The Hindu Business Line : Nifty future may gain on short-covering

Though the week began with a sharp fall in Nifty future, stability came in thereafter. On a weekly basis, Nifty future lost only about 2.7 per cent and ended at 4484 points.

However, the discount between future and spot Nifty has widened further.

From over 20 points last week, the discount is now at about 32 points.

Nifty June futures have added about 9 per cent in open interest positions of 4.11 crore shares against last week’s open interest of 3.77 crore shares.

Besides this, there is also a huge built up in open position in puts, particularly 4200 strike.

Heavy short positions in futures were also seen.

Follow-up

Last week, we had advised investors to consider shorting Nifty future while keeping the stop-loss at 4700.

Those who had gone short could have booked windfall profits as the Nifty future touched our targeted level of 4400.

Outlook

As predicted previously in this column, the Nifty future touched the 4400 level last week; in fact it even dipped below this mark to touch 4322, but bounced back almost immediately.

This, however, is a crucial juncture for Nifty future as it lays mid way between the immediate support and resistance levels.

The Nifty future has resistance at 4550 and support at 4400. If it breaches the 4550 level, it can reach 4700, its next resistance.

However, failure to sustain at current levels, and a dip below 4400 could drag it down to 4250 level.

Nevertheless, given that we are entering the penultimate week ahead of expiry, there can be a temporary rise in the market, propped by covering of the huge short positions.

Recommendation:

Consider going long on Nifty future, only if it moves past 4550 level. In that case, keep the stop at 4550 itself.

Its next resistance is at 4700. Investors nevertheless can consider keeping a trailing stop to maximise profits.

Implied volatility

Implied volatilities for puts declined to 30 per cent against last week’s level of 32 per cent. Calls IV improved to33 per cent (29 per cent).

The relative firmness in calls IV is positive for the market. The drop in put implied volatilities suggests that lot of traders have squared-off their put options when it fell sharply last week on Monday and Tuesday.

PCR

Volume wide put/call ratio increased to 1.14 (1.06) and open interest PCR to 1.6 (1.52). This reading suggests a flat trend for the market.

Stock future

Follow-up

Cairn India (286.85): We had presented positive outlook on the stock. Though it did not touch our targeted level of 340, it presented profit opportunities for investors. As indicated last week, investors can hold on to the stock with a stop-loss at 260.

Reliance Petro (179.15): The stock is at critical stage. While a move past 186 could take it to 200-205 levels, a drop below 170 could weaken it to 150 levels. Considering the sharp build up in open interest positions, we advice investors to go long on RPL keeping the stop-loss at 170.

FIIs trend

The cumulative FII positions as a percentage of total gross market position on the derivative segment as on June 13 was 39.09 per cent. FIIs indulged in alternate bouts of buying and selling in F&O segment, even as they remained sellers in the cash segment. They now hold index futures worth Rs, 21,398 crore (Rs 20,317.1 crore) and stock futures worth Rs 19,569.53 crore (Rs 18,282.21 crore).

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