The Hindu Business Line : Nifty Futures may head for correction

Both Nifty and Nifty futures pierced the psychological 4000-point barrier on Friday. While the latter closed above the 4000-mark at 4007.4, Nifty finished a shade lower at 3997.60. Last week, we had indicated that if the momentum is maintained then Nifty futures could touch 4000.

We were rather sceptical of the current rally last week and had asked investors to go short on Nifty futures if it dips below 3930 levels. Though it dipped below the recommended level, Nifty futures could not go beyond 3920 points.

Rollover of positions from November contract to December series was a shade lower compared with previous month. The overall market-wide rollover was 82 per cent against the previous month's 83.5 per cent; it was about 68 per cent (72 per cent) in the case of Nifty futures.

The overall open interest positions peaked to Rs 64,500 crore against last week value of Rs 57,675 crore. However, with the expiry of November contracts, the value dipped to Rs 44,716 crore, which is still a notch higher than previous months' positions.

The bullish undertone remains intact as long as Nifty futures stays above 3910-20. However, sentiment indicators such as put/call ratio and other technical indicators such as Bollinger Band and RSI present a mixed indication. Nifty futures appears to be heading for a correction. Though the undertone looks bullish, a drop below the support level (3910 points) could weaken Nifty futures sharply. However, we expect the Nifty futures, which faces strong resistance at 4030-35 levels, to begin on strong note on Monday.

We advise investors to go short on Nifty futures if it dips below the support level. With the market gaining sharply, we advise investors to be cautious and book profits, however, small it may be. Investors who can tolerate risk can hold on to the short position beyond next week adjusting the stop loss suitably.On the other hand, investors may consider buying Nifty 3950 put options if it begins on positive note.

Put/call ratio

Open interest put/call ratio increased to 1.58 (1.51) and volume-wise PCR to 1.34 (1.07). This indicates that some put positions have been added by market participants to hedge against any fall (Options side volume suggests 3950-strike has been added). Interestingly, 4000 and 3950 strikes of call and puts of January month also witnessed strong activity. This indicates that market could hover around this level for the next couple of months.

Stock follow-up

Siemens (Rs 1,177): Last week we presented a negative outlook on Siemens and advised investors to go short on the counter if the spot price dips below Rs 1,165. Though it did not hit our targeted level of Rs 1,060-65, those who had gone short would have earned a decent profit as the counter hit a low of Rs 1,116 during the week against the opening of 1160.

Reliance Communication (Rs 442): This is another counter that has scaled a new peak during last week; despite the recent firm trend, we are of the opinion that it might turn weak this week. While it finds support at Rs 432, if the current momentum is maintained the stock could reach Rs 460-465 levels. We advise investors to go short on the counter if it dips below Rs 432 and in that event the stock could touch a low of Rs 415-420. Market lot is 700 contracts.

Last week, foreign institutional investors were predominantly sellers. However, cumulative FII positions, as percentage of total gross market position on the derivative segment, as on November 30 increased to 33.19 per cent against last week Thursday's position of 28.7 per cent. As has been happening, retail and other segments did not rollover their positions like FIIs.

Securities in ban period:

The NSE has suspended trading in the derivative contracts of the recently listed Parsvanath, as the market-wide position crossed the 95-per cent limit.

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

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