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The market stayed bearish after the monetary policy though it has found support in the Nifty 5,800-zone. It saw a turnaround from a peak of 6,142 on Thursday before the policy was announced and it has tested support at the 5,810 levels on Wednesday before seeing partial recovery.
While the non-taper on the part of the US Fed kept bulls in business, the Reserve Bank of India (RBI) raising the repurchase rate has been a dampener for sentiment. The Bank Nifty's behaviour has been high-beta as usual and the financial index has led the market down.
The financial index dropped from 11,200 before the monetary policy to test support at 9,930 on Wednesday. If the support at 9,930 breaks, the Bank Nifty could drop till 9,300. Extreme volatility is quite possible because it could also snap back till 10,500-plus on two good sessions. So the next three-four sessions could see the Bank Nifty swinging 600-points, with some bearish bias.
An October Bank Nifty strangle of 11,000c (163) and 9,000p (136) is zero-delta and either side could be hit before October 31. The Bank Nifty's lead will be followed by NBFCs and by other rate-sensitive stocks such as in the realty sector.
Technically speaking, while the short-term trend is negative, the Nifty's intermediate trend and long-term trends are undecided. The intermediate trend may be on the cusp of reversal from bullish to bearish and ditto for the long-term trend.
The Nifty topped out at 6,142 on September 19, which was a higher peak. The last low was 5,805 on September 17. The Nifty hit a low of 5,811 on September 25. If it drops below 5,800, it will register lower lows and thus signal an intermediate trend reversal. But it hasn't done so yet.
The Nifty found support in the past three sessions in the region of its 200-Day Moving Average and dipped below that mark intra-day. The advances-declines ratio has been negative. If it does drop below 5,800, and closes below the 200 DMA (which is between 5,825 and 5,855), it would signal a switch in the long-term trend as well as the intermediate trend. It could also range trade at 5,800-6,000 for a while. A drop below 5,800 could mean a slide back till the 5,500 levels. On the upside, the next key mark is 6,140, which must be beaten to signal a revival of bullishness.
The rupee has stabilised, partly because the FIIs have been buyers through September, even after the RBI policy. If FIIs do sell, the dollar could push back till 64.5 or higher and on the downside, the fear of tapering could arise on October 28-29 when the FOMC meets again. In that case, the IT sector is also due for a rebound. Among other sectors, automobiles seem to be making some sort of comeback. If the dollar does drop below 62, it may slide till 61.25.
A bullspread of long Oct 6,000c (140) and short 6,100c (95) costs 45 and pays 55. A bearspread of long Oct 5,800p (123) and short 5,700c (94) costs 30 and pays a maximum 70. A strangle of long 5,700p, long 6,100c, short 5,600p (70) and short 6,200c (61) costs 58 and breaks even at 5,642, 6,152.
