been constant buyers at these levels. Are they propping up the markets to keep it stable on someone’s dictum awaiting elections or they are buying because they see these as sustainable levels? A difficult question really with no simple answer but the way I see is is that the economic compulsions have become too big to be dancing on someone else’s tune – so I feel that they see these levels as fairly good entry levels. The second thing that I notice is that the buying is kept a little bit below the FIIs sale figures – who laps up the balance? We the retail? I would be grateful if someone could do some number crunching and share the thoughts. Leave that aside for some time and let us see the fireworks created by the news about the RPL and reliance merger. This will remain the eye of the storm for some time till the dust settles down but give it a due thought. This alone if taken in the correct light – can propel the markets up for some time. Next is the inflation numbers that are coming out as per the expectations of the govt. Lastly there is another controversy of sorts created by the govt claiming that the growth for 2009 should be 7% with the Moody’s putting it to below 5% for the first half of 2009. I side with the govt because of the only reason because our economists are actually world class and whatever their reasoning – should hold in good stead. In any case I have starting taking these US rating agencies with a pinch of salt. Their compulsions are too many and they too are in deep trouble themselves – let aside deciding the ratings for others.

Daily 27 Mar 09Asia was mixed with Nikkei up 1.48%, Hang Seng down 0.65% and Strait Times down 1.4%. Europe was bad – traded in red through out – went down deeper red but recovered somewhat near the close but still way down. FTSE was 2.18%, DAX down 2.51% and CAC down 1.54%. US tried to stage a comeback after opening red but could not cross and trade above the green line ending in red. Dow was down 1.66%, Nasdaq down 0.98% and S&P down 2.36%.Picture1

As far as the candles are concerned – we had a black candle. The pattern is that of a hammer – but has appeared a few days too late to give a bullish reversal. All the same there was a tussle between the bulls and the bears. The body of the hammer is black but I still feel that the bulls won this round and that they will have an upper hand tomorrow when we open. The 5 EMA line is inching confidently towards the 20 EMA and 20 EMA and 50 EMA are so far running parallel to each other. We are definately not trailing the lower Bollinger band at the moment so There is a bright chance that we will go on to touch the upper edge of the Bollinger band at the 2950/3000 levels. The MACD is still negative and bearish but the divergence has reduced. Slow Stochastic red line is fast approaching the overbought zone – minimum two days worth of uprun we can have now. RSI is bearish.On ADX the bears seems to be loosing grip – but the indication per se is still bearish. TRIX is mildly bearish – draw whatever conclusions you want to. Overall though we have all bearish indications – the bears seems to have lost the momentum they would have liked to break to lower levels. See the next chart We are taking support at the lower trend line drawn and should now act as a good support. The volumes are still low – 79% of last 50 day average to be precise.

Let us see the Pivot levels.

R3 2866 was 2863 on Friday 
R2 2831
R1 2797
Pivot 2752 was 2771 on Friday
S1 2718
S2 2673
S3 2639 was 2679 on Friday
Projected High Range 2775 to 2814
Projected Low Range 2759 to 2720
Fib Projected High 2808
Fib Projected Low 2686

I feel that we should see atleast the R1 to R2 levels once in the trading session atleast. There are some stimulus schemes in GOvt’s mind or so it seems that may be unveiled this coming week.

Before I end I am inserting the charts of ICICI bank Picture1that to my mind has touched the support at the lower levels multiple times and sustained it. When I try to study the options the graphs of options pain and the call / put ratio is as depicted by the following charts. As we go up the calls should reduce and the puts should start building up. But as of now there seems to be a build up of calls only – so should we see the stock going up? I would love if I could have your views on this as I am new to options and still in the studying phase only.

Also I just saw Jaggu’s Blog and he has some good explanation of where we go from here. Do take a look on his blog too. The link is here – Click Me



geniusjaggu said...

paaji good mrng,
in my opinion,there are two reasons for higher call build ups:
1.The traders are very bearish on the stk,and prefer selling options than having shorting futures(which is very risky considering revised lot size)..

2.Traders are just encashing on high premium,by selling the options.

if stk wants to go up...first there shud be Put build up(as support)..then there shud be reduction in calls((At the money ones will fastest to reduce in OI)

S S Cheema said...

Thanks Jaggu and I too did get some time to research. I will post the findings tomorrow when I have some time...