 "Nifty support levels at 8,150-8,200")
The market continued to register new highs. But profit booking prevented serious net gains. Global markets also continued to run bullish. Indian treasury yields dropped as well. By definition, a market trading at new highs is bullish. There are no benchmarks for judging potential resistances and targets.
In that sense, not much has changed since last week. The nearest reliable support levels on correction are in the zone of Nifty 8,150-8,200, where the previous all time highs were registered. The current high is 8,383. Moves beyond 8,383 and ideally, closes above 8,385, would look good.
FII buying has driven this rally. The FIIs started buying in the last week of October and they have continued buying into November. Despite domestic institutional selling this has been enough to push the market up. The short-term trend of tightly-ranged trading could end in a news-based breakout in either direction. Domestic news with the potential to move the market includes inflation data, Index of Industrial Production data and also assessment of political developments like Cabinet expansion. A low inflation trend could be a bullish driver by making rate cuts look more likely. Some optimists are hoping for a rate-cut at the next RBI policy review in early December though consensus suggests that this is against the odds. A combination of lower inflation and lower IIP may lead to a stronger bull run because a poor IIP puts “moral pressure” on the RBI to cut rates.
The dollar continues to harden against the euro and the yen. Equity indices have also zoomed in the US and Japan, while the yen has weakened. Other global markets have much more mixed trends.
The dollar-rupee equation remains well-correlated to FII flows. The Nifty is up 33 per cent since January 2014. As mentioned above, pullbacks could hit a first support in the 8,150-8,200 zone while the uptrend could continue indefinitely. For reference, the 200-DMA of the Nifty is at 7,175, over 1,100 points below current levels.
The outperforming sectors include banking and finance. Traditional defensives like FMCG, pharma and IT have underperformed. The Bank Nifty would have to be a major driver of any bullish fervour. It could possibly head towards the 18,000-mark if the inflation data includes a big positive surprise . If the Bank Nifty corrects down at some stage, the overall market would shift into correction.
The November Put OI peaks at 8,000 but there's a bulge in OI at 8,200p and ample OI till 7,700.
The spot Nifty closed at 8,345 on Monday with an intra-day high at 8,383 and the November futures at around 40 points premium. The trader can look at far-from money options for November. However, even the near-the-money spreads are offering decent risk:return ratios. A bullspread of long Nov 8,400c (71) and short 8,300c (33) costs 38 and pays a maximum of 62. A bearspread of long Nov 8,300p (54) and short 8,200p (30) costs 24 and has a maximum payoff of 71. The bearspread has a very favourable risk:reward ratio. It is also slightly closer to spot.
These two spreads taken together would cost 62 and offer a payoff of 38. But a wider strangle of long 8,500c, long 8,200p, short 8,600c (13), short 8,100p (17) costs a maximum 33 and pays a maximum 67 with breakevens at 8,167, 8,533.
In that sense, not much has changed since last week. The nearest reliable support levels on correction are in the zone of Nifty 8,150-8,200, where the previous all time highs were registered. The current high is 8,383. Moves beyond 8,383 and ideally, closes above 8,385, would look good.
FII buying has driven this rally. The FIIs started buying in the last week of October and they have continued buying into November. Despite domestic institutional selling this has been enough to push the market up. The short-term trend of tightly-ranged trading could end in a news-based breakout in either direction. Domestic news with the potential to move the market includes inflation data, Index of Industrial Production data and also assessment of political developments like Cabinet expansion. A low inflation trend could be a bullish driver by making rate cuts look more likely. Some optimists are hoping for a rate-cut at the next RBI policy review in early December though consensus suggests that this is against the odds. A combination of lower inflation and lower IIP may lead to a stronger bull run because a poor IIP puts “moral pressure” on the RBI to cut rates.
The dollar continues to harden against the euro and the yen. Equity indices have also zoomed in the US and Japan, while the yen has weakened. Other global markets have much more mixed trends.
The dollar-rupee equation remains well-correlated to FII flows. The Nifty is up 33 per cent since January 2014. As mentioned above, pullbacks could hit a first support in the 8,150-8,200 zone while the uptrend could continue indefinitely. For reference, the 200-DMA of the Nifty is at 7,175, over 1,100 points below current levels.
The outperforming sectors include banking and finance. Traditional defensives like FMCG, pharma and IT have underperformed. The Bank Nifty would have to be a major driver of any bullish fervour. It could possibly head towards the 18,000-mark if the inflation data includes a big positive surprise . If the Bank Nifty corrects down at some stage, the overall market would shift into correction.
The November Put OI peaks at 8,000 but there's a bulge in OI at 8,200p and ample OI till 7,700.
The spot Nifty closed at 8,345 on Monday with an intra-day high at 8,383 and the November futures at around 40 points premium. The trader can look at far-from money options for November. However, even the near-the-money spreads are offering decent risk:return ratios. A bullspread of long Nov 8,400c (71) and short 8,300c (33) costs 38 and pays a maximum of 62. A bearspread of long Nov 8,300p (54) and short 8,200p (30) costs 24 and has a maximum payoff of 71. The bearspread has a very favourable risk:reward ratio. It is also slightly closer to spot.
These two spreads taken together would cost 62 and offer a payoff of 38. But a wider strangle of long 8,500c, long 8,200p, short 8,600c (13), short 8,100p (17) costs a maximum 33 and pays a maximum 67 with breakevens at 8,167, 8,533.