TRADE SETUP - Aug 12,

Aug 12, 2014

Monday was quite a good day for bulls – just for one reason. The market opened with a gap, no that was not the reason I referred to. The fact that the market closed at day’s high was actually the best part about the market. It belied the “Sell on every rally” concern that had arisen after the last 3 days. But frankly, there were some warnings signs as well

For starters, FIIs net sold Rs 163 cr in cash markets albeit on low volumes. The fact that there is reluctance to buy on way down but propensity to sell at highs should be worrying. The other aspect was the nature of rally which looked like complete short covering which can only take market this far. After this, you need strong cash market buying to take markets higher.

This morning, global cues look strictly OK. Yes, the wall street rallied and Europe gained but our markets saw that coming. Asia is relatively muted and that’s the area of concern as is the rally in Dollar index.

So what next for the markets? Well looks like Nifty is still in a broad 7450-7850 range and I would be keenly watching out for which way does the range break. Also, the leadership of the market may have changed from banking and L&T to individual names like Infosys, Tata Motors, HDFC which actually may not be bad news if these stocks can keep the bears at bay.

But, let me reiterate the point I have been making for some time now. Nifty is fine even if it corrects to 7300 or 7000. It’s the high beta space that warrants caution currently.

Stocks to watch:

Tata Motors should rally 7-10% after blockbuster numbers.

IRB Infra: Might see big relief rally on clean chit from CBI on RTI activist murder case

BPCL: Crude has been soft and if currency stabilises this may rally

Ashok Leyland: Any rub off impact due to strong domestic numbers from Tamo as well

GAIL: Possible short covering after yesterday's slam dunk.