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Despite a positive start to the holiday-shortened week, the Sensex ended with marginal losses owing to selective profit taking. Markets witnessed stock-specific activity because of derivatives expiry-related cues. The Sensex neared the 17,000-mark during the course of the week as the index touched a high of 16,943 on Tuesday. However, after slipping to a low of 16,495, the index finally ended the week with a marginal loss of 48 points at 16,693.

Among the index stocks - Maruti and SBI jumped over 11.5 per cent each to Rs 1,641 and Rs 2,139, respectively. HDFC, Sun Pharma, HDFC Bank, Tata Motors, DLF and Grasim surged 7-9 per cent each. Bharti Airtel and ONGC, however, were down nearly 2 per cent.

The market will continue to remain up as long as the Sensex holds the 16,400 level. A breach of this level could see the index drop towards 14,800. Next week, trading activity may remain low owing to holidays at the start and end of week - Dussehra and Gandhi Jayanti, respectively. Expect the index to move more or less in the range of 16,970-16,400 unless there is any major external influence.

The Nifty regained the 5,000-mark on Tuesday after a gap of 16 months. The index after touching a high of 5,036, slipped to a low of 4,904. It finally settled with a loss of 17 points at 4,959.

The Nifty is currently in the rising channel and may find considerable support around 4,825, which is also its short-term (20-day) daily moving average (DMA). The medium-term (50-day) DMA is at 4,655.

Next week, the index may find support around 4,910-4,890-4,875 and resistance around 5,010-5,025-5,040.

Upside breakout seen above 5,010

The Nifty failed to hold the 5,000 level and closed at the 4,959 on Friday. The daily Relative Strength Index (RSI) has slid further away from its trigger line, indicating caution. The October futures was volatile on Friday, testing the upside breakout level of 5,010 and the downside breakout level of 4,910. It is important for the Nifty futures to trade above the 5,010 level for an upside breakout and maintained its support of 4,910 for a downside breakout.

Trading data on the futures & options (F&O) segment suggest that the Nifty will find strong resistance above the 5,000 level in near-term as traders are expected to book profits at this level. The support is seen around the 4,900 level and so a rangebound trading is expected next week.

The Nifty October futures were trading at a premium to the spot, indicating that bulls continued to hold their long positions. However, traders were not building fresh positions as the futures on Friday added 35,000 shares in open interest (OI) despite an intraday build-up of 1.43 million shares.

The Bloomberg data suggested that the traders were covering their short positions when the Nifty was trading below the 4,950 level, while fresh short positions were created above the 4,980 level. This meant that traders expected the index to get support below the 4,950 level and face resistance at around the 5,000 level. According to Bloomberg data, traders were selling 5,100-5,300 strike calls as they expected the index to trade below these levels. Traders were writing 4,900-4,800 strike puts and buying the 5,000 strike put as they expected the Nifty to get support at around 4,800-4,900 levels and resistance above the 5,000 level.

Foreign institutional investors (FIIs) seemed to have booked profit in index futures on Friday as open interest in the index declined despite the higher sell-side trades. FIIs have created fresh short positions in stocks futures as OI in stock futures increased by 2.1 per cent, mostly through sell-side trades. However, these investors were net buyers in index options.

Index Strategy

Making a confident directional call on Nifty is certainly a tough task, at least just as yet. However, it can be said with some confidence that the index in all likelihood would trade sideways between 4,800 and 5,100 levels for some time. While the easiest thing to do in such times is to stay away from trading, traders with a high-risk appetite can consider setting an Iron Condor. This strategy can be used when you are neither overtly bullish nor bearish on the underlying, but at the same time believe it to remain within a range. You can set an Iron Condor by combining a bull put and a bear call option spread
Setting the spread

Since 5,100 appears to be upper range for Nifty, traders can sell Nifty Oct 5,100 Call, which closed at Rs 85. But since that will expose you to unlimited losses lest the Nifty trend upwards, you can buy Nifty Oct 5,200 Call (trading at Rs 54) to protect yourself. You have now set a bear call spread, in which the maximum profit will occur when Nifty trades below 5,100 and maximum loss if Nifty moves above 5,200. The second part of this strategy involves sealing the lower end of the trading range anticipated. You can do so by selling Nifty Oct 4,800 put (trading at Rs 89) and protecting that by buying Nifty Oct 4,700 put (trading at Rs 64). This bull put spread will enjoy maximum profits when Nifty trades above 4,800 and maximum losses when it falls below 4,700. On the whole, the net initial credit would be Rs 56, which incidentally would also be the maximum profit that you can make from the spread.
Profitability and exits

The combination of these two strategies gives you an Iron Condor, whose maximum profit zone is when the Nifty closes between 4,800 and 5,100, and maximum losses when Nifty moves either above 5,200 or below 4,700. Note that the strike prices of the long options on both the ends can be tweaked depending on the extent of protection you need from a surprise movement in the index. The cost of purchasing the options will, however, change the profitability of the spread by that much. While it is advisable to set both the legs of the spread at the same time, traders can consider doing it in parts depending on the market opening on Tuesday. And since it involves shorting options, providing for an exit strategy is also equally important. Note that exits can also be phased depending on the Nifty’s position. For instance, close the call spread first if Nifty trends upwards and the put spread in case it weakens.

Nifty stayed firmly above the 4,900 level last week though some nervousness was observed around 5,000. The narrow movement between 4,900 and 5,036 has resulted in a tiny doji star in the weekly candlestick chart that denotes indecision. However, the correction witnessed last week does not mar the positive short-term outlook for the Nifty. Short-term traders can buy in declines as long as the index holds above 4860. Short-term targets on a move above 5,036 are 5,060 and 5,154. The medium-term view for the index is also positive since it is perched above the key medium-term resistance at 4,900. As long as this level holds, the index can attempt to achieve the immediate medium-term targets of 5,166 and 5,190. Medium term target zone beyond 5,200 is around 5,700.
Global Cues

Global benchmarks paused last week and recorded mild declines. Surprisingly, CBOE VIX rose to its highest level in a month implying that investors are getting edgy at this seemingly indomitable uptrend.

Mild declines were witnessed in Asian indices such as the Hang Seng, KLSE Composite, Jakarta Composite and so on. The benchmark that is showing a clear medium-term downtrend is the Shanghai Composite Index. The 4 per cent decline last week appears to the third part of the medium-term decline. The down move in Dow last week will only qualify as a short-term correction.

A close below 9,500 is required to indicate that a serious correction is unfolding in this index. Else it can trudge higher to 10,045 or 10,296.

U.S. stock finished lower Friday after a late rally attempt failed. Some investors were cashing in on the six-month stock market rally while pondering the economic outlook for the rest of the year, with many looking ahead to next Friday's employment report for September.

Treasuries were higher amid the weakness in equities. The dollar index was lower. Gold futures were lower. Crude oil futures were mixed.

Trading was slow following a batch of mixed economic reports: August durable goods orders

unexpectedly fell 2.4% after surging 5.1% in July; August new home sales rose 0.7% to a still-modest 429,000 annual rate from a revised 426,000 in July; and the September Michigan Consumer Sentiment index rose to 73.5 from the 70.5 preliminary reading and 65.6 in August.

"After a blistering run, the S&P 500 is pausing for air," wrote S&P equity strategist Alec Young in a note Friday. "[W]e think the current pullback is likely to be short lived as S&P Economics believes the fragility of recovery will lead the Fed to be extremely incremental in exiting quantitative easing."

The upshot: Young thinks "this realization will likely fuel renewed risk taking before long."

As for the economy, "so far the recovery has been anything but straightforward, and that's leaving policymakers in a quandary on when and how to exit the many stimulus measures," wrote Action Economics analysts in a website posting Friday.

Wall Street will be watching next week's data releases for clues on the status of the recovery. Second-quarter GDP is expected to be revised slightly lower to a 1.2% rate of decline.

The manufacturing reports are expected to show some further improvement, says Action Economics. The labor market is expected to remain weak, with next Friday's report on September nonfarm payrolls expected to fall another 173,000, while the unemployment rate rises to 9.8%.

U.S. stock index futures fall, indicating a weaker start for Wall Street on Tuesday. The futures for Dow Jones industrial average DJc1, the S&P 500 SPc1 and the Nasdaq Composite NDc1 were down 0.1 to 0.3 percent by 0820 GMT.

The trickle has turned into a deluge. India Inc's order book has more than doubled to an all-time high of Rs 73,320 crore in the second quarter of the current financial year, compared to the first quarter. On a year-on-year basis, the increase is 21 per cent.

An analysis of order book announcements by 63 companies shows that capital goods, engineering and infrastructure have led the way, cornering 86 per cent (Rs 63,439 crore) of the total orders. The remaining Rs 9,881 crore went to gems & jewellery, pharmaceuticals and telecom. Larsen & Toubro (L&T) topped the list with new orders worth Rs 14,253 crore.

The order backlog is equally impressive and suggests strong revenue streams for the next few years. Electrical equipment giant Bharat Heavy Electricals Ltd has an order backlog of over Rs 117,000 crore, which could see the company through for the next four years. Engineering major L&T has a total order book of Rs 70,000 crore, which is almost 1.75 times its annual turnover.

It's not the big boys alone who are comfortably placed. For example, BGR Energy, which has won contracts worth Rs 1,633 crore each for two power projects, has an overall order position of Rs 12,500 crore, providing a revenue stream for more than three years.

The bulk of orders has come from public sector undertakings and central and state governments. Foreign companies accounted for a quarter and the private sector for the rest.

India Inc's bosses are predictably upbeat. Pervez Umrigar, managing director of Gammon Infrastructure Projects, said the infrastructure sector has a huge long-term potential.

"The financial position was grim last year, but now it is recovering. I hope complete recovery will take place by this year-end."

Bankers said the order book would continue to be impressive. The banking sector's exposure to the infrastructure sector went up 35 per cent year-on-year and is expected to improve further.

ICICI Bank's Managing Director & CEO Chanda Kochhar said she expected the next level of credit growth to come from project finance apart from home and auto loans. For example, the government's $20 billion roads programme is well on track and a lot of orders are expected to flow into the books of Indian companies.

Shares in Oil India are expected to rise 5 to 7 percent on debut on Wednesday following lukewarm starts by two recent large listings, although traders said firm demand for the stock should help it hold on to gains.

Oil India, the second state-run firm to go public this year after utility NHPC Ltd, raised $570 million at 1,050 rupees a share in an initial public offering that was subscribed more than 30 times.

It is expected to list between 1,100 to 1,125 rupees a share.

F & O statistics