Correction phase may end soon

F&O OUTLOOK

Thursday's political development brought some cheer to the market with the BSE Sensex and the S&P CNX Nifty closing with handsome gains. The recovery, however, lacked depth as traders were unsure about the way the political drama will unfold.

As a result, the turnover on the BSE and NSE cash segment declined by Rs 5,000 crore to Rs 11,000 crore while the F&O turnover declined by Rs 13,000 crore to Rs 33,000. The advance/ decline ratio was favourable to large cap (3:1) and mid-cap stocks (2:1).

The Nifty closed near the resistance level of 4,200. For an upside, it has to close above 4,250 levels. However, the increase in open interest near the 4,250 call option suggests that the Nifty will face resistance at 4,250 levels.

The support for Nifty continues to be around 4,100. It is widely believed that the derivatives player use contra-market indicators. It means call options indicate resistance levels while put options indicate support levels.

Experts broadly believe that the correction phase in the market may end soon. Despite the extreme volatility, the Nifty never declined to the weekly bottom of 4,000.

In the last three consecutive days, the 200 day moving average levels acted as the support levels. Hence, the completion of correction is valid as long as Nifty holds the 4,000 levels.

The market trading in a triangle means one day up and one day down. Any directional trend is possible only if there is decline in the daily volatility.

According to Kamalesh Langote of vfmdirect.com, the Nifty may see a breakout of around 300 points. If the Nifty sustained above 4,267, it is likely that the Nifty may breach its previous high. If there is any breakout below 4,000 levels, the Nifty will crash to 3,700 levels.