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IN the last derivatives dairy, we discussed how the Nifty may have to undergo a strength test even after continuous out-performance over its US complement Dow Jones Industrial Average (DJIA).
However, not only did the Nifty remain in a tight range of 240 points last week but also the June futures showed a weak rollover into the July series. After losing more than 1% during the first four days of the week, the Nifty rebounded only on Friday. This rise however followed Dow's gains on the previous day as the US index managed to bounce back towards its 200 Day Moving Average (DMA).
THE STRUGGLE
As we pointed out last week, the 76.4% retracement of the rally from March'09 to Mid–June (from 2539 to 4693), at 4180 turned out to be a good support. However, as can be seen from the first chart, the crossover of 10 DMA below 20 DMA, is weighing on the Nifty. Even as the Nifty managed to close past its 10 DMA on Friday, a strong resistance is expected to emerge in the coming week at the 20 DMA (currently at 4446) level. This resistance also coincides with the support line extending from the March 2009 lows, which was breached last week.
ROLLOVER ANALYSIS
With the expiry week in place, the Nifty was expected to show some striking moves as it did in the last four months. However, the rollover in the July series at 54.6% showed a sizeable decline from the average rollover of the last four months at 69.9%. A look at the open interest data in the last one week reveals that from Tuesday, the addition in July futures open interest was higher than the decline in open interest in June series (see table). The premium of July futures over the underlying index also rose from 10.5 to 17.8 on Thursday. However, a decline in the July put call ratio (PCR) from 1.22 to 1.10 during the period indicates that number of calls written outpaced the number of puts.
On Thursday, the July 4700 calls held the highest open interest of 14 lakh shares, while the 4200 puts held the highest open interest of 20 lakh shares. Even as the 4200 puts added the maximum open interest of 9.5 lakh shares, the 4300 calls experienced the maximum addition of open interest, of 4.8 lakh shares. This indicates that as on Thursday, 4200-4700 was perceived to be a key trading range for the July series.
DOW NEAR 200 DMA – RESEMBLING DECEMBER 2007?
In last two diaries, we highlighted how the 76.4% retracement has worked efficiently during all the corrective phases, which came since March 2009. This magical level seems to have supported the Dow last week. As can be seen from the second chart, the Dow showed a rebound closer from 8300, which is the 76.4% retracement level of the index's move in the latest rally (from 6470 to 8878).
After briefly moving above the crucial 200 DMA in the first week of June, the Dow gave away these gains in the second week. On Thursday again, a rebound from that retracement level and subsequent gains brought it closer to the key indicator.
The Dow's current position is similar to the last week of December 2007. As shown in the third chart, after a decline from its peak in October, the Dow managed to move past 200 DMA in the first week of December but fell below it in the second week. In the third week, it managed to surpass this crucial indicator, but the gains were given away for good towards the end of the month. One important difference between these two is the positioning of 100 DMA. While in December 2007, the 100 DMA was acting as strong resistance, it can act as a strong base this time around.
FRESH TRADE
While the support at 4180 held well last week, the call was not initiated as we recommended going long only when the Nifty moves past the 20-DMA. The analysis on Friday shows that July 4300 puts added huge 6.7 lakh shares in open interest, while 4200 continue to hold the highest open interest. Meanwhile, the July 4700 and 4400 puts experienced a piling of 5 lakh and 4 lakh shares respectively. To sum up, with the market's close above 4300, the important resistance range has now shifted towards 4400-4450.
Since the Nifty is still capped by 20 DMA level, we recommend being on the sidelines. While a breach past the above mentioned resistance range could bring back the index on a gaining streak, a crossover of 10 and 20 DMA will be essential for the rally to continue.
devangi.joshi@timesgroup.com
However, not only did the Nifty remain in a tight range of 240 points last week but also the June futures showed a weak rollover into the July series. After losing more than 1% during the first four days of the week, the Nifty rebounded only on Friday. This rise however followed Dow's gains on the previous day as the US index managed to bounce back towards its 200 Day Moving Average (DMA).
THE STRUGGLE
As we pointed out last week, the 76.4% retracement of the rally from March'09 to Mid–June (from 2539 to 4693), at 4180 turned out to be a good support. However, as can be seen from the first chart, the crossover of 10 DMA below 20 DMA, is weighing on the Nifty. Even as the Nifty managed to close past its 10 DMA on Friday, a strong resistance is expected to emerge in the coming week at the 20 DMA (currently at 4446) level. This resistance also coincides with the support line extending from the March 2009 lows, which was breached last week.
ROLLOVER ANALYSIS
With the expiry week in place, the Nifty was expected to show some striking moves as it did in the last four months. However, the rollover in the July series at 54.6% showed a sizeable decline from the average rollover of the last four months at 69.9%. A look at the open interest data in the last one week reveals that from Tuesday, the addition in July futures open interest was higher than the decline in open interest in June series (see table). The premium of July futures over the underlying index also rose from 10.5 to 17.8 on Thursday. However, a decline in the July put call ratio (PCR) from 1.22 to 1.10 during the period indicates that number of calls written outpaced the number of puts.
On Thursday, the July 4700 calls held the highest open interest of 14 lakh shares, while the 4200 puts held the highest open interest of 20 lakh shares. Even as the 4200 puts added the maximum open interest of 9.5 lakh shares, the 4300 calls experienced the maximum addition of open interest, of 4.8 lakh shares. This indicates that as on Thursday, 4200-4700 was perceived to be a key trading range for the July series.
DOW NEAR 200 DMA – RESEMBLING DECEMBER 2007?
In last two diaries, we highlighted how the 76.4% retracement has worked efficiently during all the corrective phases, which came since March 2009. This magical level seems to have supported the Dow last week. As can be seen from the second chart, the Dow showed a rebound closer from 8300, which is the 76.4% retracement level of the index's move in the latest rally (from 6470 to 8878).
After briefly moving above the crucial 200 DMA in the first week of June, the Dow gave away these gains in the second week. On Thursday again, a rebound from that retracement level and subsequent gains brought it closer to the key indicator.
The Dow's current position is similar to the last week of December 2007. As shown in the third chart, after a decline from its peak in October, the Dow managed to move past 200 DMA in the first week of December but fell below it in the second week. In the third week, it managed to surpass this crucial indicator, but the gains were given away for good towards the end of the month. One important difference between these two is the positioning of 100 DMA. While in December 2007, the 100 DMA was acting as strong resistance, it can act as a strong base this time around.
FRESH TRADE
While the support at 4180 held well last week, the call was not initiated as we recommended going long only when the Nifty moves past the 20-DMA. The analysis on Friday shows that July 4300 puts added huge 6.7 lakh shares in open interest, while 4200 continue to hold the highest open interest. Meanwhile, the July 4700 and 4400 puts experienced a piling of 5 lakh and 4 lakh shares respectively. To sum up, with the market's close above 4300, the important resistance range has now shifted towards 4400-4450.
Since the Nifty is still capped by 20 DMA level, we recommend being on the sidelines. While a breach past the above mentioned resistance range could bring back the index on a gaining streak, a crossover of 10 and 20 DMA will be essential for the rally to continue.
devangi.joshi@timesgroup.com
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