The Hindu Business Line : Nifty outlook turns positive

Critical factors
Nifty futures still in discount to Nifty spot
Implied volatility dips for both calls and puts
Trading volumes remained moderate

Nifty began the week on negative note but bounced back sharply to end positively. It gained 0.86 per cent week-on-week to end at 4183.50 against the previous week's 4147 amid moderate trading volumes. Open interest positions, which touched a nine-month high of Rs 68,428 crore last week, opened at Rs 48,887 crore and made a steady climb to Rs 53,770 crore.

Expecting a decline in market condition, we had presented a put-ratio backspread strategy. We had advised investors to sell 4200 puts and buy two 3900 puts, and had advised investors to carry the position till expiry. Considering the opening price of 4200-strike (Rs 131) and 3900-strike (Rs 35) and closing prices of Rs 86 and Rs 16.85, the position is still positive, although marginally. However, we recommend investors to close out their positions.

Nifty futures outlook remains positive as long as it rules above 4130. Only a dip below 4025-50 could turn the undertone negative. In that event, Nifty futures could dip to a low of 3830. If the momentum continues, it could breach the 4200-mark to touch a high of 4225-35 levels.

With the momentum set to continue we recommend investors to consider going long on Nifty futures keeping the stop loss at 4130. Since the stop-loss is wide from current levels, this strategy is only for investors who can face risk. Stop-loss can suitably be adjusted trailing Nifty futures movement, so as to maximise profits.

Put/call ratio

Open interest put/call ratio increased sharply to 1.8 against the previous week close of 1.5 while volume-wise PCR increased to 1.7 (0.7).

The firmness in OI put/call ratio indicates that put positions were added when the market went up sharply on Friday.

Implied volatility

Puts IV and calls IV dipped sharply this week. While puts IV dipped to 20 per cent (26 per cent), calls IV to 23 per cent (29 per cent).

This indicates that market may see less volatile conditions. Calls IV at 23 per cent, still rules higher than that of puts IV by three percentage points, indicating underlying bullish trend.

Backwardation

The near-month Nifty futures, which is trading in a premium for last couple of weeks, again dipped into sharp discount. Nifty February futures is now trailing the spot Nifty by about nine points. This indicates that a lot of short positions were added when the market sizzled in late Friday trading.

Stock follow-up

Titan Industries (Rs 943): We had presented a positive outlook on the stock and had advised investors to go long on it. A move past Rs 940 could take the stock above Rs 1,000-mark, we had said. Those who had followed our strategy would have earned a decent profit, as the stock hit our targeted levels. The stock, currently, rules at Rs 1,010.40 and the market lot is 411 contracts.

SBI (Rs 1,181): The stock finds a resistance at Rs 1,210 and support at Rs 1,160. A dip below a support could take the stock to as low as Rs 1,025-30, while a move above the resistance would take the SBI stock to Rs 1,250 levels. Expecting a downtrend, we advise investors to go short on the counter. Risk-averse investors can stay away from this, as the market lot is 500 units per contract.

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