The Hindu Business Line : Downtrend may persist in Nifty future

The benchmark Nifty finally broke the 2650 support level after moving in a narrow band for a few weeks. The Nifty future closed at 2608.65, a sharp fall of 4.44 per cent over the previous week’s close of 2730. However, despite the sharp weekly fall, the benchmark scored handsome gains on Friday on the back of short covering. This helped the discount narrow down to just 12 points with respect to the spot close, which ended the week at 2620. Another interesting impact worth mentioning is trading volumes; the average daily turnover improved sharply to Rs 42,450 crore, which is better than the last four month’s average.

Follow-up

1) We had advised traders to go short on Nifty future keeping stop-loss at 2820.

2) We had also advised setting a bear put spread by buying 2800 put and selling 2600 put.

Both the strategies ended the week profitably.

Outlook

As the Nifty future finally broke the crucial 2650 mark, we expect the downtrend to continue. The coming weeks might see Nifty future re-testing its October low and weaken even further. While the immediate support appears around 2550-2500, a dip below could take the Nifty future to 2250 level. On the other hand, the Nifty faces very strong resistance around 2680 level. And a move past 2680 could take it 2820, though in between it faces minor resistance at 2750.

We expect the downtrend to continue for this week as well. While Nifty future may begin on a calm note this week, which has only three trading sessions - Tuesday and Wednesday are closed for festivals, it could face heavy selling pressure during the latter part of the weeks, which might take it to 2550-2500 level.

Option monitor

Among calls, 2600, 2700 and 2800 strikes were the most active while 2500, 2600, 2400 and 2200 puts were in the traders’ focus. The 2600 call shed 9.42 lakh shares in open interest positions while 2700 and 2800 calls saw moderate accumulation. On the other hand, 2500 and 2600 puts accumulated 8.63 lakh shares and 4.2 lakh shares in open interest positions. This indicates that traders are squaring off the higher strike contracts and buying the lower strikes expecting further falls in the market.

Volatility Index

India VIX or Volatility Index, which measures the immediate expected volatility, has weakened further to 37.94 from last week’s levels of 40.21. Though a fall in the volatility index is generally positive for the index, we hold a different view this time around as accumulation was seen at lower levels.

Recommendations

We advise traders to adopt the following strategy.

1) Consider going short on the Nifty future, keeping the stop-loss at 2680, if the Nifty future opens on steady note on Monday. The stop-loss has to be adjusted progressively so that traders could lock in the profits should the Nifty future move further downtrend. Traders can book profit at 2550, 2250 levels keeping in mind the individual risk profile. This week being a curtailed one, Nifty future could see sideways movement intra-day. Risk-averse traders could adopt the same strategy using mini Nifty contracts.

2) FII trends

The cumulative FII positions as percentage of the gross market positions in the derivative segment as on February 27 was 36.03 per cent. They were predominantly sellers in the F&O segment last week. They now hold index futures worth Rs 7,832.21 crore (Rs 7,336.16 crore) and stock futures worth Rs 12,008.55 crore (Rs 11,934.72 crore).

Their index options holdings stood higher at Rs 17,476 crore (Rs 14,809.76 crore).

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