The Hindu Business Line : Nifty future encounters resistance

Critical factors
Nifty future trades at discount to Nifty spot index
Implied volatility of puts rules higher than calls
Rollover of open interest positions was healthy

Bullish momentum continued unabated for both Nifty future and Nifty as they touched new highs last week. While spot Nifty closed at 4297.05 after registering 4325.8, Nifty future ended the week at 4284.8.

Overall open interest positions also registered an all-time high figure of Rs 73,534 crore on Thursday — the settlement day for May contracts, on the back of introduction of 31 new stocks into the F&O segment. Open interest positions on Friday stood at Rs 52,069 crore against the previous week's Rs 66,332 crore.

Rollover of open positions was robust in both index as well as stock futures.

While index futures saw rollover of 75 per cent, market wide rollover positions were at 83 per cent.

Among the top stocks that saw in excess of 90 per cent rollover were Jindal Stainless, India Infoline, Patni Computer and Reliance Natural Resources.

We expect Nifty future to face stiff resistance at current levels. While it may start the week in a range-bound manner, there appears to be a high chance of it turning weak during the latter part of the week.

As long as Nifty future stays above 4250-55 levels, there is no threat to the bullish undertone.

A dip below the support level could weaken Nifty sharply. In that event, Nifty future could touch a low of 4045-40 though it faces a minor resistance at 4155-60.

We advise investors to consider going short on Nifty future if it dips below the support level, while keeping the stop-loss at 4250. Adjust the stop-loss to suitably trailing Nifty future so as to maximise profits. Risk-averse investors can stay away from the market as it has the potential to swing sharply.

Put/call ratio

Open interest put/call ratio jumped to 1.62 against the previous week's 1.43 and volume-wise PCR rose to 1.15 (0.98). This indicates that puts positions were added as players were expecting a fall in the markets, or were using them as a hedging mechanism.

Implied volatility

IV witnessed jumped for both calls and puts. While puts IV surged to 31 per cent (21 per cent), calls IV increased to 28 per cent (22 per cent). The relative firmness in puts implied volatility suggests sentiment skewed towards bearish albeit mildly.

Backwardation

Nifty future, which were ruling at a premium to Nifty spot for some time, have swung into a discount once again. Nifty future are now trailing Nifty spot by 12.25 points.

ONGC (Rs 911): The stock is at a crucial stage. While a move past 940 could take it to above 1000-level, a dip below 900 could weaken it to a low of 845 and might even go to 815. We present a negative outlook on the stock. Investors can consider going short on ONGC futures, if it dips below 900, keeping the stop loss at that point. Market lot is 225 units per contract.

Reliance Industries (Rs 1,751): We present a negative outlook on the stock. While it faces strong resistance at current levels, it finds support at around 1710. A dip below support level could weaken it to 1600 and even might to 1575-80-level. Consider going short on Reliance futures once it dips below the support level. Trail the stop loss in line with the stock movement so as to maximise profits. Alternatively investors can buy 1650 put option on the stock at Rs 16.50. Market lot is 150 units per contract.

FIIs trend

The cumulative FII positions as percentage of total gross market positions on the derivative segment as on May 31 stood at 35.80 per cent. FIIs were net buyers for most part of the week. They now hold open positions of Rs 13,011 crore in index futures and Rs 17,380 crore in stock futures. Position wise, they hold 6,00,001 contracts of index futures and 6,24,799 contracts of stock futures.

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

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