The Hindu Business Line : Nifty positive; but may face resistance

Critical factors
Nifty futures turns into premium zone
Implied volatility dips for calls but jumps for puts
Trading volumes remained buoyant

Nifty ruled weak for most part of last week, but recovered sharply during Wednesday and Thursday sessions. However, the index ended in the negative territory at 4146.20 against the previous week's 4187.40, amid higher trading volumes.

Open interest positions stood at Rs 62,058 crore against last week's position of Rs 60,356 crore. Open positions, however, dipped to Rs 58,424 crore but saw a strong recovery on Thursday. This indicates a build-up of fresh positions in the market.

Last week, we had advised that common investors should stay away from the market last week and had asked risk-taking investors to consider a short straddle strategy. Though on a week-on-week basis, the position is in the positive zone, the markets swung wildly last week.Those who held on to this position can continue to do so till the expiry.

Nifty futures outlook remains positive as long as it rules above 4130. Only a dip below 4025-50 could turn the undertone negative. However, Nifty futures face strong resistance at 4230-35 levels. A fall below support level has the potential to take Nifty to a low of 3810-20.

Expecting the momentum to continue, we advise investors to consider long positions on Nifty futures. The stop loss can be kept at current level and trail Nifty futures suitably so as to maximise profits. The recommendation is valid only for the first two days of the coming week. With the current week being the one for settlementof February contracts, the chance of Nifty turning volatile is higher.

Put/call ratio

Open interest put/call ratio decreased to 1.32 against the previous week's 1.71 while volume-wise PCR declined to 1.13 (1.3). The weakness in put/call ratios suggest that many investors squared up their positions owing to the volatility in the markets last week.

Implied volatility

IV displayed divergent trends for calls and puts. While puts IV jumped to 25 per cent from last week's position of 19 per cent, calls IV slumped to 24 per cent (from 45 per cent). The jump in puts IV indicates that a lot of puts positions were added as a hedge against any negative turn in the market. Call writers would have earned profit when Nifty dipped sharply.

Backwardation

Nifty February futures now trades at a premium of about 14 points to spot Nifty. The premium gap is unusual considering that only four days are left for the settlement of February contracts; generally the gap between futures and spot price tends to narrow down towards settlement date. The premium for March contracts, however, was lower at 12 points.

Stock follow-up

We had presented a negative outlook on SBI (previous week) and IFCI (last week); both the counters trended close to our targeted levels, thus providing profit opportunities.

For Punj Lloyd, we had said that it was at critical level. A move past Rs 1,075 could take the stock to a high of Rs 1,092 while a drop could take it to Rs 995-1,000, we had predicted. Though we had presented a positive outlook, the stock hit downside targets.

Bharti Airtel (Rs 793): The stock finds support at Rs 760 and resistance at Rs 800. While a move past the resistance could take it to around Rs 835-850, a drop below resistance could weaken it to Rs 710 and even to Rs 660-665. Expecting a positive breakout, we advise investors to go long on the counter with a stop-loss at Rs 800. Adjust the stop-loss suitably so as to maximise profit. The market lot is 1000 units per contract.

Contract size:

The NSE has revised contract size for many counters. To know the exact contract size check in at http://www.nseindia.com/

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

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