The Hindu Business Line : Nifty future likely to witness volatile trading

For the first time in many weeks, Indian bourses chose to end on a positive note on Friday. Though the markets began with a negative bias on Monday, short covering and bottom-fishing by market participants helped score gains for the week. However, despite the sharp intra-week recovery, Nifty future closed at a discount to the spot; Nifty future closed at about 2882 points as against the spot close of 2885. This suggests that there still could be a good number of short positions in the system.

As far as the rollover of Nifty November future is concerned, it stood about 62.5 per cent, at levels comparable with that of last month. Even the market-wide rollover figures, pegged at 75 per cent were at similar levels as that of the previous month. Nonetheless, this is still much lower than the six-month average rollover percentage. Another trend that points at the underlying negative bias in the market is the rollover of stock futures. This time around about 60 per cent of the stock futures saw low rollover compared with that in the previous months. Besides, quite a few of these stock futures are trading at a discount to their spot prices.

Follow-up

1) We had advised traders to consider straddle strategy by buying Nifty 2750 strikes of November call and put. The option spread is currently in the money if we consider the opening and closing prices of the put and call. We suggest this position be held open for the next week also; traders can cut the position if Nifty reaches 3150-3200 range.

Outlook

The smart reversal in the market may have breathed some life into the bulls. But for the bull party to continue, Nifty will have to cross 3250 level, which is a key resistance. As for the support, it may now find support at 2600-2550 levels. Any dip below this support can weaken the Nifty future to a low of 1880-1950 levels, while a move above its resistance can lift it to 3550 levels. That said, we feel Nifty future may struggle to break and move past its resistance. But even if it does manage to stride up, it still will have to steer past at 4350, which we feel is its pivot point. Traders can turn bullish only if Nifty future moves past this crucial level.

Recommendation

Retail traders have to be cautious for the following reasons: 1) Despite sharp pull back, India VIX or Volatility Index, which indicates the expected immediate volatility of the market, still remains high at 69.32. This points that Nifty may be set to witness heightened volatility.

As mentioned before, many counters are trailing their respective spot closing prices, indicating low cost-of carry; and

Any negative news from global markets, particularly the US, could spoil the party here.

However, traders who are willing to take risk, can consider the following strategies

If the market opens on a flat note, traders can consider going long on Nifty future, with a stop-loss at 2550. Alternately, if the Nifty future opens with a gap up, traders can consider going short on Nifty future by keeping the stop-loss at 3250.

We suggest traders stay away from stock futures, as most of the stocks are trading near their support levels.

FIIs trend

The cumulative FII positions as percentage of total gross market position on the derivative segment as on October18 increased to 42.06 per cent from October23 level of 38.72 per cent. Foreign institutional investors have been net buyers almost on all days of the week. They now hold index futures worth Rs 7,840.38 crore (Rs 11,847.25 crore) and stock futures worth Rs 8,984.74 crore (Rs 11,909.55 crore). This indicates that they have booked profits on their short positions. Their holding on index options also declined to Rs 10,004.98 crore (Rs 17,018.53 crore), according to latest NSE data.

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