Nifty update for 29-Feb-2012

It did not break the base that built around 5330 levels and bounced back from those levels to confirm the base for Nifty. We could call it as a short covering rally than fresh buying and the poor turnover data shows that. Volatility index shows some fresh buying happening on dips close to 5350 levels and the cycle would be the same as that of first week of February when Nifty futures faced the resistance around same levels of 5440-5450. If these resistance levels are taken out I would be a buyer with a near out of the money call with an upside target level of 5550-5560 where most of the short positions are lying. Thus 5350-5440 could is a no man’s land and thus a possibility of range bound market is high if we inch higher. If we see the past data Nifty could surpass all the major resistance levels by spending enough time on a downside or a range bound market so that it could get some time for new buying. As an options writer I would like to make delta neutral positions as long as it remains in 5350-5440 range. In a range bound market you could see Nifty making new highs but suddenly dropping off from the highs as there is not enough volume for a sustained move. Thus on the downside, as I said in yesterday’s post create new positions in put options only below 5330 levels and think about buying close to 5240-5330 if the move could sustain or above today’s high of 5460 as there is a high possibility that one could get trapped in a range bound market. We could only see a marginal increase in the leading indicators of Nifty ie; Jindal steel and ICICI bank and a good move by these two could decide the move of Nifty. SBI could retain levels 2200 + levels due to some short covering and it would be a wait and watch game whether it could sustain these levels because there are lot many short positions lying in 2300-2325 zone. These important leading indicators would be the key for the market to watch out for in the coming days.