Saturday, July 3, 2010

Weekly Outlook Indian Stock Market (05 - 09 Jul)

High: 5339.45
Low: 5210.00
Close: 5237.10
Change: -31.95
RSI (14 Days): 55.86
Pivot: 5262
Support: 5185, 5133
Resistance: 5314, 5392

Nifty ended at 5237.10 losing 0.61% during the week. The Nifty July futures ended at 5250.85, premium of 13.75 points. Looking at the derivatives data we could see that Nifty future prices ended in the negative territory along with decline in the cost of carry and addition of open interest, this is an indication of further short built up. Moreover, higher open interest in 5200 and 5100 strike put along with higher net selling position in index future, indicating correction is likely in near term. For the coming week, Nifty may continue to face resistance at higher levels of 5300 whereas on the downside support is seen at 5180 to 5120 levels.

  • The Put-Call ratio of open interest decreased during the week from 1.20 to 0.94 levels. The options open interest remained mixed as the week progressed. The options concentration has shifted to the 5000 to 5200 strike put option.
  • The Volatility Index (VIX) increased during the week and closed at 21.90%. Market participants should be watchful at current levels as any up move in volatility may trigger more downsides in the markets. Volatility has a strong inverse correlation with markets.
  • FIIs were net seller in index futures to the tune of Rs 4,526 crore indicating down trend in market and in the options index FII witnessed a further incline in OI along with a net buy of Rs 4,348 crore with higher PCR is indicating market is likely to take a correction in near term.

The overall mood continues to be cautious with downward bias and the 5300 levels for the Nifty continues to be an immediate resistance. The upcoming corporate results and progress of the monsoon will be the main cue for the market. Overall, the index is expected to remain in a broad range and settle around 5180-5120 levels. The global cues will play a crucial role as most indices across the globe are witnessing significant volatility. Any further decline in US markets will bring about selling pressure from current levels in worldwide indices.

During the week, there was significant accumulation of OI in ATM and OTM put options .Most of the open interest builds up in the range of 5100-5200 put while, on the flip side, the OTM 5300-strike and 5400-strike call options saw significant short accumulation. 5100 and 5000 strike put added 7.16 lakh and 4.22 lakh shares respectively in OI on Friday. On the Call front 5300 and 5400 strike calls witnessed addition of 6.47 lakh and 7.07 lakh shares.

Gold prices fell substantially in the starting of the week due to a strong dollar and gains in the equity markets. Soon after, the precious metal began to rise despite a strong dollar. Gold registered gains as the global indices fell due to the worse than expected consumer confidence data. The rise in the gold prices continued as the dollar turned weak following the worse than expected private sector jobs data. Moreover, sentiments for the precious metal in domestic market also turned bullish due to the emergence of buying in the ongoing marriage season and on account of the firming global trend. Gold prices ended on a flat note registering a marginal fall of 0.18% in the international markets and gain of 0.91% in the domestic market. Gold prices are expected to rise modestly in the next week. Investors are likely to divert their funds towards secure investment options like gold in order to protect their wealth amidst the uncertainty regarding global economy recovery.

Nifty remained highly volatile and choppy, traded in narrow range of 115 points in between 5220-5340. Nifty moved higher on the very first trading day of week but could not able to sustain the rally for rest of week. Nifty breached the psychological mark of 5300 decisively on the very first day of week but couldn’t manage to sustain above that and fell reluctantly on second day. Most of the technical momentum indicators are currently suggesting correction in Nifty as either most of the indicators are currently hovering in negative territory or on the verge of entering. RSI (14 Days) is currently moving in neutral zone and on the brink of entering into negative zone suggesting correction in Nifty. MACD after showing negative divergence crossed the zero line from above and moved in negative territory also confirming corrections in forthcoming trading sessions. Stochastic Oscillator has also breached the key support of 30 and moved below, showing weakness. Nifty is trading below 7 and 14 day EWMA, indicating further correction in Nifty in near term. If Nifty manages to breach the 14 day EWMA (5220) decisively then we could see short term downside probably up to 5100 mark. Nifty put call open interest data is currently suggesting that Nifty has strong support at 5200. If this level breaches decisively then we could see free fall up to 5000 mark and below. Expecting Nifty to remain range bound in between 5200 and 5340 in short term. Nifty is likely to remain in tandem with its global counterparts and would remain depended on them for any major breakthrough on either side. However domestic markets factors like forthcoming inflation and IIP figures will remain key factors for deciding the medium term movements of Nifty. Recent increase in oil prices will result in higher inflation number.
The RBI on Friday raised the repo and reverse repo rates by 25 basis points each. This means that the repo rate, which is the bank's main lending rate, has been hiked from 5.25% to 5.50% and the reverse repo rate, which is the key borrowing rate, has been increased from 3.75% to 4% with immediate effect to rein inflation, which could slow down the economy growth rate.

Thanks and Regards

S&P Wealth Creators


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