The Hindu Business Line : Bull momentum likely to continue

Critical factors
Turnover improves marginally.
Implied volatilities dip.
Nifty futures ending marginal premium.
Rollover of open positions pick up sharply.

K.S. Badri Narayanan

The bull run that started around the second week of April extended its grip over last week also. Despite this, market wide turnover improved only marginally. This is in contrast to the usual heightened activity ahead of the settlement week. In terms of rollover of open positions, nifty index futures saw a healthy 34 per cent rollover. Stock futures also saw similar rollover in positions.

The overall market wide open interest positions increased to Rs 67,827 crore against the previous week position of Rs 60,951 crore. This when seen in the light of a healthy rollover of positions suggests a build-up in traders’ confidence. Willingness of traders’ to carry over their positions also points at a reversal in market sentiments.

Follow-up

Last week we had presented two strategies: 1) Going short on Nifty future keeping the stop loss at 4850; and 2) Considering straddle strategy involving 4700-strikes. While the first strategy would have resulted in heavy loss, the second strategy could have been in positive zone, albeit marginally.

Outlook: We expect the bull momentum to continue for Nifty future, as it broke the crucial resistance at 4850.The next resistance is at 5100 and a move above this level could take Nifty future to 5350 level. The sharp recovery over the last week has turned sentiments positive. We, however, believe that the Nifty future would be in bear zone only as long as it stays below 5850. The Nifty future finds immediate support at 4910 and then at 4625. The crucial support level is pegged at 4490-95.

Recommendation

We are providing the following strategies to investors:

1) Consider going long on Nifty future keeping the stop-loss at 49l0. The current bull rally, if it sustains, could take the Nifty future to 5260.

Risk-averse investors can stay away from the market with corporates coming out their results. Besides, this being the settlement week for April contracts, market might see heightened volatility.

Implied volatility

Implied volatilities for puts improved marginally to39 per cent (38 per cent) while calls IV declined to 42 per cent (44 per cent).Despite the decline, call IV is still ruling higher than puts IV. This indicates that still many traders are holding on to their call positions on hopes that the Nifty would move up.

Put/call ratio

Volume wide put/call ratio increased to 0.94 (0.81) and open interest PCR to 1.21 (1.19). The increase in volume-wide put/call ratio indicates picking up of traders’ interest.

Stock futures

Reliance Industries

Expecting a negative trend on the counter, we advised investors to go short keeping the stop-loss at 2,585. However, the stock did not dip below the support level of 2465.

Reliance Petro (187.15): After moving up sharply in the recent past, the stock is at a critical juncture. While a move past 195 could take it to 220 levels, a drop below 180-182 levels might weaken RPL to 165 levels. Expecting the latter, we advice investors to short on RPL (only if it dips below 180) keeping the stop-loss at 183.

FIIs trend

The cumulative FII positions as a percentage of total gross market position on the derivative segment as on April 17 was 41.56 per cent. FIIs had indulged in alternate bouts of buying and selling throughout last week. They now hold index futures worth Rs 19,984.64 crore (Rs 18,554.22 crore) and stock futures worth Rs 20,035.16 crore (Rs 18,914.67 crore).

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