NIFTY Outlook for the Week 26Dec-30Dec 2011

1. Week gone by at a Glance

NIFTY started the week flat by opening at 4623, managed to go down to 4531 but managed a quick recovery & ended the week with marginal gains of 1.6% by closing at 4714.

As per this post (NIFTY Down Moves), each of the previous down moves were of the range of 13-17%. The current sell-off from 5099 can be said to have ended at 4531 levels. Mind you on weekly charts we are yet to see a bottom formation (Has been witnessed on daily charts). So if this week we manage to stay above the lows then only weekly too we would have a intermediate bottom in place for the upmove that can take us to 4850-4900 levels.

Sell-Off 1: 6181 to 5177 (16.23%)

Sell-Off 2: 5700 to 4720 (17.19%)

Sell-Off 3: 5350 to 4639 (13.28%)

Sell-Off 4: 5099 to 4531 (11.13%)

2. Charts

2.1 Weekly Charts

Much awaited pullback was seen in NIFTY. With FII's not that much active the Index managed a smart pullback of 5% from the lows. Going forward as long as NIFTY remains above 4640 on closing basis the trades on Long side would be profitable till atleast we are near 4806-4850. Below 4640 the bears would become active and chances of new lows can be seen.

Indicators: Positive Divergence is seen in MACD. Slow Stochastic is oversold & RSI is still below 50 indicating the lack of buying in the ongoing trend.

2.2 Daily Charts

NIFTY from Tuesday is moving in a steep upward trendline & sooner rather than later will fall from the trendline & can reach its important support of 4640. If this level is held on to then an upmove to 4850 can be seen.

Indicators: RSI & William's % R are indicating weakness & monday most likely we may hit 4640 levels.

2.3 Volume Weighted Charts

3. Derivatives

3.1 OI Chart

Highest Concentration of Puts is at 4500 Strike with a OI of 73 Lakhs (Previous Week was at 63 Lakhs). 4600 Strike is next with a OI of 67 Lakhs.

Highest Concentration of Calls is at 5100 Strike with a OI of 78 Lakhs (Previous Week was at the same level). 4900 Strike is next with 71 Lakhs in OI.

Total Calls OI in the Near Month is 5.93 Crores. Total Puts OI in the Near Month is 5.13 Crores.

Put Call Ratio is still below 1 indicating aggressive call writers haVe still not squared up their shorts.

4. Bottom Line

• Last Trading Week of the Calendar Year 2011. Expect market to trade with positive bias with good support coming in from MF's buying to dress up the NAV for Quarter End.
• The December Month's Closing is very important for the Yearly, Quarterly, Monthly charts. On Monthly Charts, This month the opening tick was at 4970 levels. On Quarterly the Opening was at 4874 levels. The more we get close to 4874 levels the formation would look like a "Inverted Cross".
• Sectors to Watch out for: Telecom Sector is looking weak. IT is mixed with TCS showing strength & INFY showing weakness. Banking & Auto space may see continued pull backs.
• Trading Strategy - One can keep their Long positions open as long as Index manages to stay above 4640. Stiff resistance would be faced at 4760-4810-4860-4880 levels. Strong supports exist at 4700-4640-4550.
• Max Pain Theory for Options suggest that Expiry may happen around 4800 levels.