Bulls stack up futures, short options

TECHNICALS

The markets opened on a cautious note and proceeded to trade higher through Thursday.

The benchmark indices got a fillip as the index heavy-weights saw buying support at lower levels.

The traded volumes lower than Wednesday's session as the retail segment seems to have been cynical of the rally. The market breadth was highly positive as the ratio of advancing to declining shares on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) combined stood at 1928 : 938.

The capitalisation of the breadth was also positive as the figures on the two bourses taken together stood at Rs 4,951 crore (advances) : Rs 663 crore (declines).

The F&O figures available for the previous session suggest that the bulls have enhanced their exposure on the futures segment with shorts on the options side.

The indices are at their psychological thresholds and the Nifty is marginally below its 200-day simple moving average (SMA), which is poised at the 1710 levels.

The Sensex is clearly over its 200-day SMA and the outlook for the markets is dependent on the immediate resistance levels of 1711 and 5520 on the Nifty and the Sensex, respectively, being surpassed on a sustainable closing basis for the next few sessions and that too with higher volumes.

The upside targets in the coming few sessions are at 1728 and 5584 levels in a conducive scenario. The downside support is likely at 1686 on the Nifty in the coming session.

Watch traded volumes very carefully in the coming days as retail participation will be evident from this yardstick. The outlook for Friday is of optimism as bulls are likely to continue offering support at lower levels and barring routine profit sales, I do not expect any major downsides in the markets.

Activity is likely in BEML, which has indicated a breakout above its short-term congestion levels. Buy with a 2 per cent stop-loss and expect to book profits at 4-5 per cent higher levels in the near term. Traded volumes should be curtailed in view of the higher volatility in the markets.

Vijay L Bhambwani
(CEO-BSPLindia.com)

The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com or (022)23400345/23438482.

Sebi disclosure: The analyst has no exposure to the scrips mentioned above.