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Nifty likely to Retest December Lows of 4530

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Nifty likely to Retest December Lows of 4530

Once again there is a higher possibility for the Indian indices to test December lows, as small relief rally seems to be over with Nifty failed efforts to show the resilience above 4950 levels. The support zone of 4770-4830 is likely to be tested once again in the 1st half of the June series and closing below 4770 will confirm more bearishness and a possibility of retesting December lows.

On the expiry day, selling of INR 1251 crores in index futures and buying of more than INR 1700 crores in options in last few days adds warning signals before the showdown. The rollovers also shows lack of confidence as Nifty rollovers were below 60% in May expiry for the 1st time in over a year. The month of May exactly performed as per one of the famous saying of stock market i.e. SELL IN MAY AND GO AWAY” as Nifty lost more than 6% to close just marginally above 4900 levels against the previous month close of 5248.

The month of May was clearly the one to forget for not only the Indian markets but also for Indian economy, as Rupee ended the month at new life time low above 56 levels against USD. A small pull back to 54.50 cannot be ruled out, in which timeframe Nifty futures may see a small pull back rally up to 5085 levels, where Nifty will face very strong resistance, but rupee looks far away from the bottoming out and looks set to achieve another long term target of 58 levels in next few months against USD.

Nifty O.I. stands at 0.91. For the June series, highest open interest buildup is seen at 4500 Put and 5000 call, adding more importance to 4770 levels on closing basis for Nifty, below which selling pressure can increase to reach the eventual target of December lows.

Sectors likely to underperform in the next 2 months would be automobile and infrastructure sector. Stock specifically significant correction can be seen in stocks like TATA MOTORS, BAJAJ AUTO, MARUTI AND HEROMOTORS in the month of June.

Selling to accelerate below the key level of 5400

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The Nifty Futures have fallen by almost 8% to 5550 from 5900 in last 16 sessions and currently hold 13 points premium over spot as per closing on 13th May, 2011.

In the current series, 5400 put has seen a maximum open interest of almost 8 million shares, indicating 5400 to act as immediate support, closing below 5400 can extend the current fall with more acceleration. Whereas, among call options, 5800 call holds maximum open interest of 7.5 million shares, indicating the 5750-5800 zone to act as very strong resistance , going forward.

The PCR for Nifty futures stands at 0.86 levels, hanging near around oversold zone. Traders with short positions need to be cautious, if the Nifty breaks the 5630 level on the upside, since short-covering is expected above this level. This will lead to an extension of the up move towards 5700-5750 levels.

Currently, implied volatility (IV) of Nifty put options appears higher in comparison with call options , which is the result of heavy buying in puts in the past few weeks. The NSE VIX stands at 20.63 giving no signal of stability in the market.

This concludes that, selling pressure will increase if Nifty is not able to hold 5400 on closing basis, and it will invite fresh short positions in the market for the retesting of 5250-5200 zone.

Written by Kunal Bothra

May 16, 2011 at 1:18 pm

Posted in NIFTY

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