The Hindu Business Line : Nifty future: Sentiment turns bullish

It was a smart turnaround for the Nifty as it gained 6.5 per cent to close at 4464 points, against the previous week’s 4190.15. The Nifty future also closed on a firm note at 4429.15 (4177.95).

The strong show helped the markets regain confidence, which reflected in the rollovers figure. Open interest positions, reached a high of Rs 96,338 crore on Thursday — the settlement day for August contracts, before settling at Rs 64,658 crore. The settlement saw 82 per cent of overall market positions being rolled over to the September series while Nifty futures saw 68 per cent rollovers.

Turnover improved on the back of strong recovery and also due to impending settlement. Average daily turnover was Rs 60,579 crore against previous week’s Rs 47,000 crore.

Follow-up

Last week, we advised investors to consider going long on Nifty future (for a two-day period); those who had adopted this strategy would have earned a decent profit.

Outlook: The Nifty future broke the crucial resistance level of 4420-mark last week and stays just above the level. The next resistance level is placed at 4520-25, breaching which, it could scale a new high. By crossing 4420, it has ha lted bearish trends. The possibility of trend reversal appears high once the Nifty nears the 4520-25 level.

Recommendation: We expect the market to maintain its bullish momentum. With implied volatility levels ruling around the 30 per cent mark, one can expect volatile conditions to persist intra-day. Investors can consider going long on the Nifty future keeping the stop loss at 4420 level. Adjust the stop loss suitably to trail the Nifty future so as to maximise profits. Investors can also consider buying Nifty 4500 call, which is currently quoting around Rs 90 level.

Implied volatility

Though they have decreased vis-À-vis last week, implied volatilities still rule in the region of 30-40 per cent. While the puts IV declined to 29 per cent against last week’s 39 per cent, calls IV slumped to 36 per cent (39 per cent). The firmness in implied volatilities is mainly due to settlement week. With calls IV remaining firm, the chance of Nifty future opening higher appears high.

Put/call ratio

Both volume and open interest put call ratios increased; volume PCR moved up to 1.38 (0.95) and open interest PCR to 1.45 (1.17). The increase in open interest positions is mainly due to roll-over of fresh positions.

Backwardation

The Nifty futures discount narrowed a little. The September contract trails the Nifty future by 34.15 points. The discount was as high as 45 points but narrowed down on Friday due to the addition of fresh positions.

Stock futures

Infosys (Rs 1,825): We advised investors to go short on Infosys (September) futures with a downward target level of Rs 1,700-1,650.

However, contrary to our expectations, it remained firm.

SBI (Rs 1,600.35): The stock finds resistance at Rs 1,630 and support at Rs 1,565. While a dip below the support could take it to Rs 1,505-10, a break above the resistance could take it to Rs 1,725 levels. As we expect the latter to ha ppen, we advise investors to go long on SBI Futures, once it crosses Rs 1,630 levels.

FIIs trend

The cumulative FII positions as percentage of total gross market positions on the derivative segment as on August 30 remained at 38.02 per cent. FIIs remained neutral though they increased activity levels. They decreased their open positions in index futures to Rs 14,378 crore against last week’s Rs 15,007 crore and in stock future to Rs 23,121 crore (Rs 27,017 crore). Position wise, they currently hold 6,59,552 contracts (7,56,907 contracts) of index futures and 7,76,564 contracts (9,82,652 contracts) of stock futures.

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

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