CAUTION

What a day for the markets ? The markets opened with positive bias and Nifty made a high of 5499, before making a low of 5437  and closing the day at 5463, a swing of 61 points on a intraday basis. The day was very important from a economic prospective, because the railway budget was a precursor to the union budget about to be presented, day after tomorrow and it seemed that the government has taken the first bold step towards fiscal prudence, which was cheered by the markets, but soon the political bickering started along with the worst than expected inflation data and the market gave up almost all its gains and the Nifty managed to close marginally higher by 0.63%, by the end of the session. The market breadth turned negative with 669 advances to 830 declines, but the FIIs turned saviours again, with net buy figures to the tune of 1659 crores and the DIIs were net sellers to the tune of 857 crores, indicating the nervousness among the domestic participants, waiting to sell at the slightest signs of weakness.The star performers for the day were PNB, Axis Bank, ICICI Bank, LT and NTPC. The Nifty futures closed at 5506, with 43 points premium and considerable addition of open interest. On the options side the PCR (Put - Call Ratio) increased to 1.13. There was shedding of open interest for he second consecutive session, right from 5000 to 5500 calls and corresponding addition of open interest from 5000 - 5600 puts with a exception of the 5500 put. All this action again indicating profit booking at higher levels and at the same time hedging of portfolios with puts, ahead of the big events lined up for the week.On the technical indicators side, the markets are clearly trying to move higher, but the India VIX (Volatility index) is making lower lows , indicating that there may be a spike in the volatility, any time, which is visible from the huge premium of nifty futures and the increasing cost of carry. Going forward the domestic news flow will overpower the market for the rest of the week and it is advisable to trade with caution and not to carry any large positions till the picture becomes a bit clearer. The levels to watch for Nifty will be 5477, 5519 and 5539 on the upside and 5395 and 5354 on the downside. The international markets are trading flat on the back of mixed reactions from the economic data from the U.S. and Europe.