The Hindu Business Line : Nifty may turn volatile

NIFTY outlook: Last week, we had expected weakness in Nifty and had indicated if the Nifty breaches 2285 it could test 2265 and may even move to 2242-35 levels. We had also indicated, on the contrary, if the Nifty pierces 2335 levels, it could move past the 2250 level. Expecting a downtrend, we had advised investors to go short if the spot Nifty dips below 2285 levels. But the Nifty did not test that level and instead it appreciated sharply.

This week expect the Nifty to remain range-bound but the trend may be volatile. Nifty has been facing strong resistance around 2370-2375 levels while it is has good support at 2345-2350 levels. Any significant moves would be possible only when the index moves beyond these levels.

Strategy: As the strategy is to take advantage of small reversal in prices, the position may run counter to the primary trend. Protective stops are, hence, important. Investors are advised to go long on Nifty, if the Nifty (spot) is able to sustain above 2375 levels; in that event it could go up to 2385-95 or may even cross the psychological 2400-mark.

In contrast, if Nifty is unable to sustain 2350, then it could dip to 2335 and 2325 levels. For the long position, stop-loss can be placed at 2375 while for short-position the protective-loss could be the day's high level at the time of entering deal.

Volatility view: The implied volatility of puts and calls behaved differently; the puts IV declined to 16 per cent from the last week figure of 24 per cent while the calls IV inched up marginally to 17 per cent (16 per cent). The sharp fall in puts IV suggests that market could see a limited downside. The annualised volatility dipped marginally to 18.34 per cent (19.09 per cent).

Put/call ratio: Open Interest put/call ratio, which was rising week after week, showed signs of weakness. While the volume-wise put/call ratio on Nifty jumped to 1.56 (0.60), the open interest PCR declined to 1.66 (1.94). The decline in OI put/call ratio indicates that there has been squaring- up activity on the puts side besides some addition in open interest on the calls side, particularly on Nifty-2400 strike. This also suggests a positive bias.

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

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