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The market receded from resistance just below Nifty 6,300. It could retrace till below the 6,000 mark if the negative triggers persist. Tension in the Ukraine has led to Russian intervention. This has pushed up the price of oil and gas. On the domestic front, low third quarter (Q3) GDP estimates has also led to poor sentiment.
The February settlement eventually saw foreign institutional investors (FIIs) and domestic institutions ending as moderate net equity buyers. But the geopolitical tensions that have built up saw the Nifty hitting resistance with a double-top in the 6,275-6,290 zone. Breadth is also poor with declines outnumbering advances and retail and operators might be taking a break from the action. The rupee seems to be tightly ranged at near the Rs 62 level versus the dollar. A spike in crude and gas prices could however, lead to pressure on the currency over the next month.
The Nifty rose from support near its own 200-day moving average (DMA) at about 5,975 in mid-February to test resistance just below 6,300. Given that it did not make a breakout, it could revert into a range-trading pattern. As of now, the short-term trend looks bearish; the intermediate trend could be either range-trading or bearish, and the long-term trend looks positive.
The major market index has support at roughly 50-point intervals. It may halt at any of those support points or it may retrace all the way back till support in the 5,975 zone. The key points to watch would be a drop below say, 5,950 with significant penetration of the 200 DMA. On the upside, a move past 6,285 and a close above 6,300 would look bullish.
The election schedule is expected to be declared fairly soon with the polls staggered through much of April and May. That could be a very volatile period – despite the big money generally being inclined to bet on the NDA. If the NDA seems to be riding through to a more or less stable majority, the market could zoom. Equally the market may crash if the NDA doesn’t seem capable of acquiring a stable majority.
Technically speaking, the Bank Nifty is likely to be highly sensitive. The financial index is high-beta with respect to the broader market. It could swing anywhere between 9,900 and 11,300 if a strong trend develops. The IT index could be a hedge if the dollar gains versus the rupee since any fall in the rupee will lead to investments going into IT companies. Pharma is usually strongly correlated to a strong dollar but the industry has seen specific problems which could pull it down.
The Nifty’s put-call ratio is still mildly bullish at 1.1 for March and slightly lower for the next three month period. Traders should be braced for moves till either 5,950 or 6,450 over the next 10 sessions. A breakout beyond these points could mean an extra 150-200 point swing. As mentioned above, the bias may be negative. The Vix is probably a little lower than warranted.
If we look at March contracts, there are quite a few tempting spreads close to money. A long March 6,300c (57) and short 6,400c (25) costs 32 and pays a maximum 68. A long March 6,200p (72) and short 6,100p (43) costs 29 and pays a maximum of 71. The bearsprerad is much closer to the spot with the Nifty closing out at 6,221 on Monday.
A straddle combining the long 6,400c (25) , long 6,100p (43) with a short 6,500c (9) and a short 6,000p (24) costs a net 34 with breakevens at 6,066, 6,434. This is quite tempting. It is reasonably close to money.
The author is a equity and technical analyst
