Nifty November 2009 Series - Update 1 - Swinging back and forth?

Nifty November series has been the most spectacular one in recent memory and swung back and forth with a low of 4536 and high of 4836 this past week. This likely been mainly driven by short covering rally and in sync with the global indices and once again the longs have come back stronger. The past five trading sessions have been very good for intraday players with the high degree of volatility and once again gave an opportunity for short term traders to get quick gains not only in the index but more gains in certain stocks which gained more than 10-18% following the recovery from the lows of 4536.

The action for next week is equally poised for both longs and shorts and if Nifty closes above 4890-4920 range barrier comfortably then  a consolidation can be expected over the next five trading sessions this coming week.  Nifty could well consolidate between 4700-4920 and become less volatile.  If any weakening comes then the inevitable downslide can happen and the important level to watch is the break of 4660-4690 levels which can again take the Nifty back to 4530 and may be still deeper to 4400 levels.  I feel it will be rangebound and consolidate this coming week and I would go long on dips to 4700 or try going short only around 4890-4920 levels with hedge of 4900CE.  A 4700PE would be the hedge if going long. 

Global indices DJ, S&P have traded flat on the weekend and on Monday we can expect good volatility of 150 points from the pivot levels.  Monday should decide the trend for the week.  Banking sector looks the strongest amongst stocks followed by FMCG, pharma and auto sectors.  The Reliance pack at this point in time just good trading bets only with the exception of Reliance Capital which is likely to gain momentum and go much higher.  Real estate stocks Unitech, DLF are also likely to perform well.

Another event is the exchange timings are changing with effect from 27th November 2009 from 9 a.m. to 5 p.m.  This change to 8 hours trading will be a challenge now for traders and there will be little time to analyze and more time to trade.  While lot of negative views are expressed, the positive view I would like to project is that it also gives opportunity to manage one's time into three different sessions, say 10-11.30, 1-2:30 p.m., and 4-5 p.m. or alternately only trade between 1-5 session only.  This change will also give opportunity for  many traders to close positions intraday itself with the advantage of lesser brokerage charges instead of BTST positions.  Turnover will also increase and increasing revenue for the government.  Volatility could be high in such a scenario which will be watched by professionals closely.  Time management skills will also get honed for professional traders.  The longer duration of trading is now going to happen and it must be accepted with a positive view.  More later next week.  Happy trading!!!

Nifty November 2009 Series - Testing lows once again

Nifty has closed October series on a low of 4750 and the November series first day opens with high of 4858 and closed at a low of 4711.  Nifty is in a highly oversold territory now and a rally could be expected when the shorts begin to cover.

The fall was mainly triggered by the concerns about the telecom sector and fundamentals and valuations of the companies have clearly given the shorts a great chance.  The telecom sector has been in a limbo and with competition increasing the concerns about valuations raise doubts of the business for short term gains.  With call charges being 1 paisa per second, it cannot get any worse (only if outgoing calls are also made free to woo customers!!!) and there is an exodus of investors who have booked out.  However, the telecom sector now becomes a defensive sector once appropriate valuations are arrived at for the long term investor and would turn out to be much more defensive than FMCG and pharma space in the longer term.  This is the opportunity investors must look at as far as telecom sector is concerned.  The oil and gas sector has seen corrections and the already overstretched banking sector valuations have taken a breather.  Adding impetus to the fall was the monetary policy of the RBI.

Coming back to Nifty, for the coming week, Nifty could well rally up to 4950 levels if short covering takes place.  On the downside if 4680 level breaks, then 4550 and 4350 are possibilities in the medium term.  Testing the lower levels does present good opportunities for intraday traders now to garner 30-60 points either way.  Taking positional longs now has to be synchronized with the short covering rallies, which could happen in the coming week and being long above 4720 with a stop loss of 4680 is the strategy I would follow.  A straddle strategy with 4700CE and PE simultaneously could also be a good strategy to trade the Nifty intraday.

Stocks wise, staying away from index stocks is best way until a confirmed bottom formation is not formed in the month of November.  Metals, infra, auto, and sugar stocks would be my favorites on deeper cuts.

On the global front, there is good news with the US markets as growth has been recorded and the threats of continuing recession seems to be receding, but our market was already overvalued more out of euphoria post election results gap up and now some parity has been established.  The Q3 results in January will not be as good as Q2 as IIP numbers will be hampered by loss of productivity due to the large number of holidays and loss of mandays.  The leaders will however be the banking sector and IT sector once again for the remaining six months of this fiscal year. 

On the domestic front with a longer term view, the pricing of the gas dispute of KG Basin must get resolved and the government fixing a good price would augur well both for the economy and the companies concerned.  Furthermore, the infrastructure sector will have promising years ahead and more impetus needs to be provided for this sector.  This directly boosts the real estate sector and the real estate sector stocks are definitely the dark horses of the next upside move over a longer period of time.  More later after the first week of trade in the November series.  Happy trading!!!