Saturday, March 26, 2011

Nifty range may be shifting from 5200-5600 to 5400-5800

Friday Indian markets witnessed almost 2.5% gain in their both leading indicators Sensex and Nifty crossing their immediate individual resistance levels. Today's mint headline reads, Sensex gaining 1000 points in this week, and thats way, I think Indian markets are reacting because of being laggard through out the this year after witnessing sharp rallies in September and November 2010.

Indian markets have priced in Middle east crisis, In turn causing oil spikes (which I believe is temporary as it is not in synchronized with the world recovery. Since almost oil price jumped an average of $70 to more than $100, which is more than 40% rise.) Japanese earthquake effect and RBI's recent rate hike.

If you go by the pure technical charts which is as given below from mid February Nifty is trying to make higher bottoms and higher tops, which is according to Dow theory is a positive sign.

Exponential moving average (which are better indicators of the recent trend as compared with Simple Moving Average) of 50 and 200 days indicate possible reversal in the trend due to possible crossovers.

The one of the major oscillator, RSI (Relative Strength Indicator) is also indicating consolidated upward movement strength in the recent trend from March 2nd week.

Now coming to base formation before jumping to next range, the market looks like it formed the base at 5200 as it bounced back twice and after that it formed intermediate support at 5400 as it was trading in the range of that 5400-5600.

Now coming to upper band of the new range, that is the resistance level for the market would be the 5800 levels. That is the level when Nifty was having support when it was falling in November and December months.

Now finally coming to options, 5400 Put option has seen the more than 11 million contracts open interest and more than 1 million contracts change in the open interest (highest for any PUT option) indicating the PUT option sellers feel the base for the market is at 5400 levels. From CALL option perspective both 5700 and 5800 contracts witnessed highest levels of open interest and 5800 CALL option has seen maximum change in the open interest, indicating option writers feeling resistance at 5800 levels.

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