The Hindu Business Line : Nifty futures at critical level

Critical factors
Trading remains active with higher volumes
Nifty futures in premium to the Nifty
Firmness PCR indicates a cautious picture

Nifty moved up further last week, tantalisingly close to the 4,000-mark. It gained 2.5 per cent last week to close at 3850.85, against the previous week close of 3852.80. However, in the intra-week Nifty had a tough time, particularly on Monday, but bounced back with some vigour. Trading activity was also healthy on both derivative and cash segments with volumes picking up.

Rollover of positions from November contract to December series was also decent. About 22 per cent of Nifty contracts witnessed rollovers, while about 20 per cent in the case of stock futures. Among them, the construction sector stocks saw a healthy rollover of positions.

The overall open interest positions witnessed a sharp surge to Rs 57,675 crore last week, breaking the previous record of Rs 56,991 crore, reached on April 27.

The bullish undertone still remains intact as long as Nifty futures stays above 3695-3700. However, sentiment indicators such as put/call ratio and other technical indicators such as Bollinger Band and RSI present a mixed indication. Nifty futures appear to be at critical levels.

Though the undertone looks bullish, a drop below the support level (3930 points) could weaken Nifty futures sharply. If the momentum continues, Nifty/Nifty futures may touch the magical mark of 4,000 points.

We advise investors to go short on Nifty futures, if it dips below the support level. With the current week being the settlement week for November futures, the markets tend to witness volatile condition. So, we advise investors to be cautious and book profits, however, small it may be.

With options trading rich, it may not be wise to consider the strategy of using options. Risk-averse investors can stay away from the market.

Put/call ratio

Open interest put/call ratio decreased to 1.49 (1.4) and volume-wise PCR to 1.31 (0.82). This indicates that some put positions have been added by market participants to hedge against any fall. Interestingly, 4,000 strikes of call and puts of January month contracts also witnessed strong activity. This indicates that market could hover around this level for the next couple of months.

Contango: Nifty futures now rules at a premium against the spot index. Ever since Nifty futures' introduction, it has been trading in backwardation trailing the spot index. However, this time, it has narrowed down to about four points. The premium was as high as about 20 points a couple of weeks ago. The narrowing down of premium indicates some nervousness in the market.

Stock follow-up

Siemens (Rs 1,177): The outlook on Siemens appears negative. The stock witnessed some sharp run up in the price last week, but fell last Friday. Investors may consider go short on the Siemens futures if the spot price dips below Rs 1,165. In that event, it could touch Rs 1,060-65 levels. Risk-averse investors could avoid this strategy.

FIIs trend last week displayed a mixed trend; they were net buyers on one day and sellers on the other few days. However, the cumulative FII positions as percentage of total gross market position on the derivative segment as on November 23 hovers around 28.7 per cent.

Securities in ban period:

The NSE has suspended the trading in the derivative contracts of SRF, NDTV, Escorts and JP Hydro, as the market wide position crossed the 95-per cent limit. NSE advised all clients/members to decrease their positions in these companies through offsetting positions. Any increase in open positions shall attract appropriate penal and disciplinary action, NSE has warned.

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