Rebound expected early next week

The two main indices—the Nifty and the Sensex—staged strong intraday rebound on Friday in choppy trades and extended gains for the second straight day. The Nifty bounced back from an intraday low of 4,766 to close at 4,882 on short-covering in interest rate-sensitive sectors such as auto, banks and realty.

Technically, if intraday low of 4,766 is held, then there will be a corrective rally next week. A bounce back early next week is expected, and if the index clears the stiff resistance of 5,008, it may rally towards its current high, says technical analyst Subash Gangadharan of HDFC Securities.

In case the weakness resumes and the main indices break the trendline held around the lows of August 19 and November 3, 2009, 16,000-15,300/ 4,700-4,500 levels would come into focus. With most of the sectoral indices showing long-term uptrend, the odds seem to be on the higher side, indicate analysts. The recent correction does provide a good opportunity for accumulating stocks with an intermediate to long-term perspective. Investors can buy stocks with a stop-loss below the long-term trend reversal levels of 15,330/ 4,538 for the indices.

The India VIX, a volatility index based on the S&P CNX Nifty’s option prices, declined in the last two days after a steep rise on Wednesday (January 27). It declined by 3.08 per cent to 26.13, indicating the return of stability. The Nifty February futures closed at a discount to the spot on account of panic selling below the 4,800 level. Short-covering saw a sharp recovery, but the index failed to close above the 4,900 mark due to profit-booking at higher levels.

At the start of the February series, the Nifty 5,000 call has the highest open interest (OI) build-up of 3.80 million shares indicating short-term resistance. The Nifty 4,800 put is holding the highest OI of 4.88 million shares indicating strong support at this level.