Market up-move continues to look uncertain

Though the activity in the global market will dictate, the fresh bearish position builds up in the nifty as well as the stock futures and options indicate market do not have the strength required to continue to maintain its growth momentum

The week started on an extremely negative note as the nifty corrected by 147.80 points to close at 4563.90 points. The sell-off was triggered by the news that the Comptroller and Auditor General (CAG) has set up a team to examine the expenses Reliance Industries (RIL) incurred on its D6 natural gas field in the Krishna-Godavari (KG) basin in the Bay of Bengal. The correction was further exasperated by the bleak scenario in the European markets and US index futures. During this day huge short positions were created in the stock and Nifty November series. However positive comments by the Finance Minister Pranab Mukherjee, that there are no immediate plans to place curbs on capital inflows, besides strong global stocks indices enabled the domestic benchmark to come back strongly. The Nifty rose 146.90 points to close at 4710.80. The shorts that were created the previous day were aggressively un-wound. For e.g. Nifty November series it self witnessed unwinding of 23.47 lakh shares of short position open interest (OI) created the previous day. The trend was the same in the front-line stock futures as well. Then for the proceeding three days the market closed on a positive note. For the full week ended 6th November 2009 the nifty index rose 84.45 points to close at 4796.15. However the Nifty future closed at a discount of 6 points to the underlying. The global market weakness and the worry of unwinding of US $ carry trade and the consequent asset bubble burst and US$ appreciation continue to remain. Despite the rally the market does not signify convincing strength, as is evident from the future market activity during the past few days.
On Friday 6th November the Nifty closed 30.60 points higher at 4796.15. The OI trend in the Nifty and the stock futures remained directionless. As the week closed the nifty continued to shed OI signifying short covering. Besides the trend in the stock futures were also the same. The total OI for the Nifty November series further shed 8.65 lakh shares to 2.76 crore shares. Overall the market wide OI on Friday stood at 158.62 crore shares, thus gaining by just 7 lakh shares as compared to the previous trading day. As mentioned earlier the index future and the overall stock future witnessed un-winding of OI signifying continued short covering. For e.g. the index future shed 6 lakh shares in OI compared to the previous day whereas the stock futures shed 1.77 crore shares in OI. The stock option contributed the major addition in OI. (See table OI breakup).

In the Nifty option front the most active call options were the 4600 to 4900 strike calls and 4500 to 4700 strike puts. The 4600 and 4700 strike calls unwound 1.98 lakh shares and 2.89 lakh shares in OI signifying covering of calls bought earlier whereas 4800 and 4900 call strikes witnessed 6.1 lakh shares and 5.1 lakh shares addition of OI. The concurrent premium decline of these strikes indicates call wrote at these levels. Besides 4400 strikes put witnessed unwinding of 6.2 lakh shares in OI, whereas 4500, 4600 and 4700 strike puts witnessed addition of 2.1 lakh shares, 9.7 lakh shares and 8.5 lakh shares addition in OI respectively. The concurrent premium increase indicates puts bought at these strikes. Thus these indicate bearish signal. The OI in the 4800 and 4900 strikes call increased to 40.02 lakh shares and 41.27 lakh shares respectively. The OI in the 4600 and 4700 strikes puts increased to 58.90 lakh shares and 46.46 lakh shares respectively.
The market do not seem to have the strength required to continue to maintain its growth momentum as fresh bearish position builds up in the nifty as well as the stock futures and options. Going ahead the activity in the global market will be the key as the mood there is also gloomy.