 "Range trading: 7,250-7,550")
The market has scored net gains through the RBI credit policy. The next major trigger for movement could be the Budget. The RBI maintained status quo on policy rates but it eased money supply.
Trading has trended up and the breadth of the market looks firmly positive with advances outnumbering declines. Small-caps and mid-caps are outperforming the large-caps. FIIs and retail investors continue to display very positive sentiments.
The massive resistances above Nifty 7,500 may not be easy to break. It looks likely there will be consolidation and range-trading between 7,250 and 7,550 as sanity returns after elections. On the upside, the trader should watch for moves beyond the all-time high of 7,563. On the downside, a move below 7,200 could spark an intermediate correction.
A strong move on Monday had enough momentum to push the market up through Tuesday and the “wait-and-watch” credit policy. Most technical systems would advocate staying long with a deep stop loss at 7,250. The market is overbought but is in the sort of strong trend where it can remain overbought indefinitely.
The Nifty's June put-call ratio is at 0.89 and the three-month PCR is at 0.87. This is not a reliable indicator at the moment. 7,250 to 7,550, there is support and resistance at 50-point gaps. On the downside, the market has managed to stay above 7,250 and that could be taken as a first critical support to judge possible changes in the intermediate trend. The 200-DMA is way below current levels; so useless as a trend-following indicator.
Premiums show some signs of easing in June. The market is gradually returning to tracking economic data than speculating on political news. The SLR cut was a positive surprise. But the Bank Nifty has not responded with much bullishness. It saw backwardation even after the cut. This could be a drag on the overall market move. It has good support at 15,000. If it breaks above 15,400, it could test 15,700-plus. The rupee is likely to harden again, given strong FII inflows. Overall, the rupee rise seems to be driving trading patterns to some extent, with IT and pharma liable to underperform as the rupee rises. It will be interesting to see if the RBI intervenes by buying forex. If so, where it will choose to “defend” dollar to ensure exports stay competitive?
The distribution of open interest across the June Nifty option chains makes a move of anywhere between 7,200 and 7,800 possible with some OI at the 7,000p and the 8,000c. A long June 7300p (62) and short 7,200c (38) costs 24 and pays a maximum 76. A long May 7,500c (68) and a short 7,600c (35) costs 33 and pays a maximum 67. Both risk:reward ratios are reasonable. The index is at 7,416. Spreads involving in-the-money 7,400c (117) and 7,400p (97) are unattractive. Combining the long 7,500c, long 7,300p, short 7,600c and short 7,200p gives a long-short strangle combination, which has poor ratios with a cost of 57 and maximum returns of 43.
Trading has trended up and the breadth of the market looks firmly positive with advances outnumbering declines. Small-caps and mid-caps are outperforming the large-caps. FIIs and retail investors continue to display very positive sentiments.
The massive resistances above Nifty 7,500 may not be easy to break. It looks likely there will be consolidation and range-trading between 7,250 and 7,550 as sanity returns after elections. On the upside, the trader should watch for moves beyond the all-time high of 7,563. On the downside, a move below 7,200 could spark an intermediate correction.
A strong move on Monday had enough momentum to push the market up through Tuesday and the “wait-and-watch” credit policy. Most technical systems would advocate staying long with a deep stop loss at 7,250. The market is overbought but is in the sort of strong trend where it can remain overbought indefinitely.
The Nifty's June put-call ratio is at 0.89 and the three-month PCR is at 0.87. This is not a reliable indicator at the moment. 7,250 to 7,550, there is support and resistance at 50-point gaps. On the downside, the market has managed to stay above 7,250 and that could be taken as a first critical support to judge possible changes in the intermediate trend. The 200-DMA is way below current levels; so useless as a trend-following indicator.
Premiums show some signs of easing in June. The market is gradually returning to tracking economic data than speculating on political news. The SLR cut was a positive surprise. But the Bank Nifty has not responded with much bullishness. It saw backwardation even after the cut. This could be a drag on the overall market move. It has good support at 15,000. If it breaks above 15,400, it could test 15,700-plus. The rupee is likely to harden again, given strong FII inflows. Overall, the rupee rise seems to be driving trading patterns to some extent, with IT and pharma liable to underperform as the rupee rises. It will be interesting to see if the RBI intervenes by buying forex. If so, where it will choose to “defend” dollar to ensure exports stay competitive?
The distribution of open interest across the June Nifty option chains makes a move of anywhere between 7,200 and 7,800 possible with some OI at the 7,000p and the 8,000c. A long June 7300p (62) and short 7,200c (38) costs 24 and pays a maximum 76. A long May 7,500c (68) and a short 7,600c (35) costs 33 and pays a maximum 67. Both risk:reward ratios are reasonable. The index is at 7,416. Spreads involving in-the-money 7,400c (117) and 7,400p (97) are unattractive. Combining the long 7,500c, long 7,300p, short 7,600c and short 7,200p gives a long-short strangle combination, which has poor ratios with a cost of 57 and maximum returns of 43.