The Hindu Business Line : Nifty at critical stage; may turn weak

As predicted in this column, the Nifty witnessed heightened intra-day volatility during last week but closed in a positive territory at 3966.40 against the previous week close of 3871.15.

However, the sharp swings intra-day did not impact the open interest positions; overall open interest positions increased to Rs 61,344 crore against the previous week 's figure of Rs 56,147 crore. The increase in open positions is also due to the introduction of 23 new contracts on the NSE.

Follow-up

We had indicated a support at 3795-3800 and a resistance at 3920-3925 and advised investors to consider shorting the Nifty futures, if it reaches the resistance level. However, those who had adopted this strategy would have booked losses as the Nifty futures surged past resistance levels.

Outlook

Now Nifty futures are critically poised. While a move past 3985-90 could take the Nifty to new heights, a fall below 3955 could weaken the outlook for the index.

Also, the January Nifty 4000 calls saw strong activity indicating that a lot of call writers were willing to assume risk. This suggests a strong resistance for the Nifty around 4000-mark.

Recommendation

We expect that Nifty might turn weak as it is within a short distance of the 4000 mark and faces strong resistance at that level. We advise investors to consider shorting the Nifty futures if it dips below the 3955 support levels. In that case, it could touch 3875.

Risk-averse investors can stay away from the market till the Nifty sets a clear trading pattern.

Put/call ratio

Open interest put/call ratio increased to 1.59 (1.24) and volume-wise PCR to 1.37 (1.27). The increase in put/call ratio is due to a low-level of activity amidst volatile conditions. This also points to uncertainties among market players.

Implied volatility

Puts IV and calls IV remained flat at around 25-26 per cent levels, raising the possibility of another bout of volatility in the market.

However, puts IV at 23 per cent is marginally lower than calls IV at 25 per cent (26 per cent). This indicates a chance of the Nifty opening positively on Tuesday.

Backwardation

The Nifty futures moved into premium zone once again. This is the first week of the introduction of the new series - the March contracts. The Nifty futures are now at a marginal premium to the spot index by1.6 points, against last week's discount of 14.55 points.

This shows that lot of short positions were allowed to expire on Thursday and did not see rollovers.

Stock follow-up

MTNL (Rs 139): We were bullish on the stock and indicated a support at Rs 140 level. We had advised investors to go long on the counter keeping a stop-loss at Rs 140 and said that a move past the current level could take the stock to Rs 150-160. Though the stock did not touch our indicated price levels, it reached an intra week high of Rs 148, providing profit opportunities to the investors. The stock closed the week at around Rs 143.

IVRCL Infrastructures (Rs 385)

We are bearish on the stock. It finds resistance at Rs 395-97 and support at Rs 376. While a move past resistance levels could take the stock to Rs 420-425, a dip below Rs 376 might lead it down to around Rs 350. We recommend that investors consider shorting the futures, if the spot price dips below support level. Risk averse investors can stay away from this, as the market lot is 1000 units per contract.

FIIs trend

The cumulative FII positions as a percentage of gross market positions on the derivative segment rose to 33.28 per cent against last week's position of 31.46 per cent on Thursday. This indicates lack of retail participation. Also FIIs were buyers, albeit marginally, in most days of the week.

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