Saturday, August 28, 2010

Weekly Outlook Indian Stock Market (30 Aug - 3 Sep)

High: 5549.80
Low: 5391.95
Close: 5408.70
Change: -121.95
RSI (14 Days): 58.07
Bollinger (20, 2): 4950-5587
Pivot: 5450
Support: 5351, 5292
Resistance: 5508, 5608

Nifty ended on a negative note at 5408.70 marks losing more than 2% during the week. The Nifty September futures ended at 5415.75 with a premium of 7.05 points. If we look at the derivatives data we could see that Nifty future prices ended in the negative territory along with incline in open interest but with decline in the cost of carry, this is an indication of short position is being built up at higher level. Nifty may face resistance at higher levels of 5450 to 5485 whereas on the downside support is seen at 5370-5300 level.
  • The Put-Call ratio of open interest increased substantially during the week from 1.19 to 1.22 levels. The options concentration has shifted to the 5300-5500 strike put option.
  • The Volatility Index (VIX) increased during the week and closed at 19.63%. 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 3,678 crore while in stock future they were net seller of 6,767 crore, indicating further correction in markets . Further, in the index options FII were net buyer of 10,268.74 crore with higher PCR is indicating the same.
Overall the market continues to remain in the sell mode. The Nifty is expected to remain in the range of 5300-5480 levels. If the index sustains 5380, we may see higher levels of 5480. If the market fails to hold 5380 levels, it is likely to see a sharp decline due to heavy short positions. Any positive market indicator may propel up move due to significant short covering, while any instability on the global front is likely to result in selling pressure from current levels. Short term trader can short 5600 strikes Call of Nifty for September expiry.

During the week the Bank Nifty Index ended on a negative note and fell by 2.78% to 10727.45. If we look at the derivatives desk we can see that the Bank Nifty futures prices decreased along with an overall decline in open interest with decline in the cost of carry, this is an indication closure of long position and addition of fresh short position. For the coming week Bank Nifty support is seen in the range of 10500-10550 levels whereas on the upside stiff resistance would be at 11850-10900 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 5500-5700 call as significant short accumulation witnessed in these levels on the other hand aggressive buying was seen in 5300-5400 strike Put option.

Gold prices opened the week’s trade on an almost flat note. But immediately after, the precious metal began to pick up on the back of falling global equity markets. Prices also rose as the dollar erased its initial gains to become almost flat, to touch the two month high towards the end of the week. But, the investors began to shift away from gold as the better than expected initial claim data erased some concerns about the global economic recovery. Finally, the international gold prices remained almost flat, registering a gain of 0.28% on w-o-w basis. The domestic gold prices also followed the international trends but finally managed a higher gain than the global peers on the back of ongoing wedding and festival season. Domestically, the gold prices saw an increase of 1.72% on w-o-w basis due to the increased demand. The demand for the precious metal in the domestic market will see a further upsurge due to the ongoing festivities and wedding season.

Nifty broke down of the symmetrical triangle which is bearish breakout pattern. On Friday it broke the lower trend line of the triangle decisively, expecting it to fall further. After surging to a new 52 week high of 5549.80 on very first day of current week, Nifty fell continuously and touched weekly low of 5391.55 on the last day of the week, before closing at 5408.70 with a loss of 2.20% on w-o-w basis. From last week Nifty is trading in narrow range and moving in between 120-130 points. Nifty is currently trading below 5 EWMA indicating downward movement. If Nifty continues to trade below 34 Day EWMA, then we could see downside upto 5320 during the coming week. If Nifty manages to trade above 34 Day EWMA then it could bounce back to its previous high of 5549.80, which looks highly unlikely at this stage. Profit booking was the main reason behind Friday fall and we feel that markets may correct further as it has rallied recently upto 5550 level, despite of negative cues from global counterparts. Nifty is likely to be volatile and may correct to around 5300-5320. On upside Nifty resistance level is 5460 while on downside it has mild support at 5370. Technical momentum indicator Stochastic is currently moving in oversold zone, on the brink of entering into neutral territory indicating profit booking. RSI is trading in neutral territory at 55 showing negative crossover. Another technical indicator MACD is trading in positive zone on the brink of showing negative divergence, indicating correction.

S&P Wealth Creators


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