Technical Analysis

Stock strategy: Interest waning in IFCI futures

K.S. Badri Narayanan | Updated on September 17, 2011 Published on September 17, 2011

IFCI (Rs 35): The long as well as short-term outlook remains negative for IFCI. The stock finds an immediate support at Rs 29.5 and the next one at Rs 24. If the bearish trend sustains, the stock could even decline to Rs 16-17 level, where it finds a major support.

The immediate resistance appears at Rs 47.7 and the crucial one at Rs 66.2. Only a close above the latter would reverse the current downtrend for IFCI.

F&O pointers: IFCI futures witnessed accumulation of short positions on Friday along with falling share price.

This indicates traders are having negative view on the stock. Option trading, however, indicates that IFCI could hover around Rs 35, with a slight negative bias. The 35-strike IFCI call witnessed heavy accumulation of open interest, while the same strike put also added open positions, albeit less number.

Strategy: Consider going short on IFCI September futures with tight stop-loss at Rs 37.2 (spot price on a closing day basis) for an initial target of Rs 29.5.

Shift the stop-loss to Rs 33 if IFCI moves below that level. Market lot of IFCI is 4,000.

Alternatively, traders could also consider a short strangle on IFCI. This can be initiated by selling 37.5 call and 32.5 put. They have closed at Rs 0.7 and Rs 0.4 respectively. While maximum profit is the premium collected, the loss could be unlimited if IFCI moves sharply in single direction.

Short strangle is best suited when one expects that the stock is likely to move in a narrow range.

Besides, writing option involves margin commitments. So this strategy is for traders who can afford to bear those risks. Hold this position till expiry.

India Cements (Rs 69): The stock is ruling at crucial level. The stock finds an immediate resistance at Rs 77 and support at Rs 64. A close below the support would change the outlook negative and could trigger a fresh sell-off. In that even the fall could be sharp. The next support appears at Rs 40.5

F&O pointers: The stock accumulated short positions on Friday. Options are not that active to discern any view.

Strategy: Traders can consider going short on India Cements with a stop-loss at Rs 77 for an initial target of Rs 64. Market lot is 4,000 units per contracts.

Follow-up: Last week, we had advised a long on Bharti Airtel expecting it to breach the crucial resistance. However, it turned weak but did not close below the stop-loss we had mentioned last week. The stock made a bounce back from the crucial support level. Traders who had not closed their position can continue to hold . However, the strategy involving put turned out-of-the money.

We had also advised traders to go short on Mercator Lines with a tight stop-loss at Rs 31.5. The position is still open. Traders can continue to hold on to Mercator Lines short position as recommended last week or even consider rolling over to next month series till the target is achieved.

Feedback or queries (on positions) may be sent to > f&, > by Sunday noon. Replies will be published on Monday.

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