The market has remained bearish, though it showed signs of stabilising in the past two sessions. The US government shutdown and its possible consequences have affected sentiment. The dollar has weakened globally.
Last week, the Nifty dipped below its 200-day moving average (200-DMA) and, despite partial recovery, it remains below the 200-DMA. Futures and options contracts are trading at large premia, indicating high implied volatility. Everybody is braced for a long and volatile October settlement.
The Nifty closed below its 200-DMA on Friday. Since then, it has hit successive intra-day lows, before bouncing from 5,700 on Tuesday. The index has massive resistance at 5,850 levels, which is where the 200-DMA is placed. If it cannot break above 5,850, it could test 5,700 again. Below 5,700, the next strong support is at around 5,550.
Towards the end of October, the US Federal Open Market Committee would meet again. There could be some tapering-related decision. The shutdown and weak American economic data make it likely the US Fed wouldn't cut back on QE3 (the third round of the quantitative easing programme) this year. The Fed's decision would influence the Reserve Bank of India's policy and affect the attitude of foreign institutional investors, one way or another.
The market could range-trade between 5,700 and 5,900, with high intra-day volatility through the next few sessions, while it waits for news-based direction. The dollar has support at 61.75-62 and could range-trade from there to resistance at 64-plus levels.
The bank Nifty is weaker than the overall market. It has support at 9,575-9,600 and resistance at 10,050-10,100. It could range-trade this zone or fall till the next support at 9,200-9,250, if it breaks down. Or, it could rise till 10,300 if it breaks out.
Information technology major Infosys's results are due on October 11. Expectations are high due to the weak rupee; its estimate would shape sentiment. If Infosys does well, the CNXIT would outperform. Automobiles may also be pulling out of a prolonged slump, with strong sales in the last two months.
Nifty put call ratios (PCR) for October-December are in a reasonable range at 1.2. But at 1.64, the October PCR is very high, indicating traders are braced for a big down-move. Given the high premia on options and futures and the liquidity levels in the option chains, the Nifty could move between 5,500 and 6,100 in the next five sessions if it breaks out of range-trading (5,700-5,900).
Futures premia should dip to about +35 for the Nifty and +60 for the bank Nifty from their current values of +55 and +100, respectively. A brave trader could sell options at 300-400 points away from spot and cover back as the premia decline.
A bull spread of long October 5,900c (124) and short 6,000c (83) costs 41 and pays 59. A bear spread of long October 5,700p (112) and short 5,600c (83) costs 29 and pays up to 71. A strangle of long 5,600p, long 6,000c, short 5,500p (61) and short 6,100c (51) costs 54 and breaks even at 5,547 and 6,047.
Last week, the Nifty dipped below its 200-day moving average (200-DMA) and, despite partial recovery, it remains below the 200-DMA. Futures and options contracts are trading at large premia, indicating high implied volatility. Everybody is braced for a long and volatile October settlement.
The Nifty closed below its 200-DMA on Friday. Since then, it has hit successive intra-day lows, before bouncing from 5,700 on Tuesday. The index has massive resistance at 5,850 levels, which is where the 200-DMA is placed. If it cannot break above 5,850, it could test 5,700 again. Below 5,700, the next strong support is at around 5,550.
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On a larger timescale, the last market peak was 6,142 and to confirm an uptrend, that must be beaten; the fact that it has hit lows and broken support at the 200-DMA makes this unlikely. However, the trend of the market is quite difficult to read. Almost every trader is waiting for key news through the next few weeks. First, of course, there's the US shutdown. Second, the second quarter results would come in, along with macroeconomic data such as that on inflation, as well as the Index of Industrial Production numbers. The fiscal deficit and current account deficit numbers were, in themselves, terrible, but better than consensus estimates. Most analysts feel the second quarter would see improvements in the twin deficits.
Towards the end of October, the US Federal Open Market Committee would meet again. There could be some tapering-related decision. The shutdown and weak American economic data make it likely the US Fed wouldn't cut back on QE3 (the third round of the quantitative easing programme) this year. The Fed's decision would influence the Reserve Bank of India's policy and affect the attitude of foreign institutional investors, one way or another.
The market could range-trade between 5,700 and 5,900, with high intra-day volatility through the next few sessions, while it waits for news-based direction. The dollar has support at 61.75-62 and could range-trade from there to resistance at 64-plus levels.
The bank Nifty is weaker than the overall market. It has support at 9,575-9,600 and resistance at 10,050-10,100. It could range-trade this zone or fall till the next support at 9,200-9,250, if it breaks down. Or, it could rise till 10,300 if it breaks out.
Information technology major Infosys's results are due on October 11. Expectations are high due to the weak rupee; its estimate would shape sentiment. If Infosys does well, the CNXIT would outperform. Automobiles may also be pulling out of a prolonged slump, with strong sales in the last two months.
Nifty put call ratios (PCR) for October-December are in a reasonable range at 1.2. But at 1.64, the October PCR is very high, indicating traders are braced for a big down-move. Given the high premia on options and futures and the liquidity levels in the option chains, the Nifty could move between 5,500 and 6,100 in the next five sessions if it breaks out of range-trading (5,700-5,900).
Futures premia should dip to about +35 for the Nifty and +60 for the bank Nifty from their current values of +55 and +100, respectively. A brave trader could sell options at 300-400 points away from spot and cover back as the premia decline.
A bull spread of long October 5,900c (124) and short 6,000c (83) costs 41 and pays 59. A bear spread of long October 5,700p (112) and short 5,600c (83) costs 29 and pays up to 71. A strangle of long 5,600p, long 6,000c, short 5,500p (61) and short 6,100c (51) costs 54 and breaks even at 5,547 and 6,047.