Archives : SHORT COVERING CONTINUES - 20/03/2009.

Short Covering Continues 20/03/2009.

This week was a continuation of the bounce back started in the previous week. The bounce back or the Bear market rally normally is a function of short covering of highly oversold stocks. This week the midcaps continued to gain momentum and post big gains due to the short covering. The midcap IT sector along with Akruti City hogged the limelight in the week gone by.

  • THE TRUTH BEHIND AKRUTI CITY.
  • INFLATION AT HISTORIC LOW.
  • SENSEX.
  •  NIFTY.
  • Strategy corner:
  • LAST WEEKS RECOMMENDATIONS:
  • Recommendations for the week:

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Short Covering Continues 20/03/2009.

This week was a continuation of the bounce back started in the previous week. The bounce back or the Bear market rally normally is a function of short covering of highly oversold stocks. This week the midcaps continued to gain momentum and post big gains due to the short covering. The midcap IT sector along with Akruti City hogged the limelight in the week gone by.

THE TRUTH BEHIND AKRUTI CITY.

The stock price of Akruti City went up by almost 150% from 900 levels to 2300 odd levels in just a matter of 14 trading sessions. There was no fundamental reason for the stock price to go up. The reason has been short covering. The short sellers have been trapped and are paying very high price to get out of it. The stock has been in a ban period since the January series. The Akruti fiasco has led the NSE to remove Akruti from the F&O segment and place it in the ‘T’ group in the cash market.

 INFLATION AT HISTORIC LOW.

Inflation fell to 0.44% for the week ended March 07, 2009 as compared to 2.43% in the previous week. It came in below the forecast of 0.89%. It is the lowest reading in the history of current series. The previous low was of 1.13% on 2nd Feb. 2002. The fall in inflation was mainly due to the high base effect. The inflation during the corresponding week of the previous year was at 7.78%. It is expected that the inflation will fall to 0 or even negative. In such a scenario, once again the focus will shift towards the RBI for having another round of interest rate cuts.

  

SENSEX.

 

Sensex opened the week at 8793, made a high of 9120, made a low of 8697, and closed the week at 8966, thus registering a weekly gain of 210 points.

 The Sensex has gone up all the way from 8047 to 9120 at a dramatic speed and for the last 3 days it has been consolidating in a narrow range near the top. On Friday, it has formed a Doji indicating uncertainty.

The pattern formed almost resembles a Flag type formation, but the breakout is yet to be achieved. The breakout will be once the Sensex closes above 9120. Then the target for this pattern will be 9724-9940. These targets will be valid only when the Sensex manages to close above 9120.

 

The ROC is in the positive zone and is indicating a Buy, whereas the MACD which has given a Buy signal is still in the negative zone.

 

If we consider this rise to be a minor correction of the fall from 10469 to 8047, then the correction levels are 8972-9258-9544.

 

The Trendline Resistance is at 9228-9814 and Trendline Support is at 8804-8666.

 For the week ahead the Resistance is at 9120-9228-9302-9438. Support is at 8804-8697-8467-8316.

NIFTY.

Nifty opened the week at 2716, made a high of 2836, low of 2701, and closed the week at 2807. The weekly gain was 88 points.

 

The Nifty pattern is almost similar too that of Sensex and it too has formed a Doji on Friday.

 

Nifty too like the Sensex, trying to form a Flag pattern and breakout will be witnessed only if Nifty is able to cross and close above 2836, only then Nifty can move ahead towards achieving the target of 2969-3055.

 The Nifty April series is witnessing strong PUT writing at 2500 levels and CALL writing at 3000 strike price. It means that the Nifty is likely to trade in this range for the next month.

The Nifty has Trendline Resistance at 2922-3036. The Trendline Support is at 2758.

For the week ahead, the Resistance is at 2836-2881-2922-3036. Support is at 2758-2701-2677-2570.

Strategy corner:

RPL 83 is expected to reach target of 89-94. I suggest to Buy naked OTM 85 strike call at Re 1/=. Max Loss will be Rs 3,350, if RPL close below 85 at expiry. On the upside, the profits are unlimited. Even if RPL reached 89, one can earn a profit of Rs 4, i.e Rs. 13,400. Expiry falls on this Thursday.

LAST WEEKS RECOMMENDATIONS:

All the pairs recommended last week did very well as can be seen below. The Super performers were Jindal Steel and Aban, which went up by 10% and 29% respectively.
  • PAIR I:
Buy Jindal Steel 1069 Tgt was 1160 Reached 1168 Sell HPCL 242 Tgt was 236 Reached 236
  • PAIR II:
Buy Cairn 170 Tgt was 175 Reached 181.Sell BPCL 345 Tgt was 339 Reached 329
  • PAIR III:
Buy Aban 254 Tgt was 298 Reached 329.

Sell Nifty Future as a hedge.

Recommendations for the week:

Since the coming week too is going to be volatile and uncertain, we suggest Pair Strategy approach.
  • PAIR I:
Buy Fin Tech 551 SL 521 Tgt 569-578-598.Sell L&T 585 SL 605 Tgt 576-556.
  • PAIR II:
Buy FSL 15.85 SL 14.7 Tgt 18.8-20.Sell Maruti 710 SL 727 Tgt 688-657.
  • PAIR III:
Buy GVK Power 21.4 SL 20.15 Tgt 22.3-24.15

Sell BPCL 333 SL 342 Tgt 320-313.

 
Disclaimer : The recommendations made herein do not constitute an offer to sell or a solicitation to buy any of the securities mentioned. No representations can be made that the recommendations contained herein will be profitable or that they will not result in losses. Readers using the information contained herein are solely responsible for their actions. Information is obtained from sources deemed to be reliable but is not guaranteed as to accuracy and completeness.

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