Nifty finally managed to close above the 5400 mark on Monday with increased Nifty put call ratio. On Friday, Nifty put call ratio stood at 1.02, which has increased towards 1.14, showing a moderately firm outlook for the market.
The out-of-the-money call option writers got trapped on Monday, and their short covering helped the market to gain further momentum. The short-term target for the Nifty will be 5560 and 5630 (200 DMA), which could be the major hurdle later. Investors can buy 5500 February call options for a holding period of 2 days.
Aggressive traders can create synthetic long split strike price on Nifty by buying 5500 call option and selling 5400 put options.
China and India are the fastest growing economies in the world and both are facing the heat of inflation. The Chinese index has fallen below its 200-DMA at 2737 and tested a low of 2661.44 on 25th January 2011. Later it recovered and moved up on January 28, 2011. It is showing signs of upward journey.
It is interesting to note that the 6-months correlation of both Nifty and Shanghai Composite Index is positive (0.794), and is an early indication of reversal in our market trend.
On Monday, stoplosses of short positions got triggered on the back of frenzied buying in the banking, auto and capital goods sector. The Bank Nifty itself looks very strong and is likely to test 11147 in the short term, which can lift sentiment in the banking space.
CNXIT index is also firm with minor resistance at 6944. If it crosses this, then it may even test 7052 and 7470 in the short term. Infosys and TCS are looking extremely positive on the futures segment.
Risk-averse traders can buy SBI , L&T, RIL and BoI in the futures markets and buy at-the-money put options of the respective stocks for a safe hedging purpose.
(Alex Mathews, Head-research, Geojit BNP Paribas Fin Services)
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