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Wednesday, April 04, 2007

Edelweiss - Daily Market Outlook 4th April, 07


Market Snapshot

After Mondays agony, the markets bounced back yesterday and barring the initial volatility, the bears never really appeared in a position to do an encore. The Sensex opened 49 points higher at 12,504 backed by smart gains in the Asian markets. With the bulls continuing to put up a strong resistance, markets managed to hold onto their gains during the final hour of trade. The BSE Sensex closed at 12,621 (up 166 points) while the NSE Nifty closed at 3,691 (up 57 points).

The NSE and BSE cash volumes were unchanged compared to the previous day at INR 68 and INR 29 bn respectively. The F&O volumes were lower at INR 232 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has increased to 28-29% levels. The WPCR of Nifty Options decreased to 0.7 compared to the previous day while the 5 day average is 0.88.

Outlook

The markets are expected to open strong on the back of positive global cues. We expect that if markets are able to sustain the positive move, we might see lot of short covering fueling the rally further, as Nifty Futures Open Interest didn’t see any significant decline in yesterday’s trade. There has been some short covering on NIFTY and single stock futures yesterday, and we expect the rally to get intensified today after strong set of home sales data in US.


Cement sector might see some renewed selling after news that government might remove CVD on the import of Portland cement. This is bad for the cement sector as it will pull down the prices and dampen the sentiment further. Stock specifically, we might see some selling in Jet and Oriental Bank of Commerce and buying in Sterlite and RPL, on the back of index rebalancing.

After being net sellers on Monday, FIIs were net buyers to the tune of INR 892 cr in index futures and INR 292 cr in single stocks future.

The Nifty staged a strong pullback from its 200 DMA and the process could continue today as well. The Nifty showed some resistance at the 3700 level yesterday and if that level is crossed the first resistance would be at 3736 followed by 3750. On the lower side the support is at 3668. However, the underlying trend continues to be bearish and we believe that it is a matter of time before fall resume.

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