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Tuesday, March 06, 2007

Edelweiss - Daily Market Outlook 6th March, 07


Market Snapshot

The Sensex opened with a negative gap of 169 points at 12,717, and continued to drift lower. The selling pressure was so intense that the index tumbled to a low of 12,344. The index, thereafter, attempted to recover but was met with unabated selling at every rise. Heavyweights in particular bore the brunt of the selling today. The Sensex finally ended with a hefty loss of 471 points at 12,415 while the NSE Nifty settled with a loss of 150 points at 3576.5.

The NSE & BSE cash volumes were slightly lower compared to the previous day at INR 85 bn and INR 39 bn. The F&O volumes were a touch higher at INR 332 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has increased to 32-33% levels. The WPCR of Nifty Options decreased to 0.76 compared to the previous day while the 5 day average is 0.90.

Outlook

We expect the market to open with a positive gap in line with its Asian peers. The pullback can take the Nifty up to 1.5% up from the yesterday’s close. Domestic mutual funds are expected to buy select heavy weight stocks at the current levels as most of the fund houses are sitting on significant pool of cash. However, the tone of caution still pervades amongst the investors and they might look to sell off their positions after a rise.

The last couple of days have seen a significant buildup in Nifty OI as compared to SSF OI. This underlines the cautious tone in the market as investors prefer to take positions in broader instruments like the index as a hedge to their long positions.

We recommend the investors to invest in large caps like Infosys, Bharti, RCOM, and ICICI bank since these stocks can lead the pullback rally.

The Nifty took a support at it’s 200 DMA at 3562. Further the Nifty has another support at 3531. In addition to the 200 DMA support, the Nifty has deviated substantially on the downside from its short term moving average. The technical charts indicate a bounce back from the current levels. On the upside the first resistance for Nifty is at 3651 followed by 3726.

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