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High volatility ahead

Monday, October 22, 2007

The week started on a positive note and the rally continued till Tuesday. On Wednesday, the markets witnessed a sharp correction following the Sebi’s proposal to curb FII inflows through participatory notes (PNs).

On the weekly chart, the Nifty has seen a reversal, which indicates a sell signal. Technically, the Nifty crossover above 5,300 is bullish.

The long-term support for the Nifty is at 5,000 and it is 17,000 for the Sensex. If the Nifty breaks the 5,000 level, it can then correct downwards to 4,869 and further below to 4,664.

Post-correction there may be a rally again, with the Sensex zooming past 19,500 and the Nifty breaching the 5,750 level.

The implied volatility of the Nifty has increased to 49 per cent from 39 per cent, while the cost of carrying for the Nifty as well as for most other index stocks has turned negative. A derivatives analyst at Emkay Share expects high volatility in the next session.

Volumes in the market continue to remain on the higher side of the band with huge volatility. This indicates wariness among traders. The Nifty futures added 7.3 lakh shares in open interest with an increase in the cost of carrying.

This indicates that long positions are being created, which can further fuel volatility in the market.

Posted by FR at 9:29 AM  

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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.