Market breadth still negative

F&O OUTLOOK

The Fed rate cut continues to fire up the markets with the S&P CNX Nifty and the BSE Sensex closing at new highs. The Nifty September futures closed at five points premium at 4938 and the Sensex futures at 15 points premium at 16,860.

However, while the benchmark indices are touching new highs, courtesy the Reliance group companies, the total breadth of the market was negative in the last three days in a row. That explains the views in some quarters about it being a "only Reliance" rally.

The turnover in the futures and options segment on the NSE increased by Rs 4,000 crore to Rs 79,398 crore. The open interest in stock derivatives crossed the Rs 1 trillion mark at Rs 102,352 crore. Around 80 per cent of open interest is for the current month.

The options trading pattern suggests that the call and put writers have been writing in the money call options and out of the money put options. Almost 99 per cent of the total open interest in put options exists in out of the money put and 88 per cent call options open interest exists in the money calls.

The call writers are expecting the market to go up and hence are not willing to write out of the money calls. Put writers expect a fall in the market and hence are writing in the money puts.

The put/call ratio of Nifty open interest declined from 1.69 to 1.65 as the Nifty call options added an open interest of 16.59 lakh shares while the Nifty put option added an open interest of 18.71 lakh shares.

The undertone remained healthy with the Nifty target at 5000 levels and the Sensex target at 17,000 levels. According to derivative analyst Subhash Gangadharan of HDFC Securities, the market is heading for a short term top and any correction should be looked at as an opportunity to buy.