Saturday, August 14, 2010

Weekly Outlook Indian Stock Market (16 - 20 Aug)

High: 5492.30
Low: 5372.45
Close: 5452.10
Change: +12.85
RSI (14 Days): 62.15
Bollinger (20, 2): 4963-5545
Pivot: 5439
Support: 5386, 5319
Resistance: 5505, 5559

Nifty ended on positive note at 5452.10 marks gaining 0.24% during the week. The Nifty August futures ended at 5456.45 with a premium of 4.35 points. If we look at the derivatives data we could see that Nifty future prices ended in the positive territory along with incline in open interest as well an incline in the cost of carry, this is an indication of long position is being built up at lower level and Nifty may take upside of 50-100 points in coming week. Nifty may face resistance at higher levels of 5520 to 5550 whereas on the downside support is seen at 5300-5350.
  • The Put-Call ratio of open interest increased during the week from 0.94 to 1.03 levels. The options concentration has shifted to the 5300-5500 strike put option.
  • The Volatility Index (VIX) remained low during the week and closed at 16.74%. Market participants should be watchful at current levels as any up move in volatility may trigger more downsides in the markets.
  • FIIs were net seller in index futures to the tune of Rs 1,127 crore, stock future 1,094 crore while in the index options FII were net buyer of 4,346 crore.
The overall mood is cautious with upward bias. 5520 to 5550 levels for the Nifty continue to be an immediate resistance. Significant short accumulation witnessed in OTM 5600 strike call and 5300 strike put & lower volatility is indicating a range bound market. Overall, the index is expected to remain in a broad range and settle around 5300-5550 levels. The market will continue to take cues from global markets; fund flows and risk appetite. Trader can short 5700 strikes Call and short 5300 strikes put of Nifty for September expiry.

During the week the Bank Nifty Index ended on a positive note at 10,737.35 rose by 3.41%. If we look at the derivatives desk we can see that the bank Nifty futures prices increased along with an overall addition of open interest but with decline in the cost of carry, this is an indication closure of long position. For the coming week bank Nifty support is seen in the range of 10,500-10,550 levels whereas on the upside stiff resistance would be faced at 10,850-10,900 levels.

During the week, there was significant accumulation of open interest in OTM Call and put options. Most of the open interest builds up in the range of 5200-5400 Put and 5500-5600 strike call options. Significant short accumulation witnessed in the 5300 strike put and 5600 strike call option, indicating Nifty is likely to move between these levels.

Gold prices opened the week's trade on a slightly upward note as the US jobs data released during the last weekend stoked fresh fears regarding the economic recovery. The prices continued to slip as the dollar gained strength. The gold prices bounced back towards the end of the week as the investors' confidence regarding the global economic recovery faltered after the release of the US jobless claims. The domestic gold prices also moved in sync with the trends in the international gold prices. The domestic gold prices finally ended higher as the fresh buying emerged due to the ongoing festivities and the upcoming wedding season. The gold prices finally registered a gain of around 2% in both the markets on w-o-w basis. The gold price is likely to continue with the upward rally in the coming month on the signs of the slowing economic recovery. Moreover, a revival in the treasury purchases is also likely to push the prices further up. The domestic prices may also move up in line with global trends and due to the ongoing festival season.

After surging to fresh 52 week high of 5492.30 on very first day of week Nifty witnessed a sharp sell off on Tuesday and Wednesday on the back of global sell-off. However on Thursday and Friday it managed to recover from week low of 5372.45 and finally closed at 5452.10 gained 0.23% w-o-w. This week initially becomes a disappointing week as Nifty retraced from 52 week high and fell sharply broke crucial support levels during the week. First, it broke the level of 5460 and then moved further downward to break the next major support level of 5400. It finally got support at 5380 levels which restricted its further downward move and ended the week above this crucial mark. As far as the momentum indicators are concerned, they are giving mix signals. On end-of-day chart stochastic and RSI are currently trading in neutral territory on the brink of showing positive divergence suggesting an upward move but another momentum technical indicator MACD is currently trading in positive zone on the brink of showing negative divergence indicating correction. Nifty is trading very close to its 5 Day simple moving average (SMA), the possibility of Nifty moving further lower to test its 20 Day SMA which is positioned at around 5426 levels cannot be ruled out. If Nifty breach this level then we could see fall upto mark of 5380 where it has very strong support, else it might rebound from the current levels if it gets the support of its global counterparts. On 15 Minute intraday chart Nifty has formed ascending triangle pattern which is bullish breakout pattern if upper trend line breaks then Nifty could surge to new 52 week high and can test 5540-5550 mark else probability of correction upto 5325 (50 Day SMA) level cannot rule out.

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