The Hindu Business Line : Nifty future may weaken further

As expected last week, the Nifty January future faced strong resistance. However, it managed to end the week on a positive note after witnessing higher volatility, particularly intra-day. The Nifty January future is trading almost in line with the Nifty spot close, with only a 3.5-point premium.

Follow-up: Last week, we had advised investors to go short on Nifty future keeping the stop loss at 6300 level. We had also presented another strategy — buying the Nifty 6100 put. Though the market moved on expected lines, these positions would not have yielded any profits. Though the Nifty January future touched a low of 6115, the stop-loss of 6300 has been breached, putting investors at loss. The Nifty 6100 put is quoting at the Rs 125-level currently against last week’s Rs 161 level. Investors can persist with this strategy.

Outlook

The bullish undertone was shaken slightly. As mentioned last week, the Nifty January future faces severe resistance around 6335-6350 level and a minor resistance at 6280-6300 levels.

While it faces support at 6190, a dip below that level could take it to 6045 initially and maybe even to 5850 levels.

Recommendation

The chance of Nifty future dipping below 6K appears high this week. We advise investors to go short on Nifty futures, keeping the stop loss at 6350.

Alternatively, investors can also consider a short straddle strategy, as we expect the market to remain at around current levels though with heightened volatility. Risk-averse investors could stay away from this strategy as the loss could be unlimited while the profit would be the premium collected. Consider going short on 6200-strikes of call and puts, which are currently trading at Rs 163.45 and Rs 159.35.

Implied volatility

Implied volatility (IV) of puts and calls jumped from the previous week levels. While puts IV increased to 30 per cent (24 per cent), calls IV weakened marginally to 30 per cent (26 per cent).

The jump in volatility indicates that market might witness volatile trading pattern.

Put/call ratio

While volume-wide PCR increased to 1.40 (1.27), open interest wide PCR decreased to 1.48 against last week’s 1.55. This suggests lot of puts position were squared-off on Friday, when the market jumped sharply.

Stock futures

NTPC: We had advised investors to consider shorting the NTPC January future. Though it provided some profit opportunities during intra-week trades, it did not touch our targeted levels.

Infosys: Investors can capitalise on the aftermath of the Infosys numbers by considering straddle (1710 strike). Investors can hold into this strategy as Infosys could take a clear and swift direction this week (possibly on the negative side).

ICICI Bank (Rs 1,435): The stock has entered the overbought zone. While it faces resistance at Rs 1,472-75, the stock faces support at Rs 1,370 a dip below this could weaken it to Rs 1,325.

Consider going short on ICICI Bank future keeping the stop loss at Rs 1,475 level. The market lot is 175 units per contract.

FII trend

The cumulative FII positions as percentage of total gross market position on the derivative segment as on January 10 is 37.05 per cent (36.43 per cent on January 3). FIIs continued their selling last week in the F&O segment, particularly in stock futures.

Note: In last week’s column, a strategy for the Nifty 6100 put was wrongly mentioned as the Nifty 6100 call. The strike price presented was, however, correct. We regret the error.

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

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