NIFTY:Holding its Ground

BALANCING ACT 

Even as the Nifty has managed to move above a defined technical resistance last week, its subsequent behaviour indicates the presence of buoyancy as well as watchfulness among traders. 
    Since the start of the week a decline in the volume of Nifty September future was accompanied by a simultaneous rise in its open interest and the underlying index. However, on Thursday a jump in volume and open interest was met with a sluggish rise in the Nifty. Moreover, on Friday while the Nifty ended gaining nearly half a percent, volumes and open interest both declined. 
    This course of events means that till Wednesday the tone of the market remained very upbeat but thereon a sense of hesitance set in. Nifty September future in a way mirrored this change of sentiment as it closed at a minor premium to the underlying index on Tuesday and Wednesday and ended with a small discount on Thursday. Nonetheless on Friday it again showed a good premium of nearly 12 points. This jump means that the traders are still hopeful for Nifty to maintain its rising streak also as the September Put Call Ratio (PCR) ended the week at a robust 1.68. 
OPTIONS SPEAK 
Even the adjustment in the open interest of September series options show that amid some hesitance the flooring for the Nifty may be strengthening in 4600-4800 range. For the week though 4600 puts maintained the highest open interest, the maximum addition for the put side, of about 25 lakh shares occurred for the 4800 strike. The build up on the call side on the other hand indicated 4900 being the most anticipated resistance level. Not only did the 4900 strike held the maximum open interest during the week but also the highest addition of open interest (20 lakh shares) took place in 4900 calls for most days of the week. 
    While these points highlight the support and resistance for the Nifty, on comparing the rise in open interest of the near-term in-the-money options, expectations of a sustained rise are favoured. In-the-money 4700-4800 calls as on Friday gained nearly 1.4 lakh shares in the open interest, triple the build up for in-the-money 4900-5000 strikes. 
EFFICIENT FIBONACCI 
Last week the Nifty not only managed to move above a trendline joining all of its highs since June but also the 61.8% retracement of the last bear market fall. OnFriday this retracement level (at 4789) showed its efficiency as the Nifty turned around from a low of 4791. As can be seen from the chart, besides this level, due to the presence of the above mentioned trendline, the Nifty could find a stout defense at 4760. 
DOLLAR'S LOSS DOW'S GAIN 
Similar to other global indices, the trigger for the Nifty's rise last week was the fall in the US dollar. As we have mentioned several times, since the financial turbulence of 2008, the Dollar index- a gauge of the greenback's strength against six major currencies like Euro and Sterling - has maintained a tight negative correlation with the world equity markets, in particular, the Dow Jones Industrial Average (DJIA). Last week, the dollar index not only fell below its low since September 2008 but also breached the trendline that emerged from October 2007 (See chart 2). 
    With a weaker dollar, the Dow came back to its rising streak and on Thursday closed above 9625, its highest close for the last eleven months. 
    Now the Dow has to come over a hurdle outlined by the two trendline shown in the third chart, which corresponds to a range of 9650-9700. A hindrance to the Dow's gains however could come from a rise in dollar index above 77.50. 
FRESH TRADE 
Last week we suggested holding on to the long call initiated in the week previous to last while the Nifty makes an attempt to rise towards 4800. This week, given the rationale behind the importance of 4790-4760, we suggest initiating a long in the range to play a probable rise towards 4920 or even 5000 while keeping a stop below 4730. 
    devangi.joshi@timesgroup.com