 "If 7,800 breaks on Nifty, 7,700 will be tested")
The market has multiple events to discount over the next fortnight. First, there is local macro-economic data. This includes a weak IIP and falling Consumer Price Inflation. Then, the Fed will complete QE3 tapering. The speculation in global financial markets centres now on the timing of the Fed raising policy rates and the details of the monetary loosening promised by Maro Draghi, of the European Central Bank.
All this has mixed implications. The RBI is unlikely to cut rates until it knows what the Fed and ECB may do. The consensus interpretation of the minutes of the latest FOMC Meeting is that the Fed may hold off hiking dollar policy rates until mid-2015. But some "bears" feel that a Q1 hike (Jan-Mar 2015) is on the cards, especially if the US economy shows strong recovery. The dollar is hardening against the Euro, with a couple of corrections. The RBI has been a net dollar seller in August and September. My sense of the RBI's forex operations is that it is trying to keep the rupee inside an ideal band of say, 60-62. But FIIs have been consistent equity sellers through October and this will automatically push the rupee down. The Euro is all set to soften. Hence, a short euro-rupee position allied to a long dollar-rupee remains a fair shot with the proviso that RBI intervention could put a ceiling on the dollar-rupee.
On the domestic front, Infosys has kicked off Q2 results with a positive surprise. This should make the other biggies of the IT sector look attractive, especially if the rupee is weak. The Sebi action against DLF could translate into pressure on other real estate, simply on sympathy. The Bank Nifty is a big question-mark. If FII selling continues, it could hit private banks. However, the Bank Nifty is currently finding support at 12,500 and the next support is at 15,200. On the upside, a climb till 16,000 is possible. Obviously the financial index will have a big influence on the overall market. The Nifty has falling bottoms with supports successively broken between 7,950 and 7,800. If 7,800 breaks, 7,700 is likely to be tested. The outlook would either be bearish, or a pattern of range-trading between 7,800 and 8,000.
Option premiums remain high. The VIX is also high and there is some fear-factor. The Nifty's put-call ratios look bearish. The PCR is at 0.95 for the three-month set and just above 1 for the October series. The Nifty call chain has massive open interest at October 8,200c, the likely upper limit on a bounce. The Put OI peaks at 7,800 but there's ample OI till 7,400. The spot Nifty closed at 7,885 with the futures at 7,912 on Monday. Given a high VIX, the trader can still look at far-from money options. A far-from money bullspread of long Oct 8,000c (56) and short 8,100c (28) costs 28 and pays a maximum of 72. A FFM bearspread of long Oct 7,800p (53) and short 7,800p (31) also costs 22 and has a maximum payoff of 78.
Combining these two contracts, gives a marginally negative risk:return ratio, with a cost of 51 and max payoff of 49.
All this has mixed implications. The RBI is unlikely to cut rates until it knows what the Fed and ECB may do. The consensus interpretation of the minutes of the latest FOMC Meeting is that the Fed may hold off hiking dollar policy rates until mid-2015. But some "bears" feel that a Q1 hike (Jan-Mar 2015) is on the cards, especially if the US economy shows strong recovery. The dollar is hardening against the Euro, with a couple of corrections. The RBI has been a net dollar seller in August and September. My sense of the RBI's forex operations is that it is trying to keep the rupee inside an ideal band of say, 60-62. But FIIs have been consistent equity sellers through October and this will automatically push the rupee down. The Euro is all set to soften. Hence, a short euro-rupee position allied to a long dollar-rupee remains a fair shot with the proviso that RBI intervention could put a ceiling on the dollar-rupee.
On the domestic front, Infosys has kicked off Q2 results with a positive surprise. This should make the other biggies of the IT sector look attractive, especially if the rupee is weak. The Sebi action against DLF could translate into pressure on other real estate, simply on sympathy. The Bank Nifty is a big question-mark. If FII selling continues, it could hit private banks. However, the Bank Nifty is currently finding support at 12,500 and the next support is at 15,200. On the upside, a climb till 16,000 is possible. Obviously the financial index will have a big influence on the overall market. The Nifty has falling bottoms with supports successively broken between 7,950 and 7,800. If 7,800 breaks, 7,700 is likely to be tested. The outlook would either be bearish, or a pattern of range-trading between 7,800 and 8,000.
Option premiums remain high. The VIX is also high and there is some fear-factor. The Nifty's put-call ratios look bearish. The PCR is at 0.95 for the three-month set and just above 1 for the October series. The Nifty call chain has massive open interest at October 8,200c, the likely upper limit on a bounce. The Put OI peaks at 7,800 but there's ample OI till 7,400. The spot Nifty closed at 7,885 with the futures at 7,912 on Monday. Given a high VIX, the trader can still look at far-from money options. A far-from money bullspread of long Oct 8,000c (56) and short 8,100c (28) costs 28 and pays a maximum of 72. A FFM bearspread of long Oct 7,800p (53) and short 7,800p (31) also costs 22 and has a maximum payoff of 78.
Combining these two contracts, gives a marginally negative risk:return ratio, with a cost of 51 and max payoff of 49.