Technical Picks | March 2, 2013

Budget blues and the bear trap

Sensex (18919) / Nifty (5720)
The week commenced on a muted note, in-line with mixed global cues. On Monday, the opening trading session, the bellwether indices, Sensex and Nifty, somehow managed to hold the crucial support level of 19149 / 5823 but they 5823, eventually failed on Tuesday and tested the 18973 / 5777 mark. Later during the week, on the Budget day, the market traded with immense volatility in the first half, wherein the indices went higher to test 19323 / 5850 This level coincides with the 5850. '89-day EMA' and hence, acted as a strong resistance for the market. Post the mid-session, the indices took a nosedive on account of an unenthusiastic Budget and almost met our target of 18600 / 5650, mentioned in the previous report. During the 5650 week, the Realty, Oil & Gas, Banking and Metal counters experienced massive selling pressure; whereas the IT and Consumer Durables sectors managed to outperform the benchmark indices. The Sensex and the Nifty shed 2.06% and 2.23% during the week to settle at 18919 and 5720 respectively. However, individual mid-cap and small-cap stocks continued to fall and closed with significant losses.
Source: Falcon

Exhibit 1: Nifty weekly chart

Exhibit 2: Nifty Monthly chart

Bearish Engulfing

Pattern Formation
The '20-day EMA' and the '20-week EMA' are placed at 19372 / 5863 and 19175 / 5813 levels, respectively. The monthly chart exhibits a 'Bearish Engulfing' pattern. The monthly momentum oscillators are signaling a negative crossover. The level of the weekly 'RSI' momentum oscillator has now dropped below the 50 mark. Indices have closed marginally above the 'Downward Sloping Trend Line', drawn by joining two significant highs of 21109 / 6339 (high of November 05, 2010 weekly candle) and 19137 / 5816 (high of October 05, 2012 weekly candle).

Source: Falcon

level. This level also coincides with the '89-day EMA' and the '20-week EMA'. Since the February month is over, the monthly chart now depicts a 'Bearish Engulfing' pattern. This pattern has a bearish implication but needs a confirmation. In addition, the monthly momentum oscillators are signaling a negative crossover. Also, the weekly 'RSI' momentum oscillator has now sneaked below the 50 mark. RSI level dropping below 50 from the upside is an additional sign of caution for the bulls. On the contrary, indices have now precisely closed above the support level of the 'Downward Sloping Trend Line' (please refer exhibit 1). Hence, the impact of all the above mentioned negative technical evidences would be seen once indices sustain below this week's low of 18793 / 5671. In this scenario, indices are 5671 likely to fall towards 18450 - 18255 / 5600 - 5548 levels. On the flipside, this week's high of 19412 / 5879 would now act as a crucial resistance in the coming week. Only a move beyond this level may nullify the impact of negative technical evidences. With such a move the markets may rally towards 19768 - 19865 / 5991 - 6025 levels.
1

Future Outlook
For the sixth consecutive week, our benchmark indices have closed in the negative territory. As mentioned in our January 25, 2013 weekly report, the bearish impact of the 'Hanging Man' (at market top) Japanese candlestick pattern is now clearly seen. Indices have now finally broken down below the 19149 / 5823 mark, which has been acting as a crucial support
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Technical Picks | March 2, 2013

Weekly Pivot Levels For Nifty 50 Stocks

SCRIPS
SENSEX NIFTY BANKNIFTY ACC AMBUJACEM ASIANPAINT AXISBANK BAJAJ-AUTO BANKBARODA BHARTIARTL BHEL BPCL CAIRN CIPLA COALINDIA DLF DRREDDY GAIL GRASIM HCLTECH HDFC HDFCBANK HEROMOTOCO HINDALCO HINDUNILVR ICICIBANK IDFC INFOSYSTCH ITC JINDALSTEL JPASSOCIAT KOTAKBANK LT LUPIN M&M MARUTI NTPC ONGC PNB POWERGRID RANBAXY RELIANCE RELINFRA SBIN SESAGOA SIEMENS SUNPHARMA TATAMOTORS TATAPOWER TATASTEEL TCS ULTRACEMCO WIPRO R2 19,658 5,963 12,430 1,351 207 4,714 1,465 2,129 772 349 215 404 319 398 347 298 1,852 352 3,134 749 840 684 1,756 112 477 1,135 167 3,019 310 383 79 675 1,496 637 933 1,528 160 338 892 118 468 886 510 2,314 168 575 844 311 102 380 1,566 2,029 434 R1 19,288 5,841 11,985 1,309 200 4,536 1,414 2,079 741 330 208 395 306 384 330 278 1,797 342 3,054 736 809 653 1,701 105 465 1,095 156 2,966 301 371 76 665 1,448 616 910 1,476 155 326 840 113 426 848 471 2,201 161 535 822 300 100 360 1,534 1,958 428 PIVO PIVOT 19,041 5,757 11,693 1,279 195 4,381 1,367 1,992 713 316 203 382 298 369 318 268 1,759 335 2,980 723 779 635 1,658 101 450 1,063 150 2,917 295 355 71 657 1,400 592 880 1,408 151 313 808 107 399 827 443 2,126 157 515 804 290 96 349 1,493 1,899 420 S1 18,671 5,635 11,248 1,237 188 4,203 1,316 1,941 681 297 196 372 285 355 301 249 1,704 325 2,900 710 748 604 1,604 95 438 1,024 139 2,864 285 343 68 647 1,352 571 857 1,357 146 302 756 103 357 789 405 2,013 150 475 781 279 94 330 1,461 1,827 414 S2 18,424 5,550 10,956 1,206 182 4,048 1,268 1,855 654 283 192 359 277 340 289 239 1,665 318 2,826 698 719 586 1,561 91 423 991 133 2,815 280 327 64 639 1,304 547 827 1,289 142 289 723 97 329 768 377 1,938 146 454 763 269 90 319 1,419 1,768 405

Technical Research Team

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Derivatives Review | March 2, 2013

If not short, think about stocks

Nifty spot closed at 5719.70 this week, against a close of 5850.30 last week. The Put-Call Ratio is unchanged at 0.88 levels and the annualized Cost of Carry is positive 2.42% The Open Interest of Nifty Futures decreased by 17.90%. 2.42%.

Put-Call Ratio Analysis

PCR OI is unchanged at 0.88 levels. In the new series we have seen good amount of buildup in 5800-6000 call option, while in put option 5500-5700 strike price has seen maximum buildup in open interest on week-on-week basis. Of late some unwinding was also seen in 5800 and 5900 put option which was much of the short covering given such a sharp fall in market in Thursday's trading session. Highest Buildup in open interest as of now in this series is in 6000 call option and 5700 put option.

Implied Volatility Analysis

Implied Volatility (IV) for NIFTY has decreased from 16.38% to 13.16%. Historical volatility (HV) is at 15.56% and that for BANKNIFTY is trading at 24.19%. Liquid counters having very high HV are WELCORP IVRCLINFRA, HDIL, OPTOCIRCUI and , UNITECH. Stocks where HV are on lower side are ITC, KOTAKBANK, FEDERALBNK, HEROMOTOCO and GRASIM.

Open Interest Analysis

Total open interest of market has decreased from `1,57,436/- cr. to `1,07,674/- cr. Stock futures open interest has decreased from `35,608/- cr. to `26,538/- cr. Some of the liquid counters which added open interest are TECHM, PANTALOONR, RECLTD, MCDOWELL-N and NHPC. Open interest was shed in large cap names like NTPC, POWERGRID, TATAPOWER, DRREDDY and HDFCBANK.

Cost-of-Carry Analysis
Nifty futures closed at a premium of 3.65 points against the premium of 34.70 points to its spot. Next month future is trading with premium of 34.70 points. Liquid counters where CoC is high are GVKPIL, PANTALOONR, JPPOWER, RENUKA and JSWENERGY. Stocks with negative CoC are HDIL, COALINDIA, OPTOCIRCUI, HAVELLS and ACC.

Derivative Strategy
TA Scrip : TATASTEEL View: Mildly Bullish Buy/Sell BUY SELL
LBEP - `361 UBEP - `399 Max. Risk: Unlimited
If TATASTEEL continues to move above UBEP .

CMP : `343.45

Lot Size : 1000

Exercise Date (F & O) : 28th. Mar. 2013 Expected Payoff

Price Closing Price (` (`) Expected rofit/Loss Profit/Loss

Strategy: Ratio Call Spread Scrip TATASTEEL TATASTEEL Strike Price 360 380 Series MAR MAR Option Type CE CE Buy/Sell Rate (`) 6.00 2.50

Qty 1000 2000

340 350 360

(`1.00) (`1.00) (`1.00) `9.00 `19.00 `9.00

Profit: Max. Profit: `19,000

If TATASTEEL closes at Rs.380 on expiry.

370 380 390

NOTE TE: NOTE : Profit can be booked before expiry if TATASTEEL moves in favorable direction and time value decays.

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Ratings (Returns) :

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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