30 May,2011 10:16 AM IST | | Alex K Mathews
The overall sentiment was kept positive even though we didn't see any major downside or upside during last week. The previous week also saw the expiry of many Futures and Options (F&Os). Also, short covering was visible in auto, banking, infrastructure, capital goods and oil sectors. Nifty VIX fell around 17 per cent last week. This indicated that fear in the market has somewhat eased. Last week also saw Fitch downgrading Greece's credit rating to b+ from bb+ citing its set of growing problems and challenges. The worst election defeat suffered by Spain's ruling party was also a cause for concern. Investors can create a long straddle at 5500 or long strangles with long call at 5600 and long puts at 5400 in the June Nifty options.
Commodities are going strong after Goldman Sach suggested reversing its sell call on commodities. We saw major pull back not only in precious metal but in base metals as well. Oil once again climbed above $100. Gold is having resistance at $1532. It can move up towards $1544 level in the short run and in the case of silver, the target is $39.54. Indian rupee is looking weak, which will keep the domestic gold price firmer. The food inflation numbers, which rose to 8.55 per cent for the week ended May 14 against 7.47 per cent in the week before that. The fuel index remained steady at 14.24 per cent. The Empowered Group of Ministers (EGoM) is meeting on June 9 to decide on diesel and LPG price hike. This and the recent rise in the food price index caused selling of stocks in rate sensitive sectors like banking and real estate.u00a0 Banking stocks like ICICI Bank and SBI are good candidates to initiate long positions in the short term.u00a0 Hindalco is looking strong after its recent price correction.u00a0 Investors with long-term perspective can buy and hold the stock for decent returns.u00a0 On the F&O segment, a covered call strategy on Hindalco is advisable.u00a0 Buy the June Futures of Hindalco and Sell Hindalco 200 June call options.
Nifty has witnessed some buying and has moved above the 14 Day Moving Average(DMA) of 5458 and closed near to the middle Bollinger band of 5489. If Nifty can stay above the level of 5489 then we may see Nifty moving towards 5523, 5553 and 5634 while the support will be intact at 5421 and 5320 levels. Hike of around Rs 5 for diesel and Rs 30 for LPG is already discounted in the market and anything above this will call for a take down on Nifty.u00a0 In the coming days volatility has to increase from the current levels, so avoid writing Nifty options for at least a week from Monday.
Global economic data was not that supportive especially on the European front. The French Purchasing Managers' index (PMI),declined to 55 from 57.5 and the German PMI declined to 54.9 against 62. The French business survey was at 107 against 109 previously and the European Industrial new orders too declined. In the US, the new home sales rose to 323000 from 301000 and the house price index rose substantially. Theu00a0 US initial jobless claims declined to 42,4000 from 41,4000. Risk averse traders should adopt hedging strategies, which can be created with Nifty options and futures.
The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
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