Market Updates For 04/06/2012

Nifty Hourly Chart

First half of the Friday's trading session was flat. However market gained momentum in the later half and Nifty closed at 4841 down by 82 points. Global market looks weak and we all have noticed blood bath in wall street.

The breakout above 4955 was short lived and closing below 4955 was the first sign of weakness and closing at 4841 gives an indication that Nifty is likely to test at least its previous low 4788. RSI in hourly chart is in oversold region but let us not try to catch a falling knife let us wait for the reversal indications to appear on charts. Always remember that it is not necessary to identify the exact bottom and many traders fail in doing so. The objective should not be 'buy low and sell high but it should be buy high and sell higher or sell low  and buy lower'.

Nifty Daily Chart

Nifty was range bound from past few trading session. Even now Nifty is in a narrow range of 4800-5000. Nifty is likely to touch 4788 and 4760 which is 78.6% of the rally from 4525 to 5623.  Below 4760 Nifty can go back to 4600 levels.

Short strangle strategy was suggested based on the anticipation that market may remain sideways. But Nifty is looking weak and if Nifty closed below 4760 then we have to exit short strangle.

Nifty Weekly Chart

We have been discussing about the  descending trend line which is supporting Nifty.  Nifty has tested this trend line nearly thrice but managed to stay above it. If Nifty closes below 4800 in coming weeks then we can notice further fall in the market.

Nifty Short Term Targets

One of the readers of this blog has asked me to provide information about short term direction of the Nifty (I am referring short term as 1 to 2 weeks) as it can help many of us in our trading and investment decisions.Here is the expected target :

Nifty Short Term Trend      :   Down  

Nifty Short Term Targets    :   4780-4680 and below

Reversal if closes above*    :   5090

* Please note that reversal levels will be changed periodically.

Open Position

Scrip	Type	Qty	Price	CMP	P/L
SBI June Fut	Short	125	2037	2017	2500

Intraday Trades

Scrip	Type	Qty	Buy Price	Sell Price	P/L
BPCL Fut	Buy	500	690.5		2500
BPCL 700 CE	Sell	500	19		-1000

Thought for the day

Losses are inevitable, losses will occur, losses are necessary. BUT losses must be kept small and we must not allow them to become unmanageably large.

Dear Traders,

I am reading a book called 'Market Masters'. I thought of sharing some interesting conversations presented in this book.

Mr.Jake Bernstain says :

During my years as a futures trader, I have made perhaps 10,000 to 15,000 trades in the market.Yet I am still learning. Every trade is another lesson no matter how small the lesson may be,every trade is a challenge and every trade is likely to be a loss as it is a profit. It's not that I haven't learned a great deal as a trader, but rather that there is so much to learn, it makes what I have learned seem small in comparison. I often wonder whether this fact of market life means that the skill of trading can never be totally learned or that the process will never end. For many years, I refused to accept the possibility that  trading would be a life long struggle. No trader is immune to the possibility of a psychologically motivated error in judgement. No trader can constantly win,rarely lose or live his or her trading life in an eternal uptrend.Trading is a stepwise proceed that generally proceeds two steps forward  and one step back fashion.

Option Trading Strategy

Short Strangle

Nifty is range bound and the trading range is 4800-5000. Even the news about GDP couldn't break the range. Nifty may continue in this range for some more time. To take the advantage of decay in premium we can initiate short strangle.

The short strangle, also known as sell strangle, is a neutral strategy in options trading that involve the simultaneous selling of a slightly out of the money put and a slightly out of the money call of the same underlying stock and same expiration date. The short strangle option strategy is a limited profit, unlimited risk options trading strategy that is taken when the options trader thinks that the underlying stock will experience little volatility in the near term.

Here is the strategy:

Short 5000 Call option at cmp Rs.78.85

Short 4800 Put option at cmp Rs.86.60

Pay off chart

Maximum Profit     : Rs. 78.85+86.60 = 165.65

Potential Loss         : Unlimited

Lower Break Even : Lower Strike Price - Total premium

                                 4800-165.65=4634.65

Upper Break Even : Upper Strike Price+Total Premium

                                 5000+165.65=5165.65

Maximum profit will be attained if Nifty expires between 4800-5000. If Nifty trades below 4634 and above 5165. Traders are advised to exit both call and put option.

Traders should remember that this is a strategy of limited profit and potential unlimited loss.

Exit Nifty 5000 Call @ CMP Rs. 70.85 . Exit 4900 put at cmp Rs. 132. No open positions in Nifty.

Market Update for 31/05/2012

Nifty Hourly Chart

In yesterdays trading session Nifty has given up the gains which happened after the breakout at 4955.

5000 is an important psychological level and Nifty is unable to close above that. In yesterday's trading session Nifty closed at 4950 , below the previous resistance. This is a sign of weakness. Today if Nifty closes below 4955 again then we will again notice a range bound market.Our earlier targets 5035-5075 will be achieved if Nifty closes above 5000.

Trader's should observe that in a range bound market one day there will be pessimism and another day optimism. To avoid such situations we are giving recommendations only after breakout. But unfortunately breakouts are not sustaining for longer period of time.

Since today is expiry trader should be cautious as the market is expected to be highly volatile.

 

BPCL Daily Chart

The trend of BPCL has turned down. Indicators like RSI and MACD has given a sell indication and the stock is trading below 20 DMA. 50 DMA at Rs.688 can act as intermediary support. Below Rs.688 we are expecting a target up to Rs.645 and stop loss above Rs.725.

Open Position

Scrip	Type	Qty	Price	CMP	P/L
BPCL June fut	Short	500	695.5	696.3	-400
BPCL June 700 CE	Long	500	21.5	20	-750
Nifty 5000 June CE	Long	100	102.65	87	-1565
Nifty 4900 June PE	Long	50	98.5	114.8	815

Intraday Trades

Scrip	Type	Qty	Buy Price	Sell Price	P/L
JSW Steel	Sell	80	610	618	640
Axis Bank	Sell	45	988	999	405
SBI	Sell	10	1907	2096	1890

Result :

 BEML

Thought for the day :

When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks - Jesse Livermore