Nifty 7000? Kotak Derivatives Research

Weekly Chart of S&P CNX NIFTY Kotak Derivatives Research

Synopsis The recovery began in March 2009 with a sharp vertical upmove followed by a gradual move from 4000 to 5000 levels. The recent move that we saw from the breakout level of 5530 was fierce and relentless. Banks have led this rally coupled with Oil & Gas, IT and FMCG Stocks. Call writers have been squeezed to the maximum in the current run up just as Put writers were squeezed in Kotak Derivatives Research

Synopsis (Contd…) The striking difference between the last time we were at these levels and this time is the change in OI structure of the market. Stock futures have taken backseat and paved way for Index options which is almost Rs Lakh Cr (which was nearly the total OI of the whole market then) Since March 2009 the Stock futures OI is around the highest level today but still its way below the OI figures of Jan Kotak Derivatives Research

Synopsis (Contd…) Time-Volume studies indicate that the markets have spent very little time at major levels above In the past the volatility has been extremely high above This strengthens the need for a consolidation or time correction for the markets to aim higher in the coming months. Kotak Derivatives Research

Outlook Momentum indicators have gone through their rooftops and indicate a cooling off at these levels. We can expect some consolidation/correction in the near term. Correction if any is expected to be a buying opportunity Midcap and small cap frenzy expected as they could play catchup with the frontline stocks Kotak Derivatives Research

Outlook (Contd…) Traders can bet upon the following two scenarios: 1.Continuation of the current upmove: Jan Highs can be tested and broken followed by a newer top (slightly higher) 2.Consolidation/Intermediate Correction from these levels: In that case, should act as good base and provide opportunities for fresh money into the market. Kotak Derivatives Research

Outlook (Contd…) Chances of the index making a new top are pretty high. Only time will tell whether we do that in the current run up or followed by an intermediate correction. If Banknifty or some of the other index heavyweights are anything to go by, 7000 seems a likely target in the medium term. Kotak Derivatives Research

“The party is still on… Enjoy it until we wake up with a bad hangover.” Kotak Derivatives Research