 "Nifty could fall to 4,900 if 5,120 is broken")
The downtrend continued till short-covering, and buying by LIC pulled the equity market back. However, the post-settlement trend is likely to continue being bearish. The Nifty tested support at 5,120 before it bounced. If this is violated, the next stop could be 4,900.
The bounce hit resistance at 5,325. The key levels on the upside are 5,325, 5,475 and 5,565. If the pattern of lower lows and lower highs holds, the index should not beat 5,565. Moving average-based resistance levels suggest that it will stay below 5,376 (the seven-day moving average, or MA).
Key factors include the rupee, the FII exodus, and the impending tapering. The shadow of war in Syria is pushing crude prices up. Gold has shot up on fears of war and rising US bond yields. This will have an impact on the current account deficit. The rupee also suffered from fears the fiscal deficit will expand, given the Food Security Bill and chances of other populist measures. There is speculation on the possibility of sovereign downgrades. The rupee closed above 68, despite the equity bounce. This is oversold, in the short term, not least because the RBI is likely to make a frantic effort to push it back up. The long-term and short-term technical signals are generally negative. All moving-average based signals are signalling sell. Breadth is poor and the sell-off was on high volumes. The Bank Nifty, which has a large influence on the broader Nifty, hit successive 52-week lows. It dipped till 8,366 on Wednesday and it should drop again to test support in 8,350-8,400. Almost every major bank and financial institution has hit a 52-week low in the last three sessions. Staying short on the Bank Nifty through the September settlement looks like an obvious action.
Put call ratios (PCR) are not reliable indicators so close to expiry. However, they are worth a mention because they are in very unusual zones. The August PCR is at 0.7 while the three-month PCR is at 0.9. These are extremely bearish: One has to expect a bounce. The carryover has been skewed, with the September & October PCR at 1.4, normal to bullish.
It makes sense to stay with a Bank Nifty bearspread of long September 8,500p (286) and short 8,000p (154). This costs 132 and it could gain 368 if the financial index hits 8,000. On the Nifty, one expects September settlement to remain volatile. In three or four sessions, the expectation could be between 4,950 and 5,650 - the breakevens of the Sep 5,300c (176) and the Sep 5,300p (173) out together. A September Bullspreads will have to be taken at a distance from money to have positive risk:reward ratios but bearspreads with positive ratios are available closer to money. A long Sep 5,500c (81) and short 5,600c (50) costs 31 and pays a maximum 69. A long Sep 5,200p (138) and short 5,100p (109) costs 29 and pays 71.
The bounce hit resistance at 5,325. The key levels on the upside are 5,325, 5,475 and 5,565. If the pattern of lower lows and lower highs holds, the index should not beat 5,565. Moving average-based resistance levels suggest that it will stay below 5,376 (the seven-day moving average, or MA).
Key factors include the rupee, the FII exodus, and the impending tapering. The shadow of war in Syria is pushing crude prices up. Gold has shot up on fears of war and rising US bond yields. This will have an impact on the current account deficit. The rupee also suffered from fears the fiscal deficit will expand, given the Food Security Bill and chances of other populist measures. There is speculation on the possibility of sovereign downgrades. The rupee closed above 68, despite the equity bounce. This is oversold, in the short term, not least because the RBI is likely to make a frantic effort to push it back up. The long-term and short-term technical signals are generally negative. All moving-average based signals are signalling sell. Breadth is poor and the sell-off was on high volumes. The Bank Nifty, which has a large influence on the broader Nifty, hit successive 52-week lows. It dipped till 8,366 on Wednesday and it should drop again to test support in 8,350-8,400. Almost every major bank and financial institution has hit a 52-week low in the last three sessions. Staying short on the Bank Nifty through the September settlement looks like an obvious action.
Put call ratios (PCR) are not reliable indicators so close to expiry. However, they are worth a mention because they are in very unusual zones. The August PCR is at 0.7 while the three-month PCR is at 0.9. These are extremely bearish: One has to expect a bounce. The carryover has been skewed, with the September & October PCR at 1.4, normal to bullish.
It makes sense to stay with a Bank Nifty bearspread of long September 8,500p (286) and short 8,000p (154). This costs 132 and it could gain 368 if the financial index hits 8,000. On the Nifty, one expects September settlement to remain volatile. In three or four sessions, the expectation could be between 4,950 and 5,650 - the breakevens of the Sep 5,300c (176) and the Sep 5,300p (173) out together. A September Bullspreads will have to be taken at a distance from money to have positive risk:reward ratios but bearspreads with positive ratios are available closer to money. A long Sep 5,500c (81) and short 5,600c (50) costs 31 and pays a maximum 69. A long Sep 5,200p (138) and short 5,100p (109) costs 29 and pays 71.