The Hindu Business Line : Nifty: Firm trend persists

Critical factors Implied volatility levels dip suggesting a calm condition ahead for the Nifty Volumes improved quite significantly compared to previous week Improvement PCR indicates a cautious trading strategy

Last week, we had given a positive outlook for the Nifty. We had indicated a resistance level for the Nifty at 3190-3200 and that a move past that level could take the Nifty 3440-3450 levels.

In line with our expectation, the Nifty witnessed a positive trend. However, though it pierced the 3200-mark, it did not move to 3440-3450 but closed the week at 3274.35 after hitting an intra-week high of 3286.50.

Follow up

Anticipating a positive week, we had advised investors to go long on the Nifty, keeping the stop-loss positions trailing the Nifty so as to maximise profits. For investors who had gone long on the Nifty, the positions could have fetched positive returns.

Outlook

Undertone still remained bullish on Nifty and nothing seems to have changed from last week. The undertone on Nifty remains firm, as it has crossed the major hurdle at 3190-3200.

The bullish outlook will continue as long as the Nifty remains above 3020-3025 levels, which is well below current levels and it faces minor support at 3185-90.

Anticipating a positive week, we advice investors to consider long positions on Nifty.

Though the support level is placed at quite afar, we advice investors to keep the stop loss at the day's low levels at the time of entering into a contract.

To ensure maximum profit, investors have to adjust the stop-loss positions by trailing the Nifty.

Investors who are willing to take risk could hold on to the positions, keeping the stop loss at 3020 and hold the position till expiry (i.e. August 31) as the chance of the Nifty reaching 3440-3450 levels appears bright.

Volatility view

Implied volatilities of puts and calls slipped further. While puts IV dipped to 32 per cent against last week levels of 35 per cent, calls IV to 35 per cent (39 per cent).

The drop in IVs points to less volatile conditions in the market. Though both IVs dipped, puts IV (at 32 per cent) is still lower than that of calls IV (35 per cent), indicating underlying bullishness of the market.

However, annualised volatility on Nifty still remains above IV levels.

It currently stands at 37.17 per cent (40.52 per cent) and has been witnessing a declining trend for quite some; this means the chance of sharp volatile condition that plagued markets a few weeks ago remains rather low.

Put/call ratio

Open interest put/call ratio increased to 1.38 (1.14) and volume-wise PCR to 1.01 (0.93). The increase in open interest PCR indicates a lot of puts positions added as a hedge, particularly in the back of improved volumes.

Titan Industries: We had advised investors to go long on the stock if the spot price crossed Rs 635. In that event, the stock could touch Rs 680 we had indicated.

In line with our expectation, the stock surged sharply after crossing the indicated resistance levels.

It closed the week at Rs 752.30 after hitting intra-week high of Rs 752.30. For those who had followed out advice, it would have meant windfall profits.

India Cements (Rs 188.60): The outlook for the stock is positive. While the resistance is placed at Rs 192, it finds support at Rs 171.

A move past the resistance levels could take the stock to Rs 213-215 levels.

However, this recommendation is only for investors who are willing to take risks, as the market lot is 1450 units per contract.

Securities in ban period

The derivative contracts in the underlying of JP Hydro & Reliance Petroleum that have crossed the 95 per cent of the market-wide position limit on August 1 continue to be in the ban period, according to a NSE statement.

Cumulative FII positions as percentage of total gross market position in the derivative segment as on August 10 declined to 31.06 per cent against last Thursday's position of 32.96 per cent.

This indicates an increased retail participation in F&O segment, particularly on the back of improved trading volumes.

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