The Hindu Business Line : Nifty may drift

LAST week we had indicated that a mixed outlook may be in store for the Nifty. We had indicated that the Nifty (spot) might go up to touch 3010-3015 points on the positive side and to 2865-75 on the downward side.

In line with our expectation, after touching its all-time high at 3011 during intra-week, the spot Nifty witnessed a sharp correction.

We had advised investors to consider the following strategies for last week:

Go long on Nifty futures by placing the stop-loss at the day's low level at the time of entering into a deal.

Risk-averse investors can adopt the above strategy with Nifty-2800 put at the rate of Rs 13.85.

We had also said if the Nifty begins on bearish note, investors could consider Nifty 2850 puts @ Rs 22.10.

The first strategy would have resulted in a profit of about Rs 1,100 considering the opening level of 2995.60 and the intra-week high level of 3006.40. The second strategy would, however, have resulted in a loss as the puts opened at a higher price of Rs 26. In fact, expecting a volatile trend, we had advised these strategies only for the first two days.

Nifty outlook: This week we expect the Nifty to open on negative note as sentiment indicators such as put/call ratio and cost of carry present a downward bias. If the Nifty opens on weak note, it finds a minor support at 2900-2905 levels, and the next one at 2880-85; if it drifts lower, it could touch a low of 2830-35. On the other hand, if the Nifty gains strength and breaches the 2960 level, it could touch a high of 2995-3000.

Strategy: Go short on Nifty futures if they dip below 2910 levels with a stop-loss at this level; it can be adjusted further down progressively should the Nifty falls further to maximise profits.

Volatility view: The implied volatility for puts rose to 21 per cent against last week's level of 19 per cent; on the other hand, calls IV decreased to 18 per cent (20 per cent). The gain in puts IV and the drop in calls IV suggest a downward bias for Nifty.

As the annualised volatility on Nifty declined marginally to 20.6 per cent (21.5 per cent), we can also expect a narrow range for the Nifty.

A larger discount to spot Nifty also points to a negative trend.

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

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