The Hindu Business Line : Sideways trend in Nifty future

After starting the week on a promising note, the Nifty February futures turned weak on Wednesday, Thursday and closed the week sharply lower. Volatility remained high through the week, especially in intra-day trades. Turnover dipped sharply as day traders stayed away from the market. The average daily turnover was in the region of Rs 41,000 crore to Rs 42,000 crore.

Overall open interest positions improved marginally to about Rs 70,000 crore (Rs 63,626 crore).

Follow-up: We had advised investors to consider going long on Nifty February futures expecting a relief rally. As expected, the Nifty February future opened on a strong note and met our first targeted resistance level of 5550, thus providing profit opportunities for traders. However, the Nifty future ended in negative territory on a week-on-week basis.

Outlook

The Nifty future continues to struggle to sustain its winning streak. The long-term resistance still rules at 5850. The sharp fall during the latter part of the week indicates that it is still under tight bear grip.

With each fall, it creates a new resistance zone at lower level. The immediate resistance for the Nifty future appears around 5300-5325 and faces support at around 4900 levels. A dip below 4900 could take it to 4700 level, where a minor support zone exists. The overall sentiment will turn bullish once it moves past the 6350 mark with heightened volumes. Bear grip would exist as long as the Nifty future stays below 5850 level.

Recommendation

With implied volatility ruling sharply higher, the market might see heightened intra-day volatility. We expect the Nifty future to move in a broader range of 4700-5300 during this week.

Risk-averse investors could stay away from the market this week as well.

Implied volatility

Implied volatility (IV) of puts and calls still rules well above 50 per cent mark. Puts IV decreased to 54 per cent (60 per cent) and calls IV to 57 per cent (65 per cent). The firmness in volatilities paints a grim picture for day-traders, as market is likely to see volatile trading patterns. Besides, it also means that options are trading rich. The higher IV for calls suggests that more call writers are in the market, indicating a stiff resistance to any rally.

Stock futures

HDFC: Expecting a positive breakout on this counter, we had advised investors to go long.

We had said that it might touch the resistance level of 3200 during the week. Though it provided some profit opportunities as it touched a high of about 3095, it failed to reach our targeted level and declined in line with overall market conditions.

Satyam Computer: We had presented a positive outlook on the stock and expected it to touch the 450-level. The stock touched a high of Rs 442, and provided some profit opportunities.

Tata Steel: The outlook for the stock appears negative. While it faces resistance at Rs 815, the stock finds support at Rs 690 levels. The chance of the stock hitting its support level appears high. Consider going short keeping the stop loss at Rs 780-785.

FIIs trend

Cumulative FII positions as a percentage of gross market positions in the derivative segment as on February 7 were at 45.09 per cent (47.93 per cent on February 1). This indicates FII domination of the F&O space. FIIs were net sellers last week, particularly on index futures. They now hold index futures worth Rs 25,530 crore (Rs 24,019 crore) and stock futures worth Rs 28,583 crore (Rs 26,970 crore).

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

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