The Hindu Business Line : Nifty may drift lower

Critical factors
Nifty futures trading in premium to Nifty spot
Implied volatility remains firm above 20 per cent
Trading volumes remained buoyant

Nifty opened on a firm note last week and finished at 4090.15 — after touching a new intra-week high of 4137.15 — against the previous week's 4052. Thanks to a strong show, even open interest positions moved up to Rs 61,956 crore against last week's position of Rs 57,444 crore. However, intra-week open interest scaled to a high of Rs 62,077 crore, indicating a lot of squaring up activity when the market peaked.

Expecting a strong resistance at 4075, we had advised investors to go short on Nifty futures keeping a stop loss at 4075-80. However, as Nifty moved past the resistance level (as indicated in the column, it crossed the 4100-mark, after breaching the resistance level), those who adopted that strategy would have booked loss.

However, the scenario turned negative for Nifty considering the sharp rise during last week. Sentiment indicators such as put/call ratio and implied volatility present a mixed signal. While a move past 4130-35 could take Nifty to the 4200-level, a fall below 4020 could weaken Nifty to a low of 3985.

Expecting a weak trend to set in on Nifty, we advise investors to go short on Nifty futures, once they dip below 4075-80. The stop loss has to be placed at that level and adjusted suitably once Nifty futures shows signs of further weakening to maximise profits.

Put/call ratio

Open interest put/call ratio remained firm at 1.71 against the previous week close of 1.63; volume-wise PCR remained flat at 1.35 (1.35). The firmness OI put/call ratio indicates that fresh puts positions were added in anticipation of a market fall. This paints a negative outlook for market.

Implied volatility

Puts IV and calls IV remained firm above 20 per cent. While puts IV remained at 23.5 per cent (25 per cent), calls IV remained at 24 per cent (24 per cent), indicating a volatile road ahead for Nifty futures.

Backwardation

Nifty futures trade at a marginal premium to spot price. Nifty futures, which traded at a premium of six points last week, now rule higher by three points. This is natural, as futures price tend to converge towards the spot price as expiry approaches.

Stock follow-up

Infosys Technologies: We had presented a negative outlook on the counter and advised investors to go short on the counter keeping the stop loss at Rs 2,275 levels. Though the position has gained marginally over the week, it did not reach our expected level of Rs 2,150/2,090. We stand by our recommendation and advise investors to retain the position till it reaches that level. The stock currently trades around Rs 2,202.35 against the previous week close of Rs 2,223.4.

Satyam Computer: We had presented a negative outlook on this stock, too, and advised investors to keep a stop loss at Rs 505 level. Those who had adopted this strategy would have booked losses as the price moved past that level. However, over the week, the stock is in negative zone and might reach our targeted level of Rs 450.

Titan Industries: The stocks is critically placed; a move past Rs 940 could take it to above Rs 1,000 mark, a dip below Rs 908 could weaken it to a level of Rs 850 and might even to the Rs 800-810 mark. Expecting a positive trend, we advise investors to go long on the counter keeping the stop loss at Rs 936 once it moves past the Rs 945 level. However, this is a risky strategy, as the stock could swing wildly and also the market lot is 411 units per contract.

FIIs trend

The cumulative FII positions, as percentage of total gross market position, on the derivative segment as on January 18 increased to 30.81 per cent against last Thursday's position of 29.87 per cent. This indicates decrease in retail participation. FIIs were net buyers on most days of the week.

(The opinion expressed in this column is based on technical analysis. There is risk of loss in trading).

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