The Hindu Business Line : Brace yourselves for another dismal week

Overall, the Nifty future tumbled 6 per cent to close the week at 4078.55 points. The discount between the July futures and spot widened to 58 points, indicating that fresh short positions could have been created during the week. Even the rollover of open interest from June to July series stood below average at 63 per cent.

Follow-up

Last week, we had presented two strategies: a) Consider going short on Nifty future and 2) Buying Nifty July 4300 put which was then quoting around Rs 190.

Both these strategies would have made traders a lot of money.

Outlook

The Nifty future has breached another crucial support level of 4250 backed by higher volumes, confirming that the market is firmly under the bears’ grip. The bearish sentiment would prevail as long as the Nifty future stays below the pivot point of 4400. That said, the Nifty future now appears to be heading towards 3950 level, where it finds the next and the most crucial support.

Critical Points

a) From the open interest figures, it appears that fresh short positions have been initiated in July series.

b) The July series will have a higher time value as the series is slated for expiry only on the last date of this month. This leaves little chance of any early short-covering.

c) The total open interest build-up in Nifty 4000 put is 33.5 lakh shares. This clearly indicates traders are expecting the Nifty to fall below 4000 points.

d) The Nifty volatility index or India VIX has constantly breached the 50-point mark in the last five trading days, albeit only intra day. This suggests that traders are squaring-off their puts positions on the same day and have not been indulging in positional trades. With markets remaining high on volatility, this trend may well continue over the next week also.

e) Lot of stock futures, particularly index heavy weights rule in discount.

Recommendation:

Traders can consider going short on Nifty July futures with a stop at 4250. Traders with a higher-risk appetite can hold this position beyond a week also. Alternately, traders can also consider buying Nifty 4200 July put, which is trading at about Rs 250.

Implied volatility

Implied volatilities for puts remained firm at about 33 per cent while calls IV was at about 30 per cent. The relative firmness in puts IV suggests a negative sentiment as traders are actively trading on puts.

PCR

Volume wide put/call ratio decreased to 1.03 (1.38) but open interest PCR improved to 1.5 (1.37). This indicates puts were added at a time despite the market falling sharply last week.

Stock futures

Tata Motors (Rs 444): The outlook appears negative for this stock. It has an immediate resistance at 465 and immediate support at 435 levels. Any drop below this support can take it to Rs 385-390 levels, while a move beyond 465 can take it up to 485. Consider going short on the counter, if it dips below the 435 mark.

FIIs trend

The cumulative FII positions as a percentage of total gross market position on the derivative segment as on June 27 was 43.39 per cent. Though FIIs emerged as net buyers during the week, it bears attention that they have been heavy selling in index options.

They now hold index futures worth Rs 20,058.77 crore (Rs 22,501.49 crore) and stock futures worth Rs 15,097.57 crore (Rs 19,412.93 crore).

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