Sharp reversal on cards

F&O OUTLOOK

Profit-booking led to decline in open interest (OI) in many stocks, and that's why analysts expect further correction in the markets.

However, importantly, Nifty PCR (OI) corrected to 1.69 levels and implied that volatility of Nifty February options also remained at a very comfortable level of 17-18 per cent.

This indicates that the downside may be limited. Strong support exists near 4100 levels.

Last few days, a pattern was seen in which the markets were scaling new highs. But they eventually saw a correction. This pattern is seen very clearly in five min charts and the baseline is at 4190 spot. 

F&O SNAPSHOT
	Turnover (Rs crore)*		Open int ('000)**
	Feb 02,07	Feb 09,07	Feb 02,07	Feb 09,07
Nifty	42859.26	50241.59	59850.00	69213.00
BANKNIFTY	404.90	359.94	106.00	93.00
CNXIT	4.31	11.40	5.00	9.00
Stock	70350.27	94883.16	1227971.00	1318843.00
NSE total	113618.74	145496.10	1287932.00	1388158.00
Sensex	2372.08	2981.35	29.00	55.00
Stock	215.38	282.03	51.00	33.00
BSE total	2587.46	3263.39	80.00	88.00
*Weekly aggregates notional value, **In shares

This level broke on Friday and the Nifty retested another minor support at 4170. The next support is at 4140. On an end-of-day basis, the broader trend remains bullish as long as trading is within the channel defined in the daily chart.

According to an analyst with HDFC Securities, the BSE-Sensex chart now shows a rising wedge or an ending diagonal pattern in Elliott parlance, advising extreme caution at current levels.

As per Elliott wave theory, ending diagonals turn up in the final legs of a market and as we have been stating in the recent past. The current upmove is the final leg in the recent bull run and could lead to a severe and sharp reversal.