Research

WEEKLY E- NEWSLETTER

 

The Indian equity benchmark performance during previous week can be divided into two halves, during the first half of the week the index gained but it reacted lower on the second half taking resistance near the previous week high, in line with the weak global equities that declined on concerns that the US Federal Reserve could prematurely wind down its bond buying programme. However, the mood of the markets remained largely cautious ahead of the budget to be announced on February 28.

 

Nifty on the weekly chart has formed a bearish candle which closed near the low of the week with a sizable long upper shadow, signifying selling pressure at higher levels.

 

The index failed to capitalise on a positive start to the week as it surrendered all its gains to settle near the previous week lows. Nifty against a nine-day fall from 6111 to 5979 has spent seven sessions in sideways consolidation while only retracing the fall by about 38.2%. This indicates a weakening structure. The index came under a fierce bear attack on Thursday's trade after testing the previous week's high (5970) in Wednesday's trade as a three days rise was completely retraced in a single session.

 

Nifty is currently placed precariously above the key support of the 5823 region being the December 2012 low where the market had spent considerable amount of time in sideways consolidation. It also coincides with the 50% retracement of the November 2012-January 2013 rally (5548-6111) .

 

In the entire up move since June 2012 lows, each up-leg has been retraced by maximum 50%. Therefore, we believe a normal round of profit booking would see the index find cushion around the 5830-5800 region. Corrections lasting beyond 5800 may threaten to derail the medium term uptrend .

 

 Nifty has immediate hurdle at Thursday's falling gap area of 5921-5937 will act as technical resistance in case of pullback attempts, above which the 5970-6000 region is a strong supply area in the coming week.

 

In the Nifty options space, Call option writers were active on ATM 5900 and 6000 strikes indicating prevailing weakness in the market. In the last week, Call 5900 strike added more than 1.6 million shares along with addition of 3 million shares at Call 6000 strike. At the same time, Put option writers closed their positions at 5900 Put strike where more than 2.2 million shares were closed.

 

India VIX remained buoyant during last week and tested its 200 DMA levels placed at 17.1 levels. Prevailing weakness in the market along with upcoming major event of Union Budget prompted a sharp rise in the options volatility. Moreover, the upcoming settlement may also push the volatility higher. We expect volatility to continue to rise towards settlement.

 

Index Outlook

 

Nifty: The Nifty has immediate and major support placed around 5800-5820. Intensified selling pressure may be seen towards 5700 below these levels. On the higher side, a round of short covering is expected only above 5900. However, volatile movement can be expected due to events like the Union Budget and countdown to the fiscal cliff expected in the coming sessions.

 

Bank Nifty: The banking index was the major laggard last week and closed near its important support placed at its 100 DMA of 12050. Breach of 12000 may trigger closure of leveraged positions, which may trigger further selling pressure. On the higher side, only a move above 12250 may trigger a round of short covering.

 

 

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