 "Range-trading between 6,000 and 6,350 likely")
The market bounced after assurances from the US Federal Reserve that tapering would not start immediately. There’s been a reasonable amount of breadth in the rally with a positive advances-declines ratio. Poor inflation data has been shrugged off.
The Nifty had lost five per cent during the downmove but it bottomed out above 5,950 and well above the key area of the 200-Day Moving Average (DMA), which is at 5,865-5,900. The bounce will have to test and break multiple resistances between current levels (6,190) and the 52-week high of 6,342 to reach a new high. Obviously, a move above 6,342 would signify an strengthening bull market.
It’s quite likely that, instead, we'll see another period of range-trading between say, 6,000-6,350. The long-term trend remains positive and so is the short-term trend. A breakout above 6,342 would be necessary to signal a positive intermediate trend. Short-term traders can set stop losses at 50-point intervals because there will now be support between 6,000-6,175 since the index has already crossed above that level.
The Bank Nifty has started out-performing on the bounce. The financial index had also fallen more than the Nifty on the downturn. The key zones to watch would be resistance at 11,400-11,500 and the next resistance at 11,700-11,800. A bullspread of long November BankNifty 11,500c (92) and short 12,000c (21) is quite tempting. It costs 71and could gain a maximum 429. The IT sector has also been doing well since there is still some currency pressure. There is some speculative action in engineering stocks (Crompton Greaves, L&T, Bhel, ABB) and in auto-ancillaries (Amara Raja, Bharat Forge). There could also be a bounce in cement.
The Nifty’s put call ratios are in bullish territory but on the low side. The November PCR is at 1.1, while the three-month PCR is at 1.07. My interpretation would be that there's still a fair amount of nervousness about a potential downturn. The rally has been sharp but it hasn’t lasted very long and it appears to be driven purely by FII sentiment.
A trader should stay braced for the Nifty to move anywhere between 5,900 to 6,400 in the next 5-10 sessions. Breakouts beyond this range look unlikely.Premiums on the Nifty futures to spot are still at about 30-40 points, which is on the high side of normal. The premium on the BankNifty at about 70, is closer to normal.
The Nifty is at 6,189 (spot) with a futures value of 6,225. A bullspread of long Nov 6,200c (75) and short 6,300p (31) is on the money. It costs 44 and pays a maximum 56. Further away, the long 6,300c and the short 6,400c (10) costs 21 and pays a maximum 79. The on-the-money bullspread is quite attractive.
An on-the-money bearspread of long 6,200p (59) and short 6,100p (29) costs 30 and pays a maximum 70. A wider bearspread of long 6,100p and short 6,000p (13) may also be tempting since it costs just 16. Obviously, the on-the-money bearspread has a terrific risk-return ratio.
As traders will notice, a straddle at 6,200 (both call and put) costs 134 and it has breakevens at 6,335 and 6,065. However, a strangle combination of long 6,300c, long 6,100p, short 6,400c, 6,000p looks even more tempting. The strangle combo costs 37 and it could pay a maximum 63 with breakevens at 6,337, 6,063.
The Nifty had lost five per cent during the downmove but it bottomed out above 5,950 and well above the key area of the 200-Day Moving Average (DMA), which is at 5,865-5,900. The bounce will have to test and break multiple resistances between current levels (6,190) and the 52-week high of 6,342 to reach a new high. Obviously, a move above 6,342 would signify an strengthening bull market.
It’s quite likely that, instead, we'll see another period of range-trading between say, 6,000-6,350. The long-term trend remains positive and so is the short-term trend. A breakout above 6,342 would be necessary to signal a positive intermediate trend. Short-term traders can set stop losses at 50-point intervals because there will now be support between 6,000-6,175 since the index has already crossed above that level.
The Bank Nifty has started out-performing on the bounce. The financial index had also fallen more than the Nifty on the downturn. The key zones to watch would be resistance at 11,400-11,500 and the next resistance at 11,700-11,800. A bullspread of long November BankNifty 11,500c (92) and short 12,000c (21) is quite tempting. It costs 71and could gain a maximum 429. The IT sector has also been doing well since there is still some currency pressure. There is some speculative action in engineering stocks (Crompton Greaves, L&T, Bhel, ABB) and in auto-ancillaries (Amara Raja, Bharat Forge). There could also be a bounce in cement.
The Nifty’s put call ratios are in bullish territory but on the low side. The November PCR is at 1.1, while the three-month PCR is at 1.07. My interpretation would be that there's still a fair amount of nervousness about a potential downturn. The rally has been sharp but it hasn’t lasted very long and it appears to be driven purely by FII sentiment.
A trader should stay braced for the Nifty to move anywhere between 5,900 to 6,400 in the next 5-10 sessions. Breakouts beyond this range look unlikely.Premiums on the Nifty futures to spot are still at about 30-40 points, which is on the high side of normal. The premium on the BankNifty at about 70, is closer to normal.
The Nifty is at 6,189 (spot) with a futures value of 6,225. A bullspread of long Nov 6,200c (75) and short 6,300p (31) is on the money. It costs 44 and pays a maximum 56. Further away, the long 6,300c and the short 6,400c (10) costs 21 and pays a maximum 79. The on-the-money bullspread is quite attractive.
An on-the-money bearspread of long 6,200p (59) and short 6,100p (29) costs 30 and pays a maximum 70. A wider bearspread of long 6,100p and short 6,000p (13) may also be tempting since it costs just 16. Obviously, the on-the-money bearspread has a terrific risk-return ratio.
As traders will notice, a straddle at 6,200 (both call and put) costs 134 and it has breakevens at 6,335 and 6,065. However, a strangle combination of long 6,300c, long 6,100p, short 6,400c, 6,000p looks even more tempting. The strangle combo costs 37 and it could pay a maximum 63 with breakevens at 6,337, 6,063.