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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.

How long can the markets consolidate or stay in range?

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How long can the markets consolidate, or stay in a range?. This is one question which lingers on to the minds of all investors and traders in the current scenario.

Last week’s price action can be termed as a mixed reaction for our markets. The first three trading sessions of the week seem to suggested lacklustre movements in our markets. However the last two sessions were the game-changer. The reason we believe that is because, on Thursday the markets ended lower breaking the key support of 5550 and the sentiment at the end of Thursday was heavily bearish, however on Friday it was a complete turnaround for our markets. Nifty broke the key levels of 5600 and was in touching distance of breaking the 5650 mark at one point of time. We believe that such swift turnarounds in markets, especially with the kind of lacklustre weeks of trading, is good, as now any further positive momentum can result in more short covering coming across a lot of stocks.

There are two critical aspects technically, which is worth noting in the last 2-3 weeks of price action:

1. The rally in the second half of June from 5250 to 5750 levels. The retracement levels of 50% was exactly at 5495 (which apparently was the low on 12th July). The markets have thereafter not looked back at the support and have held on to it.

2. The next key aspect is the confluence of short term moving averages around the 5500-5550 mark. The zone was very critical from the technical point of view and a sustained close below this range could have triggered a next round of selling in the major indices.

Next week is an action packed week for our markets, as there is the RBI policy meet and also the expiry week for July contracts. We believe that the action would be more on the bullish side, as the global indices (especially Dow) look quite attractive on charts. Also we believe that the frontline stocks, which had a subdued last couple of weeks, will once again witness some strong price action. Short covering will also be witnessed in many of the oversold counters once the markets stable above 5650 levels.

Food for Thought: Since 2003 our markets have always had a positive close, with an average gain of 4.8% and a minimum gain of 0.5%.

Written by Kunal Bothra

July 28, 2011 at 1:35 pm

Range bound with positive bias

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Range bound with positive bias

Market saw another bearish day yesterday in the aftermath of Infosys result & poor IIP numbers. The drag of 12th -July has retraced almost the 40% rise that we had seen from 5195 on 20th June to 5740 on 8th July. Now indices are very near to its strong support zone between 5450 & 5500. Looking to the daily chart structure, the very short-term outlook can now become positive only if Nifty futures manage to cross 5600 otherwise the downtrend will continue. On a longer-term perspective, the chart suggests that we are once again stuck in a band above 5450 & below 5750 with a positive bias. However, this bias can turn negative once Nifty closes below 5450.
Today after a gap up opening markets have attempted to cross the resistance level of 5600 but, failed & is currently trading at 5585. Looking to the advance decline ratio, which seems encouraging (2:1) at this point of time, gives a sense that indices are finding good buying interest at lower levels. In the coming days, the market is likely to become choppy with stock specific activity increasing as result season has begun.

Written by Rakesh Gandhi

July 13, 2011 at 3:55 pm

Posted in Uncategorized

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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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Market Outlook

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We have witnessed three range bound days after a falling streak of nine days. Now, it would seem difficult for the markets to regain their lost trend, but not impossible. Today a possible  increase in volatility can be expected, post the announcement of IIP numbers. Indices are already in a downtrend as indicated in last few days and a bearish trend is likely once it sustains below 5500.

There are three possibilities likely from the current levels as mentioned under.

1. There could be the next leg of a downtrend if Nifty future breaks below 5500 & does not recover.

2. There will be an upward move if Nifty futures manages to breach 5625 as there will be a very aggressive unwinding of short positions.

3. In the event that markets fall below 5500, it can find support & can bounce from 5400 & 18000 as these are extremely strong support levels which will probably not be broken easily.

Written by Rakesh Gandhi

May 13, 2011 at 1:40 pm

Posted in Market Watch

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Markets today

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Yesterday, the US markets were at their best levels since March 2009 but, locally our markets ended below the short support level of 5800 which is now a cause of concern for traders. The April F&O expiry started at 5860 & than made high of 5945 during the month, but then could not gain further & tapered down to make low of 5693.

Markets have seen good consolidation being range bound for April after the sharp rally from 5350 levels till the top formed in April. Market needs an immediate bounce above 5850 for regaining the lost uptrend that started in month of March. Based on technical chart  pattern & averages next support on Nifty at this point in time is 5750 & weakness will continue as long as Nifty remains below 5850. Further,  Intermediate trend could be at risk if Nifty sustains below 5700 and does not bounce back thereafter. The long term averages & charts suggest that dips should be bought as structurally the trend is bullish.

Written by Rakesh Gandhi

April 29, 2011 at 2:09 pm

Posted in Market Update, Market Watch

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Turbulence ahead of result season

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Last week was truncated to a 3 day trading week, but we witnessed huge volatility as markets made a low of 5735 & high of 5930 within a day, a decline once again towards the weekend to close at the 5824 level. After the sharp rally from 5350 markets has closed around the 5800 level for the last three weeks. The  short term trend will be at risk once nifty futures sustain below the 5800 level and the medium term trend could be at risk only if Nifty futures break the 5700 level.

Wild stock specific movement can be expected in next few days and hence caution is advised, as markets experience high turbulence ahead of the of result season. Long term averages are in favor of bulls though very short term indicators point towards a downward move.

Written by Rakesh Gandhi

April 18, 2011 at 2:07 pm

Posted in Market Update

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