 "Expect range-trading until US shutdown resolution")
The market range traded with a somewhat nervous undertone through last week. The US government shutdown and its possible consequences continue to affect sentiment. The dollar has weakened globally. In India, the Telegana situation could trigger further nervousness and there are some tremors about possible fallouts from the National Spot Exchange (NSEL).
The Nifty has stayed about the support line of the 200-Day Moving Average. This support level at 5,825-5,850 is critical. On the upside, it has been unable to penetrate resistance at 6,000. hence, range-trading between 5,850 and 6,000 has been the pattern with reasonably volatile intra-day movements.
Despite the narrow range, futures and options contracts continue to see large premiums indicating high implied volatility. The Nifty bounced from 5,700 last week, which would be the next key support if 5,850 breaks. On the upside, moves above 6,000 would have to test and surpass 6,142 to register new intermediate highs.
When this range trading pattern breaks, a move of plus/minus 300 points in the direction of breakout may occur. Traders will therefore be looking to cover moves between 5,550 and 6,150 and the trend which would be established on a breakout/ breakdown may be powerful enough to push the market further.
Key news flow through the next few weeks will of course, be centred on US events. Beyond that, second quarter (Q2) results will come in, along with macro-economic data like inflation and IIP numbers. There’s a fair amount of optimism about IT sector results and guidance and this is translating into speculative bull runs in HCL Tech, TCS, TechM, etc. Infy remains range-bound ahead of Friday's Q2 results. As things stand, IT could be a strong performer, if guidances are on expected lines.
Assuming the US shutdown and debt ceiling vote is resolved, the next US FOMC meeting in late October will probably have a benign outcome. In the circumstances, the Fed is very unlikely to cut back QE3.
This allows the Reserve bank of India (RBI) a little room and the Indian central bank is trying to use this time to ease short-term liquidity within the system. It has lowered the MSF rate and carried out Open Market Operations on a large scale as well. This could push the Bank Nifty up out the range trading zone of 10,000-10,300. A run till 10,800-10,900 is possible or a perhaps, a breakdown till 9,500 if there is poor newsflow for the financial sector.
Nifty Put Call ratios for October-December are in a healthy range at 1.2 to 1.3. This suggests that most traders are a little optimistic. As mentioned before, option premiums are high.
Selling options relatively close to money with far from money covers could be profitable. That is, an inverse spread like short 5,800p (101) and long 5,700p (75) could bring in 26 for “free” if the market moves up or, if premiums decline on continued range-trading. This will lose a maximum 74 on a breakdown. The inverse spread of long 5,800p and short 5,700p is the natural spread for a bear.
A bullspread of long Oct 6,000c (125) and short 6,100p (82) costs 43 and pays 57. A strangle of long 5,700p (75), long 6,100c (82), short 5,600p (54) and short 6,200c (49) costs 52 and breaks even at 5,647, 6,153.
The Nifty has stayed about the support line of the 200-Day Moving Average. This support level at 5,825-5,850 is critical. On the upside, it has been unable to penetrate resistance at 6,000. hence, range-trading between 5,850 and 6,000 has been the pattern with reasonably volatile intra-day movements.
Despite the narrow range, futures and options contracts continue to see large premiums indicating high implied volatility. The Nifty bounced from 5,700 last week, which would be the next key support if 5,850 breaks. On the upside, moves above 6,000 would have to test and surpass 6,142 to register new intermediate highs.
When this range trading pattern breaks, a move of plus/minus 300 points in the direction of breakout may occur. Traders will therefore be looking to cover moves between 5,550 and 6,150 and the trend which would be established on a breakout/ breakdown may be powerful enough to push the market further.
Key news flow through the next few weeks will of course, be centred on US events. Beyond that, second quarter (Q2) results will come in, along with macro-economic data like inflation and IIP numbers. There’s a fair amount of optimism about IT sector results and guidance and this is translating into speculative bull runs in HCL Tech, TCS, TechM, etc. Infy remains range-bound ahead of Friday's Q2 results. As things stand, IT could be a strong performer, if guidances are on expected lines.
Assuming the US shutdown and debt ceiling vote is resolved, the next US FOMC meeting in late October will probably have a benign outcome. In the circumstances, the Fed is very unlikely to cut back QE3.
This allows the Reserve bank of India (RBI) a little room and the Indian central bank is trying to use this time to ease short-term liquidity within the system. It has lowered the MSF rate and carried out Open Market Operations on a large scale as well. This could push the Bank Nifty up out the range trading zone of 10,000-10,300. A run till 10,800-10,900 is possible or a perhaps, a breakdown till 9,500 if there is poor newsflow for the financial sector.
Nifty Put Call ratios for October-December are in a healthy range at 1.2 to 1.3. This suggests that most traders are a little optimistic. As mentioned before, option premiums are high.
Selling options relatively close to money with far from money covers could be profitable. That is, an inverse spread like short 5,800p (101) and long 5,700p (75) could bring in 26 for “free” if the market moves up or, if premiums decline on continued range-trading. This will lose a maximum 74 on a breakdown. The inverse spread of long 5,800p and short 5,700p is the natural spread for a bear.
A bullspread of long Oct 6,000c (125) and short 6,100p (82) costs 43 and pays 57. A strangle of long 5,700p (75), long 6,100c (82), short 5,600p (54) and short 6,200c (49) costs 52 and breaks even at 5,647, 6,153.