The market managed a pullback on Monday after a two- week downtrend. The Nifty found support at 7,730. It remains to be seen if this is a temporary turnaround on short-covering or if the market can sustain a rally.
As of now, the long-term trend would be accounted bearish. The Nifty has failed to push past its own Simple 200-Day Moving Average (200-DMA) in the last rally, which fizzled out with a peak around 8,336 on October 23. The Simple 200-DMA was then at 8,380 and it is now at about 8,355. The index has also established a pattern of falling peaks since the previous peaks were above 8,600, way back in August 2015.
As of now, the global mood is bearish, with the US Federal Reserve reaffirming that it could raise the so-called Fed Funds policy rate at its next meet on December 16. Japan has technically slipped into recession. Plus, geo-political tensions are up after the terrorist strike on Paris. Foreign institutional investors have been consistent net sellers through November. Retail investors tend to disappear in the period immediately after Diwali. So, only domestic Institutions are supporting the market now.
However, there have been net losses since the Nfity peaked in early March at 9,119. So, most pragmatic technicians would assume a big bear market is on, given eight months of a downtrend with net losses of 15 per cent.
The Bank Nifty is also in negative territory, following poor results from quite a few PSU banks and from Axis Bank, among the private banks. The financial index also bounced on Monday, however. As always, higher volatility is likely from this segment. The rise in October inflation could be a dampener . The option trader who is playing for high volatility would be looking at long strangle of 16,500p (48) and long 17,500c (123). The index is at 17,185. So, this is not zero-delta. But, a couple of big sessions would result in one end of this strangle being hit and that's entirely possible inside the settlement.
Breadth signals are bearish. Volumes have been low but that is normal during the Diwali. Advances have been outnumbered by declines in the past fortnight. The rupee is also under pressure as it has sliped below 66 of the dollar. The forex market is liable to stay very volatile until the Fed decides, one way or another. Corporate results have been quite poor.
The Nifty's put-call ratios are very bearish, hovering around 0.75. The call chain for November has high peaks of open interest (OI) at 8,000c, 8,200c, and 8,500c. The November put chain has big OI peaks at 7,800p, 7,700p, and 7,500p.
The Nifty traded at 7,806 on Monday. An on-the-money bullspread of long 7,800c (95), short 8,000c (49) costs 46, pays a maximum 54. A near-the money bullspread of long November 7,900c (49), short 8,000c (21) costs 28, with a maximum payoff 72. This is 95 points from spot. A bearspread of long November 7,800p (70), short 7,700p (38) costs 32 and pays a maximum 68, and it is on the money. A straddle of long 7,800c, long 7,800p, would cost 165. A strangle of long 7,700p, long 7,900c costs about 87. Both are reasonable positions since volatility could stay high.
As of now, the long-term trend would be accounted bearish. The Nifty has failed to push past its own Simple 200-Day Moving Average (200-DMA) in the last rally, which fizzled out with a peak around 8,336 on October 23. The Simple 200-DMA was then at 8,380 and it is now at about 8,355. The index has also established a pattern of falling peaks since the previous peaks were above 8,600, way back in August 2015.
As of now, the global mood is bearish, with the US Federal Reserve reaffirming that it could raise the so-called Fed Funds policy rate at its next meet on December 16. Japan has technically slipped into recession. Plus, geo-political tensions are up after the terrorist strike on Paris. Foreign institutional investors have been consistent net sellers through November. Retail investors tend to disappear in the period immediately after Diwali. So, only domestic Institutions are supporting the market now.
Also Read
The current rally could be sustained for an intermediate uptrend and a close above 8,350 would be a positive signal. For that matter, there is no absolute confirmation of a big bear market. For that, we would need the indices to move below prior 52-week lows. The Nifty hit a low of 7,539 in September and a bottom lower than 7,539 would establish a long-term bear market for sure.
However, there have been net losses since the Nfity peaked in early March at 9,119. So, most pragmatic technicians would assume a big bear market is on, given eight months of a downtrend with net losses of 15 per cent.
The Bank Nifty is also in negative territory, following poor results from quite a few PSU banks and from Axis Bank, among the private banks. The financial index also bounced on Monday, however. As always, higher volatility is likely from this segment. The rise in October inflation could be a dampener . The option trader who is playing for high volatility would be looking at long strangle of 16,500p (48) and long 17,500c (123). The index is at 17,185. So, this is not zero-delta. But, a couple of big sessions would result in one end of this strangle being hit and that's entirely possible inside the settlement.
Breadth signals are bearish. Volumes have been low but that is normal during the Diwali. Advances have been outnumbered by declines in the past fortnight. The rupee is also under pressure as it has sliped below 66 of the dollar. The forex market is liable to stay very volatile until the Fed decides, one way or another. Corporate results have been quite poor.
The Nifty's put-call ratios are very bearish, hovering around 0.75. The call chain for November has high peaks of open interest (OI) at 8,000c, 8,200c, and 8,500c. The November put chain has big OI peaks at 7,800p, 7,700p, and 7,500p.
The Nifty traded at 7,806 on Monday. An on-the-money bullspread of long 7,800c (95), short 8,000c (49) costs 46, pays a maximum 54. A near-the money bullspread of long November 7,900c (49), short 8,000c (21) costs 28, with a maximum payoff 72. This is 95 points from spot. A bearspread of long November 7,800p (70), short 7,700p (38) costs 32 and pays a maximum 68, and it is on the money. A straddle of long 7,800c, long 7,800p, would cost 165. A strangle of long 7,700p, long 7,900c costs about 87. Both are reasonable positions since volatility could stay high.