The past week saw nifty holding 5150 levels on the downside and the volatility index also saw a negative close. A short covering rally to 5300+ cannot be ruled out as long as the mentioned support levels hold. All the major stocks gave a decent move on the downside and some of the stocks like DLF and Hindalco are close to their 52 week lows. If there is a short covering rally these 52 week low zones should hold and can give a rally on the upside. I did mention an upside cap of 5260 on friday's post and it gave a u-turn from 5250 levels. Thus 5260 would act as an upside cap where lot of short positions are lying and above this zone we could see a small bounce to 5300+ levels. Even if there is a bounce back on the cards the structure of almost all the stocks are extremely negative as the rally could only take them to form one more lower top. Thus the trend reversal on the upside could happen only above 5350 - 5360 with good volume. The downside bet is still on as the volatility index is expected to rise in the short run. If there is a short term rally on the upside the volatility index can come down to 16-15 and it would wipe off the premiums in put options resulting in lower implied volatility.Thus the rally should have enough strength with some consolidation happening at some point of time as the correlation between stocks and nifty could not be seen.Lets keep the range of 5150 - 5260 and consider a breakout on the upside as a short term bounce.
Short covering possible (above previous high)
DLF, Hindalco, Auropharma and some major banking stocks
Downward move possible (below previous low)
Orchid chemicals
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