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Market Technical View

Sunday, June 24, 2007

As expected, Nifty moved in the 4050-4250 band. While spot Nifty closed at 4252.05, a gain of about 2.4 per cent over the week, Nifty future ended at 4240.75 (4144.20).

Overall open interest position hit a new high this week at Rs 76,006 crore against last week`s Rs 69,028 crore. The previous all-time high was Rs 73,534 crore touched on May 31.

Follow-up: We had advised investors to consider short straddle strategy for a maximum of two days last week by shorting 4200 strikes of put/call. The strategy should have provided some profit opportunities during the first two days of trading last week.

Outlook

Nifty future is ruling around its resistance level. It finds support at 4050. If it opens the week on strong note, it might touch all-time high. On the other hand, if it weakens, it could test the support level. We expect the latter to happen, as it is in an over-bought position.

Recommendation

We advise investors to consider going short on Nifty July future. Allow the market to settle for few minutes and then enter; keeping the stop-loss at day`s high or 4250 whichever is higher at the time of entering into a deal. Trail Nifty future so as to maximise profits. If it opens on a strong note, avoid entering the market. Besides, this being the settlement week, we can expect Nifty to show wild swings. So those who are willing to take risks can consider shorting Nifty future.

Put/call ratio

Open interest put/call ratio increased to 1.4 against the previous week`s 1.25 while volume wise PCR declined to 1.03 (1.10).

This indicates a lot of call positions were squared off during last week when the market climbed sharply.

Decline in volume wise PCR suggests lack of market activity, particularly on Friday, as investors are unsure of market direction.

Implied volatility

IV declined for calls while improved for puts. While puts IV increased to 21 per cent (18 per cent), calls implied volatility inched down to 19 per cent (20 per cent).

This indicates a negative picture as puts IV now commands higher premium than that of call implied volatility.


Backwardation

Nifty future narrowed down its discount during the closing of hours of trading on Friday.

The Nifty future now trails Nifty by just 11.3 points against last week`s difference of 27 points.

With settlement round the corner for June contracts, it is natural that future price and spot price get converge.

Stock futures

Tata Steel (Rs 600.45): Last week, we had presented a negative outlook on the stock; while we mentioned its support at Rs 595 and resistance at Rs 625 level, we expected the stock to touch Rs 550-555 levels.

But, it swung in Rs 585-616 range before ending the week on flat note. We still stand by our recommendation and advice investors hold on to the positions.

ICICI Bank (Rs 954.55): We present a negative outlook on the stock. It is at a critical stage.

While it faces resistance at current level, the stock faces support at Rs 940-935 levels. Consider shorting ICICI Bank future if it dips below Rs 935 level.

In that event, it could touch Rs 900 or even Rs 845-850 levels. Market lot is 350 units per contract.

NTPC (Rs 152.75): We present a positive outlook on the stock. Generally, this stock doesn`t witness any wild swings.

It faces resistance at Rs 158 and support at current level. Consider going long on the stock keeping stop loss at Rs 150 levels.

A move past resistance could take it to Rs 166, which is its 52-week high.

Market lot is 1,625 units per contract

(The opinions expressed in this column are based on technical analysis. There is risk of loss in trading.)

Posted by FR at 10:25 PM  

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IMPORTANT DISCLAIMER

Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.