Weekly Outlook Indian Stock Market (02 - 06 Aug)

WEEKLY TECHNICALS
High: 5466.25
Low: 5349.20
Close: 5367.60
Change: -81.50
RSI (14 Days): 59.04
Bollinger (20, 2): 4974-5500
Pivot: 5394
Support: 5322, 5277
Resistance: 5440, 5511

TECHNICAL CUES
Nifty ended on negative note at 5367.60 marks losing 1.50% during the week. The Nifty August futures ended at 5371 with a premium of 3.40 points. If we look at the derivatives data we could see that Nifty future prices ended in the negative territory along with incline in open interest but decline in the cost of carry, this is an indication of short position built up at higher level. Nifty may continue to face resistance at higher levels of 5420 to 5450 whereas on the downside support is seen at 5300-5250.

• The Put-Call ratio of open interest decreased during the week from 1.44 to 0.96 levels. The options concentration has shifted to the 5200-5400 strike put option.
• The Volatility Index (VIX) decreased during the week and closed at 18.94%. Market participants should be watchful at current levels as any up move in volatility may trigger more downsides in the markets.
• FIIs were net seller in index futures to the tune of Rs.20 crore indicating market is in profit booking phase and in the options index FII witnessed a decline in OI along with a net sell of Rs. 1003 crore with indicating, a range bound market in near term.

The overall mood is cautious with downward bias. 5420 to 5450 levels for the Nifty continue to be an immediate resistance. Further significant short accumulation witnessed in OTM 5500-5600 strike call and 5300 and 5200 strike put & lower volatility is indicating a range bound market. Overall, the index is expected to remain in a broad range and settle around 5300-5450 levels. Trader can short 5500 strikes Call and short 5200 strikes put of Nifty.

OPTION CUES
During the week, there was significant accumulation of open interest in OTM Call and put options. Most of the open interest builds up was in the range of 5200-5400 put while, on the flip side, the OTM 5500-5600 strike call options witnessed higher open interest build up as significant short accumulation witnessed in these levels. 5300 and 5200 strike put added 11.99 lakh and 5.93 lakh shares respectively in OI due to aggressive put writing.

GOLD

Gold prices started the week on a lower note. The prices of the precious metal slipped after the encouraging housing data reduced the gold's investment appeal. Moreover, the European banks stress test showed no nasty surprises and therefore the gold lost its safe haven appeal. The yellow metal continued to turn pale as the selling of the gold picked up. A marginal rise was seen in the gold prices as the dollar weakened and bargain hunting picked up at lower prices. The domestic gold prices followed the international trend. The domestic prices also gave a week start and heavy selling continued on the weakening global trends. But, the domestic gold market saw some buying towards the end of the week on the back of the upcoming festive season and some positive cues from the international market. But, an initial drop could not make up for the weekend recovery and finally the gold prices registered a decline on w-o-w basis in the international as well as the domestic market. The prices may witness recovery on the back of bargain hunting. The domestic gold prices may see a slight rebound on the back of upcoming festive season.

OVERALL VIEW

Formation of “Gravestone Doji” candlestick pattern at the top of the uptrend on Friday of week ending July 23, 2010 was an indication of start of correction in Nifty. Confirming to pattern indication Nifty retraced from high of 5466.25 to low of 5349.20 in this week. From the last two trading sessions Nifty was not able to sustain above the level of 5,400. Nifty is trading below 5 Day EMA indicating weakness, and from here we expect Nifty to trade in a range of 5320-5420 in short term. Next immediate support of Nifty seems be at 5350 while mild resistance at 5 day EMA 5397. On daily chart if Nifty manages to breach the level of 5350 on lower side decisively then we could see correction upto 5300 mark. On the other side any breakout above 5397 could take Nifty to a new 52 weeks high. Technically Nifty is looking weak on daily chart as suggested by technical indicators, RSI-14 is currently hovering in positive territory moving downward while stochastic is trading close to oversold territory. MACD is also indicating correction in Nifty as it is currently trading in positive zone close to 60 showing negative divergence.

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