For bulls to take control, Nifty has to stay above 11,000 level

The Nifty continues to range-trade, even though it had a mildly positive response to the Interim Budget. The index is still very close to its own 200-day moving average (DMA). 

The possible upside is 11,100-plus, but there is strong resistance at 10,900-11,000 zone. Volumes continue to be low. 

Foreign portfolio investors (FPIs) were net buyers post-Budget, and domestic institutions have been the selective buyers in 2019. 

The breadth has been negative with third quarter (Q3) results not making the market enthusiastic. The session volatility has risen, but the volatility index (Vix) has fallen. This signals potential bullishness. The rupee has lost some ground since the Budget. 

Crude prices remain stable. Political and geopolitical concerns remain, though the focus is on corporate results. The US-China trade war continues. 

President Donald Trump’s position looks shaky as investigations into his finances continue and the US Congress holds firm on not funding his wall. 

 

On the domestic front, the Rafale row continues, and there’s a crisis in West Bengal. Brexit continues to look like a disaster. 

The Nifty hit its all-time high of 11,760 in late August, and retracted to a low of 10,005. The rebound till above 10,900-level is positive. 

An eight-week downtrend led to a 14.9 per cent retraction off the peak, before a rebound started in early December. Since then, the index has range-traded between 10,500-11,000.  

For sustainable bullishness, the index must beat 11,000 and stay above that. But, it has not been able to breakout, and has oscillated close to the 200-DMA, which is at around 10,850. If there’s a decisive break, say of 2 per cent in either direction of the 200-DMA, till either 10,600, or 11,050, that could be traded as a trend with confidence. 

The Bank Nifty bottomed at 24,400. The pullback has now gone to 27,250. 

A long February 28, 28,500c (45) and a long 25,900p (92) can be offset with a short February 14, 28,500c (8), short 26,000p (28). Net cost is 101. There would be a huge payoff if breakeven is crossed.

It requires three big sessions. This will be driven by newsflow. The market is hoping for a rate-cut and a big one. Otherwise, tired bulls will dump bank futures.  

The Nifty is at 10,912. A long 11,100c (78), short 11,200c (46) costs 32, and pays a maximum 68. A long 10,700p (81), short 10,600p (69) costs 12, and pays a maximum of 88. 

A breakout would mean a strike of these spreads, and the trader could then add positions in the direction of the trend. The combination of these two spreads costs 44, with breakevens at 11,144, 10,656.