 "Intermediate uptrend, support at 6,150")
The last settlement of 2013 is likely to go through without too much volatility and a moderate carryover. The Nifty has been stuck in a narrow range for the past two sessions. Market operators, foreign institutional investors (FIIs) and domestic institutions all have to come to terms with the Fed's announcement on tapering. This is also the reporting year-end for many FIIs.
Technically speaking, the market remains in a bull run. The Nifty hit an all-time high recently at 6,415 and that would be the benchmark for the long-term trend. On the downside, there has been support in the 6,150 zone and above in the last correction. The index appears to be in an intermediate uptrend - we have seen higher lows.
The short-term trend is indeterminate with the Nifty likely to swing around in between 6,150 and 6,415. A move beyond 6,415 would obviously be positive, while a fall below 6,150 would hit successive supports at roughly 50-point intervals.
Most breadth and support signals are bullish. The advance-declines ratio has improved in the past 10 sessions. Volumes are decent. The market has shrugged off the announcement of US Fed tapering although the actual start of the process could have some adverse impact. The Reserve Bank of India (RBI) holding rates steady was a positive surprise.
The Bank Nifty responded with a small rally to RBI's calculated non-action. The financial index is stuck inside a range of roughly 11,200-11,700. Breakouts from this range, as and when they occur, could be till around 10,600 or 12,300. Any trending move by the Bank Nifty is liable to influence the broader market since banks have a big weight in the Nifty. There has been some action in realty stocks with hopes of a pick-up, given that several banks have cut home loan rates.
The dollar-rupee rate has also remained within a tight range. There are expectations that the dollar could harden once tapering starts - US treasury yields have risen slightly. Despite the ranged dollar-rupee rate, the IT sector has seen an upmove with HCL Tech and Infy both registering all time highs this month. If the dollar does harden, the IT sector is likely to move up more sharply.
Most trend-following systems indicate staying long. It's tempting to suggest traders sell out-of-money January puts on December 26 and December 27 with the intention of buying back in the first week of January. Directionally, the trend suggests that there is a low chance of say, the January 6,000p (27) or 6,100p (44) being hit and there is every chance of being able to buyback in two-three sessions with a fair profit.
Traders could assume the Nifty will stay within the bounds of 6,050-6,450 for the next five-seven sessions. Breakouts or breakdowns beyond this zone could hit 5,850 or 6,650.
A long January 6,400c (91) versus short 6,500c (54) costs 37 and pays 63. This is well out of money. A long 6,200p (68) and short 6,100p (44) costs 24 and pays 76. This is much closer to money and has a better risk:reward ratio. The differentials are indicative of the bullish sentiment.
Strangles don't have good ratios close to money. The nearest 50:50 payoff:risk ratio is available with a long 6,500c, long 6,200p, short 6,100p, short 6,600c (29), which costs 50 and has breakevens at 6,150 and 6,550.
The author is a technical and equity analyst
Technically speaking, the market remains in a bull run. The Nifty hit an all-time high recently at 6,415 and that would be the benchmark for the long-term trend. On the downside, there has been support in the 6,150 zone and above in the last correction. The index appears to be in an intermediate uptrend - we have seen higher lows.
The short-term trend is indeterminate with the Nifty likely to swing around in between 6,150 and 6,415. A move beyond 6,415 would obviously be positive, while a fall below 6,150 would hit successive supports at roughly 50-point intervals.
Most breadth and support signals are bullish. The advance-declines ratio has improved in the past 10 sessions. Volumes are decent. The market has shrugged off the announcement of US Fed tapering although the actual start of the process could have some adverse impact. The Reserve Bank of India (RBI) holding rates steady was a positive surprise.
The Bank Nifty responded with a small rally to RBI's calculated non-action. The financial index is stuck inside a range of roughly 11,200-11,700. Breakouts from this range, as and when they occur, could be till around 10,600 or 12,300. Any trending move by the Bank Nifty is liable to influence the broader market since banks have a big weight in the Nifty. There has been some action in realty stocks with hopes of a pick-up, given that several banks have cut home loan rates.
The dollar-rupee rate has also remained within a tight range. There are expectations that the dollar could harden once tapering starts - US treasury yields have risen slightly. Despite the ranged dollar-rupee rate, the IT sector has seen an upmove with HCL Tech and Infy both registering all time highs this month. If the dollar does harden, the IT sector is likely to move up more sharply.
Most trend-following systems indicate staying long. It's tempting to suggest traders sell out-of-money January puts on December 26 and December 27 with the intention of buying back in the first week of January. Directionally, the trend suggests that there is a low chance of say, the January 6,000p (27) or 6,100p (44) being hit and there is every chance of being able to buyback in two-three sessions with a fair profit.
Traders could assume the Nifty will stay within the bounds of 6,050-6,450 for the next five-seven sessions. Breakouts or breakdowns beyond this zone could hit 5,850 or 6,650.
A long January 6,400c (91) versus short 6,500c (54) costs 37 and pays 63. This is well out of money. A long 6,200p (68) and short 6,100p (44) costs 24 and pays 76. This is much closer to money and has a better risk:reward ratio. The differentials are indicative of the bullish sentiment.
Strangles don't have good ratios close to money. The nearest 50:50 payoff:risk ratio is available with a long 6,500c, long 6,200p, short 6,100p, short 6,600c (29), which costs 50 and has breakevens at 6,150 and 6,550.
The author is a technical and equity analyst