Rally driven by low volumes

F&O OUTLOOK

The intra-day bullish trend continued with the Sensex and Nifty recovering sharply early afternoon after shedding early gains. All the sectoral indices on the BSE posted gains, except the IT index. The market breadth was strong on the BSE as 1,904 shares advanced, while 800 shares declined.

The Nifty August 2007 futures discount has been declining over the past few sessions, indicating short covering at lower levels. The Nifty August futures discount declined to 18 points from 33 points on Friday. The Nifty futures settled at 4355.60, compared with its spot closing of 4373.65.

Technically, the intraday rally of the last three days can go up 4,470 levels. Only after the Nifty crosses the 4,470 levels, the next leg of rally will open. The Nifty may start correcting thereafter and the nature of ensuing correction will indicate whether new lows are possible are not.

The put/call ratio of Nifty open interest eased to 1.29 from 1.32 Friday. The ratio continues to hover around 1.30 to 1.50 in August series contract, indicating no fresh built-up and cut in short positions. Monday's technical rally lacked conviction as it was driven by low volumes.

The F&O turnover on NSE has declined by Rs 17,000 crore to Rs 31,627 crore. Both index futures and stocks futures witnessed decline in trading volumes. The spot market turnover declined by around Rs 3000 crore to Rs 11,160 crore on NSE and Rs 1,000 crore to Rs 5,220 crore on BSE.

The technical support is at 4,333 and 4301. The resistance is at 4396 and 4420. Nearly 50 per cent of the total OI in Nifty put and call options has been distributed at 4,300, 4,400 and 4,500 levels. The Nifty resistance seen at 4,400 levels as 18.9 per cent of call options OI built at 4,400 levels.