Technical Picks | August 31, 2012

Bears hit back

Sensex (17381) / Nifty (5259)
This week our benchmark indices opened on a quiet note in-line with mixed global cues. In Monday's session, indices breached last week's low of 17705 / 5368 and hence, confirmed a 'Shooting Star' Japanese Candlestick pattern mentioned in our previous report. This was also supported by the negative placement of momentum oscillators. Thus, post violation of 17705 / 5368 level, the negative momentum lasted throughout the week and as expected, indices precisely tested the support level of 17285 / 5240. The fall was mainly led by metal, capital 5240 goods and realty counters; whereas the defensive sectors like, FMCG and health care continued to outperform the benchmark indices. This week, the Sensex fell down by 2.26%, whereas the Nifty corrected 2.38% over the previous week's closing.
Source: Falcon

Exhibit 1: Nifty weekly chart

Exhibit 2: Nifty daily chart

Pattern Formation
The '20-day EMA' and the '200-day SMA' are placed at 17560 / 5316 and 16920 / 5120 levels, respectively. Looking at the "Line Chart" it is clear that indices have now confirmed the 'Higher Top - Higher Bottom' formation on the weekly chart after August 28, 2009. The weekly momentum oscillators viz., the RSI and the Stochastic are signaling a negative crossover.
Source: Falcon

weekly 'Higher Top Higher Bottom' formation mentioned in our earlier report is still intact. The said formation would be negated only if indices break the important weekly swing low of 5032. 16598 / 5032 Also, looking at the extreme oversold condition of 'Stochastic' momentum oscillator on the daily chart, the possibility of a bounce towards 17712 / 5360 levels cannot be ruled out. Under normal circumstances, this bounce should be treated as a corrective up move. However, in case we see some positive global news flow on the back of the Jackson Hole meeting and if the US Fed commits to more quantitative easing, then a close beyond 17712 / 5360 level in the initial part of the week would indicate a strong reversal of current pessimism. The Sensex / Nifty may rally towards 17972 / 5449 levels.

Future Outlook
After posting four consecutive positive weekly closings, we witnessed a correction in our markets during the last week. The bellwether indices (Sensex / Nifty) tested support level of 5240. 17285 / 5240 We are now observing a negative crossover in the weekly momentum oscillators. The impact of these tools can be seen if our indices sustain below this week's low of 17338 / 5239 In such a scenario, the markets may test 5239. 17123 - 16892 / 5190 - 5120 levels which are the 61.8% and 78.6% Fibonacci Retracement levels of the rise from 5449, 16598 / 5032 to 17972 / 5449 respectively. However, the

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Derivatives Review | August 31, 2012

Lower rollover in Banknifty is a positive

Nifty spot closed at 5258.50 this week, against a close of 5386.70 last week. The Put-Call Ratio decreased from 1.29 to 0.90 levels and the annualized Cost of Carry is positive 8.52 The Open Interest of Nifty Futures decreased by 29.93 8.52%. 29.93%.

Put-Call Ratio Analysis

PCR OI has decreased from 1.29 to 0.90 this was due to expiry. In this series we have observed good amount of buildup in 49005300 put option, while in call option the buildup was seen in 5300-5600 strike price. The highest buildup in current series is at 5200 put option which could act as the support and in call option the buildup is quite scattered and hence it's difficult to suggest any resistance, however 5600 has the maximum open positions as of now.

Implied Volatility Analysis

Implied Volatility (IV) for NIFTY has increased from 12.89% to 16.28%. Historical volatility (HV) is at 14.25% and that for BANKNIFTY is trading at 19.24%. Liquid counters having very high HV are ALOKTEXT, SKUMARSYNF, IFCI, MTNL and OPTOCIRCUI. Stocks where HV are on lower side are DRREDDY, ULTRACEMCO, SUNPHARMA, HDFCBANK and BATAINDIA.

Open Interest Analysis

Total open interest of market has decreased from `1,54,951/crores to `1,03,262/- crores. Stock futures open interest has decreased from `33,275/- crores to `26,718/- crores. Some of the big names which added open interest are HEROMOTOCO, JPASSOCIAT, STER, JINDALSTEL and HDIL. Open interest was shed in large cap names like HDFC, HCLTECH, BPCL, AMBUJACEM and ACC.

Cost-of-Carry Analysis
Nifty futures closed at a premium of 33.15 point against the premium of 42.20 points to its spot. Next month future is trading with premium of 60.75 points. Liquid counters where CoC is high are MCDOWELL N, ALOKTEXT, TATACOFFEE, VIJAYABANK and IBREALEST. Stocks with negative CoC are SKUMARSYNF , ORCHIDCHEM, HEROMOTOCO, IOC and OPTOCIRCUI.

Derivative Strategy
Scrip : AXISBANK View: Mildly Bullish Buy/Sell BUY SELL SELL
BEPBEP-`1111/Max. Risk: Unlimited
If AXISBANK continues to move above BEP .

CMP : `999.75/-

Lot Size : 250

Exercise Date (F & O) : 27th. Sep. 2012 Expected Payoff

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

Strategy: Long Call Ladder Scrip AXISBANK AXISBANK AXISBANK Strike Price 1020 1050 1080 Series SEP SEP SEP Option Buy/Sell Rate Type (`) CE CE CE 30 20 11

Qty 250 250 250

1020 1040 1060 1080 1100 1120

`1.00 `21.00 `31.00 `31.00 `11.00 (`9.00)

Profit: Max. Profit: `7,750/If AXISBANK closes on or between `1050-1080 on expiry.

NOTE TE: NOTE : Profit can be booked before expiry if AXISBANK moves in the 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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