The short-term trend is up though momentum has slowed. Since the March 21 bottom at Nifty 5,350, there’s been over 10 per cent gain. The intermediate trend is still, by definition, positive. This uptrend could last several weeks more, while still being a pullback inside a long-term bear market
Optimists would see the climb above the 200-day moving averages as very positive. Volumes are fair and the advance-decline ratio is good. The institutional attitude has improved with strong FII buying in every session since March 21, while DIIs have been somewhat bearish.
The bear market that started with a slide from 6,338 in early November hasn’t lasted long enough to expect a reversal back to a new bullmarket. If this is a rally within a long-term bear market, it will terminate without going too much further North. There’s continuous resistance above current levels. The confirmation of a new bull market would of course, be a peak above 6,340.
On the upside, the rally could last through most of April but with less momentum and net gain. If it isn’t a new bull market, the trend should terminate below 6,340. There’s huge resistance between 6,050 and 6,200, for instance. On the downside, the 200 DMAs will give support between 5,600 and 5,700. Falls below 5,550 would show the long-term bear-market remains alive. Range-trading could occur between 5,600 and 6,000.
The Nifty option open interest is bullish, with the put-call ratio between 1.45 and 1.5. Most trend-following systems are giving buy signals. Intra-day volatility is likely though the VIX has eased. The DIIs are selling into every FII-driven rally. The trader should be prepared for 150-point swing sessions.
The April call chain has a huge open interest (OI) bulge at 6,000c, suggesting major resistance above the breakeven of 6,078+. The April put chain has an OI peak at 5,700 and another bulge at 5,400. One would read consensus trader-expectation as 5,700-6,100 with some bears expecting a fall till below 5,400.
Both the CNXIT and BankNifty look strong. The BankNifty now has support between 11,500 and 11,600 and it’s tested resistance repeatedly near 11,900-12,000. The CNXIT has support at 6,600-6,700 and resistance at 7,000.
The trader must consider the possibility of a market move between 5,700 and 6,100 in the next five session and moves between 5,300 and 6,300 in the April settlement. A climb above 6,350 would mean a re-appraisal of the long-term trend.
A long April 6,000c (78) and short 6,100c (43) costs 35 and pays a maximum 65. A long April 5,800p (58) and a short 5,700p (38) costs 20 and pays a maximum 80. The bearspread has a much better risk:reward (it's also further from money). Even an on-the-money bearspread of long 5,900p (90) versus short 5,800p (58) has a better payoff than the bullspread.
A long straddle at 5,900c (130) and 5,900p (90) costs 220. Delta-calculations suggest in practice, this would profit if the Nifty moved outside 5,750-6,050 in 10 sessions. A long-short strangle of long 5,700p and long 6,100c coupled to short 5,500p (14) and short 6,300c (10) costs net 56 with breakevens at 5,644, 6,244. This is another delta-trading position with chances of two-way movements. On drops, the short call and long put can be booked for profits, while on rises, long call and short put can be booked for profit.
