Our indices have posted the new lows for 2008 during the past week, amidst volatile movement, following global cues, and the domestic news flow, such as raise in repo rate hike by RBI, increased IIP numbers and highest inflation for the week at 8.75%. Nifty has managed to close above 4500 level inspite of breaching it and even 4400 intraday on two occasions, on all days excepting on 10.06.2008 ( the day on which the lows were made on indices) indicates that buying emerged at crucial 4400 levels. Nifty has made all time high on 10.01.2008 (6357.10), also the high for 2008, and now fallen by 31.26% from the top, where support emerged, is an indication that some support, especially, from DIIs like LIC and Domestic mutual funds emerged, though FIIs are net sellers continuously during the month. How much support can hold these levels?, as inflows have dried up is to be seen now. Time wise there is some significance with the date 10th, as the low is made exactly after 5 months from the high made in January' 2008, 5 being fibonacci number, gives hope that the market might has found a bottom at least in the very short term.
Advance Tax payments data as on 15.06.2008, will start trickling from tomorrow onwards, which will be watched keenly by market players to guage the profit expectations for Q-1 of this fiscal by corporates. US markets have closed with gains on friday, after testing crucial suports, and Nifty futures having closed at discount of 32 points, indicating huge short positions, will lead to 'short squeeze' on any positive news flow from tomorrow, and there should be a relief rally on the first two days at least.
Nifty might trade in a range of 4450 to 4750 during the ensuing week, and the inflation data to be released on 20.03.2008, is being feared to be at least double digit (more than 10%) shall invite some nervousness, as it would force regulators to come up with some more action, which may effect the market sentiment. Volatility will be high during the week and next week too, as june settlement is scheduled on 26.06.2008, since the IVs are very high, but I feel that the lows made on 10.06.2008 shall hold for the month till expiry, as huge number of puts are sold below 4400 in current series. On the upside, trapped bulls/investors will lighten the positions, on rallies, thus resistances are placed at 4600, 4680 and 4740. Until Nifty closes above 4800 with volumes, reversal of long term tend which is currently down, is not possible for now. 5DSMA for Nifty(4506.16) and Sensex(15116.10) should be watched for tomorrow, as indices have closed above them last week.
Strategy for the Week: Buy 4500 calls on weakness and 4700 puts on rallies.
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