F&O expiry could lead to volatility

Last week saw indices rally as overseas cues turned optimistic. The headline indices rose on the back of optimism in the technology and mid-cap stocks, even as the banking index brought up the rear.

The BSE and NSE combined weekly advance decline ratio was positive as the figures were 11197:9707. The capitalisation of the market breadth was also positive as the figures were Rs 45,922 crore:Rs 43,621 crore. The NSE gained Rs 1,31,574 crore in market capitalisation on a week-on-week basis.

Overseas investors were net buyers to the extent of Rs 2,476.2 crore during the week and that saw the rupee close at the 46.16 levels vis-a-vis the US dollar (against the previous week’s 46.85 per dollar levels). The Dow Jones Industrial Average and the Nasdaq Composite Index both pulled back to close at their highest weekly levels after the week ended May 14, 2010.

The UK FTSE 100 logged similar weekly notching to provide a relief rally to the broader universe of global markets. In the Asian region, the Nikkei 225 index led the bullish charge, followed by the Hang Seng Index, and the Straits Times Index followed meekly. The Shanghai Composite Index was the loser within the Asian peers and can be a cause for concern in the near term.

The domestic markets have seen a technical pullback that was stronger than our advocated resistance at the 5250 level, which was overcome as the Nifty tested the 5300 levels before settling lower.

This week is likely to witness a range of 5000-5425 on the Nifty. The volatility is likely to be higher on account of F&O expiry in this week and overseas triggers from economic data points.

The bullish pivot for the week will be at the 5225 levels and
the bearish pivot at the 5175 levels. Bulls must defend the 5225 levels on a closing basis if the rally if to sustain on stronger legs. Traders nursing long positions may continue to hold the same till the 5175 level on the Nifty is intact.