Intermediate trend down, support at 5,477 crucial
 "Intermediate trend down, support at 5,477 crucial")
The market bounced from 5475 and registered gains for two successive sessions. However, Monday ended with a sell-off and some negative technical signals. The intermediate and long-term trend appear down. Optimists are hoping the new measures will help pull back the rupee and, by extension, the market.
Macroeconomic data was mixed. The Index of Industrial Production was negative, as expected. But the Consumer Price Index showed marginally lower inflation and trade data showed some improvement.
Breadth was a little better, with advances outnumbering declines while the Nifty rose. Volumes remained very low - not surprising, given the quantitative tightening by the RBI. The dollar started the week at lower levels but lost a per cent intra-day.
The Nifty futures ended in backwardation to spot and so did the Bank Nifty futures. These are negative signals relatively early in a settlement, specially against a backdrop of higher interest rates. The rupee is persistently testing support at 61, and it could surge if there's a serious burst of FII selling. All the measures undertaken have not succeeded in pushing it below 60. The political scenario remains tense, with fair chances of Parliamentary disruptions and tensions escalating with Pakistan. The Nifty has seen lower lows with a new 2013 low of 5,477 established. Support at this is critical. If it breaks, a rapid fall till 5,150-5,200 is likely. The bank Nifty has hit a new 52-week low at 9,660 and support at this is critical. Both indices have bounced with a certain amount of retail buying. But both also saw heavy selling, from 5,650 (Nifty), and from 9,850 (Bank Nifty). In the short term, those resistances are critical.
Both are also well below their respective 200 Day Moving Averages. Combined to the pattern of lower lows, this looks like a new long-term bear market and an intermediate downtrend. On the upside, the Nifty would need to breakout beyond 5,850 and the Bank Nifty above 10,100 before one could hope for a turnround.
Our earlier recommendation of a Bank Nifty bearspread has gained but it's still worth holding. A long 10,000p (416) and a short 9,500p (172) costs 245 and pays a maximum of 255. Keep a stop loss at about a differential of 175. SBI has been hammered in expectation of poor results and SBI could pull the Bank Nifty down.
Macroeconomic data was mixed. The Index of Industrial Production was negative, as expected. But the Consumer Price Index showed marginally lower inflation and trade data showed some improvement.
Breadth was a little better, with advances outnumbering declines while the Nifty rose. Volumes remained very low - not surprising, given the quantitative tightening by the RBI. The dollar started the week at lower levels but lost a per cent intra-day.
The Nifty futures ended in backwardation to spot and so did the Bank Nifty futures. These are negative signals relatively early in a settlement, specially against a backdrop of higher interest rates. The rupee is persistently testing support at 61, and it could surge if there's a serious burst of FII selling. All the measures undertaken have not succeeded in pushing it below 60. The political scenario remains tense, with fair chances of Parliamentary disruptions and tensions escalating with Pakistan. The Nifty has seen lower lows with a new 2013 low of 5,477 established. Support at this is critical. If it breaks, a rapid fall till 5,150-5,200 is likely. The bank Nifty has hit a new 52-week low at 9,660 and support at this is critical. Both indices have bounced with a certain amount of retail buying. But both also saw heavy selling, from 5,650 (Nifty), and from 9,850 (Bank Nifty). In the short term, those resistances are critical.
Both are also well below their respective 200 Day Moving Averages. Combined to the pattern of lower lows, this looks like a new long-term bear market and an intermediate downtrend. On the upside, the Nifty would need to breakout beyond 5,850 and the Bank Nifty above 10,100 before one could hope for a turnround.
Our earlier recommendation of a Bank Nifty bearspread has gained but it's still worth holding. A long 10,000p (416) and a short 9,500p (172) costs 245 and pays a maximum of 255. Keep a stop loss at about a differential of 175. SBI has been hammered in expectation of poor results and SBI could pull the Bank Nifty down.
Volatility is likely to stay high through the August settlement. The CNXIT index could lose some ground if the rupee stabilises. But IT majors may be worth buying due to temporary rupee strengthening.
The Nifty continues to have put-call ratios verging on the bearish at one. A bullspread of long 5,700c (57) and short 58,00c (26) has a reasonable risk:reward ratio with a maximum payoff of 69 and a cost of 31. A bearspread of long 5,500p (52) and short 5,400p (30) costs 22 and could pay 78. Both are zero-delta with the spot index at 5612. Strangles combining these two positions cost 53 and pay a maximum of 47 each way. A straddle of at the money options of 5,600p (86) and 5,600c (104) costs 190, with breakevens at 5,410, 5,790. Traders could assume the breakeven points of this position indicate the likely limits of moves for this week.
The Nifty continues to have put-call ratios verging on the bearish at one. A bullspread of long 5,700c (57) and short 58,00c (26) has a reasonable risk:reward ratio with a maximum payoff of 69 and a cost of 31. A bearspread of long 5,500p (52) and short 5,400p (30) costs 22 and could pay 78. Both are zero-delta with the spot index at 5612. Strangles combining these two positions cost 53 and pay a maximum of 47 each way. A straddle of at the money options of 5,600p (86) and 5,600c (104) costs 190, with breakevens at 5,410, 5,790. Traders could assume the breakeven points of this position indicate the likely limits of moves for this week.