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The market has now fallen for five sessions in a row due to poor global cues and local worries about MAT. The fall has been top-heavy with large cap index stocks losing more ground. The last few sessions have been low volume.
We have some sense of direction and benchmark levels to watch. A nine per cent correction from 9,119 (peak March 4) to 8,269 (low on March 27), was followed by a seven per cent recovery to 8,844 (peak on April 15), and the current downtrend has seen a correction of 4.4 per cent to 8,448 (low April 20).
Obviously, the short-term trend is negative. The intermediate trend could be negative, or it could be sideways. There have been declining peaks. On the upside, the resistance at 8,840-8,850 was tested but not broken. So the next peak would have to beat 8,850 to confirm that the intermediate trend has improved.
On the downside, the Nifty is still above its previous intermediate bottom of 8,269. The 200-day moving average is around 8,230-8,250 so that zone of 8,200-8,275 is key support. If the Nifty drops below that zone, it would not only confirm an intermediate downtrend; it could call the long-term bull market into question.
This entire zone has been heavily traded and there is congestion at every 50-point interval. Hence, there will be strong supports and resistances. If the market does fall below 8,200, it will probably trigger another burst of serious selling.
The domestic triggers from here on could be complex and hard to assess. There are Q4 results of course, on the domestic front. Plus, Parliament is in session and that could mean unpredictable news-based triggers in either direction. Also, a resolution of the MAT demands on FIIs would mean the return of some optimism and positive sentiment.
Given trade data (falling exports) the rupee looks over-valued. It fell on Monday as FII sold. RBI may want to nudge it down further to stimulate exports. However, crude prices have also spiked up considerably in the last 10 sessions and that could be cause for some worry.
If TCS' results are any indicator, the IT industry may not have done very well in Q4. That would definitely impact sentiment negatively. If Infosys has poor results, there could be serial hammering of IT stocks as the results come in. The Bank Nifty has crashed out of the range of 18,500-19,000, which it traded last week. The financial index hit 18,100 and it could fall further.
The Nifty's put-call ratios (PCR) are in negative territory. The 3-month and one-month PCRs are at around 0.95 and 0.89, respectively. The April Call chain has open interest (OI) peaking at 9,000c, with reasonable OI till 8,500c. The April Put OI is ample between 8,000p and 8,500p with peaks at 8,000p and 8,500p.
The index was held at 8,448 with the futures at 8,470. The April Call chain is 8,500c (75) 8,600c (40), 8,700c (19), 8,800c (9) etc. The Put chain is 8,200p (19), 8,300p (35), 8,400p (64), 8,500p (107), etc.
A bullspread of long April 8,500c, Short 8,600c costs 35, with a maximum payoff of 65. A bearspread of long 8,400p, short 8,300p costs 29 and has a maximum pay of 71. These spreads are zero-delta. Wider strangles of long 8,600c, long 8,300p, short 8,700c, short 8,200p can be combined at a cost of 37, with maximum payoffs of 63. Breakevens are at 8,263, 8,637.
