The Hindu Business Line : Nifty may edge up; SBI may seek lower levels

Critical factors
Calls IV increased even as puts IV declined.
Witnessed moderate trading volumes.
Improvement PCR indicates a cautious road ahead

We have been positive on the Nifty as long as it remains above the 3020-25 level. In line with our expectation, the Nifty displayed a firm trend last week. Nifty closed the week at 3356.75 after hitting an intra-week high of 3385.15.

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. Those who had remained long on Nifty could have earned decent profits.

Outlook

Undertone still remains mildly bullish even as indicators such as put/call ratio and implied volatilities suggest a divergent trend. However, as the Nifty is nearing its target levels, it might see some sharp correction. As has been written in this column, the positive outlook on Nifty remains intact as long as it rules above 3020-3025 level.

This week Nifty faces minor resistance at 3349 while finds a support at 3328 levels. If the Nifty is able to move past the resistance level, it could touch the target of 3440-45 levels. On the other hand, if it fails to sustain at current levels and dips below 3328, then the chance of Nifty touching 3170 level appears bright.Anticipating a positive week, we advice investors to consider long positions on Nifty only if it opens on positive note on Monday. To ensure maximum profits, investors have to adjust the stop-loss positions by trailing the Nifty.

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

Risk-averse investors can avoid entering into the market this time.

Volatility view

Implied volatilities of puts and calls displayed a divergent trend. While puts IV dipped to 24 per cent against last week levels of 32 per cent, calls IV increased to 38 per cent (35 per cent). While the drop in puts IV suggests limited downside, the firm trend in calls IV indicates bullish undertone. Puts IV (at 32 per cent) is still lower than that of calls IV (35 per cent), indicating underlying bullishness of the market.

Annualised volatility on Nifty also dipped sharply. It currently stands at 33.85 per cent (37.17 per) and has been witnessing a declining trend for quite some; this means the chance of sharp volatile condition that used plague markets a few weeks back remains rather low.

Put/call ratio

Open interest put/call ratio increased to 1.58 (1.38) and volume-wise PCR to 1.03 (1.01). The increase in open interest PCR indicates a lot of puts positions added as a hedge. Also, with a sharp run-up, puts positions have been added in anticipation of correction by some quarters.

India Cements: We had presented a positive outlook on the stock and advised investors to go long if the spot price moves past Rs 192. Though, the stock breached that level, it could not reach the targeted level of Rs 213-215. However, it provided some profit opportunity, considering the opening price (Rs 190.50), intra-week high (Rs 199.30) and the closing price (Rs 194).

SBI : The outlook on SBI appears weak. While the counters faces a resistance at 889, the stock finds a support at 870. A dip below the support levels could take the counter to 850 while a move past the resistance level could take the stock to 945.

Expecting a negative outlook, we advice investors to consider shorting the counter if it dips below 870 level. Market lot is 500 units per contract. Once again, this recommendation is only for those who are willing to rake risk. Others can avoid this strategy.

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 17 declined to 29.36 per cent against last Thursday's position of 31.06 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).