Markets see relief rally

F&O OUTLOOK

In line with the US markets on Friday and Asian markets on Monday, the Indian markets also witnessed a relief rally with the Sensex (up 265 points) and the S&P CNX Nifty (up 101 points) making substantial gains.

The opening was without a corresponding increase in trading volumes on the derivatives segment with the F&O turnover on the NSE declining by Rs 24,000 crore to Rs 40,000 crore. No wonder, indices lost substantial ground in the afternoon.

The Sensex gains shrunk by 253 points from the day's high of 539 points. The Nifty shed 53 points intra-day.

The decline in the trading volumes on account of the gap-up opening indicates lack of support at higher levels. Technically, the 4,250 level acted as a resistance for the Nifty and 14,650 for the Sensex. Both these indices surrendered their gains after hitting the upper level of resistance.

Technical analysts are quite skeptical about Monday's rally and observe that for any bullishness, there should be decline in volatility. The intra-day volatility is harming a consolidation in the markets, which is why the open interest positions remain intact even after 16 trading days in the August futures contracts.

The open interest in the Nifty August futures, for example, remained around 410-440 lakh shares from the beginning of the August futures contract till date.

The put/call ratio of the Nifty open interest was up marginally at 1.24 from 1.23. The Nifty put options added an open interest of 7.77 lakh shares and the call options added an open interest of 4.34 lakh shares.

The put-call ratio below 1.50 indicates oversold positions, and those who went short continued to hold short positions. The relative strength index (RSI) remained range bound with the five days RSI at 39 and 14 day RSI at 41.