Long-term continues to look bearish

The market is clinging to support above the 8,000 mark and hitting resistance above 8,150. This narrow range is liable to be broken by news flow. That could come out of the US where there is still political uncertainty and a mid-month Fed review. It could come out of India with further developments on the currency crunch.

The long-term continues to look bearish. The 200-DMA is at about 8,150, where there appears to be strong resistance. A breakout or breakdown could take the index till either 8,450-8,500 or till 7,800. A drop below 7,915 would emphasise bearish patterns with lower lows. 

The market is hoping for a big rate cut from the Reserve Bank of India (RBI) in its next policy review on December 8. If that cut doesn't come through, there could be a collapse of sentiment. The FIIs have been major sellers through the past month, exiting about Rs 32,000 crore of rupee assets (debt + equity). Domestic institutions have matched them, in terms of buying equity. 

The dollar is expected to rise further if the Fed does hike the policy rate, as widely expected. If the RBI cuts, the differential between the US Fed Fund rate and Indian Repo rate will narrow, and the dollar could gain even more. In hawala, the dollar is trading at huge premium.

The Nifty bounced from support at 7,915 on Monday November 21. It is clinging to support above 8,000. The crash was on high volumes. The VIX remains very high. In addition, corporate results have been poor and the prognosis for the second half, at the least is very bad. Cash in the system will not be replenished for months. The Tata group is locked in a bitter struggle.  

If the index does slides below 7,900, it could actually drop till 7,500-7,600. It does look more likely to head South, with occasional rallies. On the upside, the index must move above the 200-DMA and stay above it for a first positive signal. A rise above 8,500 would suggest a quick recovery is possible. 

The Nifty Bank has seen wild swings. As of now, the Nifty Bank is around 18,270. A long Nifty Bank call of 19,000c (202) for December 29 and a long December 29, 17,600p (207) costs 409. Either end of this long strangle is about 700 points away and breakeven could be struck, given three big trending sessions. 

Traders could sell the December 1, 18,000p (65) and the December 1, 18,600c (64). This cuts the cost of the long strangle by 129, reducing it to 280. If the short strangle is struck before December 1, the long strangle will rise in value.

Put-call ratios (PCR) suggest a possible bounce, perhaps on a RBI cut. The PCR is above 1 for December, and the next three months. The December Nifty call chain has good open interest (OI) till 9,500c with highest OI at 8,300c, and more peaks at 8,500c and 9,000c. The December put chain has a big peak of OI at 8,000p, with another bulge at 7,500p and good OI till 7,000p.  

The Nifty is at 8,125. A bullspread with long December 8,300c (73), short 8,400c (43) costs 30 and pays a maximum 70. This is 175 points from money. A bearspread with long December 8,000p (96), short 7,900p (70) costs 26 and pays a maximum 74. This is 130 points from money. A wide strangle of 7,900p (70), 8,300c (73) is not zero-delta. The total premium is 143. The put is 230 points from money, the call is 170. The breakevens are at 7,757, 8,443. It is tempting to sell this position for 3-4 sessions, intending to reverse next Monday, if there's no breakout.