 "Drop below 5,800 could see Nifty slide to 5,500 levels")
The market may just have seen a peak on Monday. The Nifty opened high and tested resistance above 5,950 before it declined to test support at 5,800. The turnaround was on the basis of high inflation and nervousness on account of the US Fed meeting on Wednesday.
The chances are, the Fed will not taper. But the market is also now braced for the Reserve Bank of India (RBI) to leave policy rates and money supply constraints unchanged, with just a chance the new governor may raise policy rates.
The Bank Nifty's behaviour will be critical. The financial index tested resistance above 10,500 before swinging back to test support at 10,175. It could range-trade this zone, with some downside bias testing support at around 10,000 until Friday, when extreme volatility is possible.
If there’s a breakout on unexpected monetary policy, it could take the Bank Nifty down till below 9,500 or up till resistance near 11,000. A Bank Nifty strangle of 10,500c (260) and 10,000p (160) may pay off, despite expiry worries. The Bank Nifty's lead will be followed by NBFCs and by other rate-sensitive stocks such as realty.
Technically speaking, the indices are registering higher highs, which indicates a continuing intermediate uptrend. However, Monday saw a deep intra-day low and the turnaround suggested the trend may have gone bearish. The Nifty found support in the region of its 200-Day Moving Average and it dipped below that mark intra-day. Volumes remained high but the advances-declines ratio went negative.
There is support every 50 points down but a drop below 5,800 could mean a slide back till the 5,500 levels by settlement. A close below the 200 DMA would also mean the big bear market is still alive. On the upside, the next key mark is 5,958, which must be beaten to maintain higher highs.
One characteristic of bear market rallies is that they tend to be sharp and also to fizzle out suddenly. A fall this week may well continue till the 5,120 levels, which is the 2013 low. Of course, it is also possible that, if the Fed does not taper and Rajan eases with either a rate cut or a CRR cut, the market will test 6,100.
We will be in settlement week by the time the monetary policy implications are absorbed. This could mean weird option premiums because traders are expecting high volatility, while also coping with expiry worries.
Nifty Put-Call ratios (PCR) are bullish. The September PCR and the three-month PCR are both at near 1.5. Options close to money are very high priced, given time to expiry. Expectations in the next four-five sessions range between 5,600 and 6,100, given the strangle of long 5,900c (96) and long 5,800c (92). As mentioned above, the actual volatility could be more.
A bullspread of long 5,900c (96) and short 6,000c (54) costs 42 and pays 58. A bearspread of long Sep 5,800p (92) and short 5,700c (62) costs 30 and pays a maximum 70. A strangle of long 5,700p, long 6,000c, short 5,600p (41) and short 6,100c (27) costs 48 and breaks even at 5,652, 6,048.
The chances are, the Fed will not taper. But the market is also now braced for the Reserve Bank of India (RBI) to leave policy rates and money supply constraints unchanged, with just a chance the new governor may raise policy rates.
The Bank Nifty's behaviour will be critical. The financial index tested resistance above 10,500 before swinging back to test support at 10,175. It could range-trade this zone, with some downside bias testing support at around 10,000 until Friday, when extreme volatility is possible.
If there’s a breakout on unexpected monetary policy, it could take the Bank Nifty down till below 9,500 or up till resistance near 11,000. A Bank Nifty strangle of 10,500c (260) and 10,000p (160) may pay off, despite expiry worries. The Bank Nifty's lead will be followed by NBFCs and by other rate-sensitive stocks such as realty.
Technically speaking, the indices are registering higher highs, which indicates a continuing intermediate uptrend. However, Monday saw a deep intra-day low and the turnaround suggested the trend may have gone bearish. The Nifty found support in the region of its 200-Day Moving Average and it dipped below that mark intra-day. Volumes remained high but the advances-declines ratio went negative.
There is support every 50 points down but a drop below 5,800 could mean a slide back till the 5,500 levels by settlement. A close below the 200 DMA would also mean the big bear market is still alive. On the upside, the next key mark is 5,958, which must be beaten to maintain higher highs.
One characteristic of bear market rallies is that they tend to be sharp and also to fizzle out suddenly. A fall this week may well continue till the 5,120 levels, which is the 2013 low. Of course, it is also possible that, if the Fed does not taper and Rajan eases with either a rate cut or a CRR cut, the market will test 6,100.
We will be in settlement week by the time the monetary policy implications are absorbed. This could mean weird option premiums because traders are expecting high volatility, while also coping with expiry worries.
Nifty Put-Call ratios (PCR) are bullish. The September PCR and the three-month PCR are both at near 1.5. Options close to money are very high priced, given time to expiry. Expectations in the next four-five sessions range between 5,600 and 6,100, given the strangle of long 5,900c (96) and long 5,800c (92). As mentioned above, the actual volatility could be more.
A bullspread of long 5,900c (96) and short 6,000c (54) costs 42 and pays 58. A bearspread of long Sep 5,800p (92) and short 5,700c (62) costs 30 and pays a maximum 70. A strangle of long 5,700p, long 6,000c, short 5,600p (41) and short 6,100c (27) costs 48 and breaks even at 5,652, 6,048.