This is more likely a short-intermediate rally
 "This is more likely a short-intermediate rally")
The downtrend bottomed out on Wednesday August 28. Since then, the market has seen gains. The Nifty tested support at 5,118 before it bounced. After four sessions of uptrending, it is testing resistance at 5,565.
Both levels are important. The past four days saw a short-term uptrend within a big bear market. A rise past the 5,600-level could mean a test of 5,750 and potentially, a relief rally. A fall from here and a break of 5,118 could mean a fall till 4,950 or lower.
If the pattern of lower lows and lower highs holds, the index should not beat 5,565 and it should fall below 5,118 on the next downtrend. If it does clear 5,565, it could mean an intermediate uptrend. There are some mildly positive signals. Volumes and breadth (in terms of advances outnumbering declines) have both improved.
Also, the index has cleared its own short-term moving averages (MA) at the current level of 5,550. It is above its own seven-day, 10-day and 20-day MAs. However, MA crossover systems are still not signalling buy since the 20 DMA is higher than the 10-DMA. Typically bear-market rallies tend to be short, and very sharp so, this is holding true to type.
The rupee has stabilised to some extent against the dollar. The next serious pressure on the currency could come as and when, the US Federal Reserve starts tapering. Also of course, a flare up of West Asia tensions could push the rupee down. As of now, the dollar-rupee rate seems within a trading range.
The long-term technical signals remain negative. The index is way below its own 200-day MA and so are key sector indices such as the Bank Nifty. The Bank Nifty has also settled into some sort of trading range however. It seems to be moving between 9,000-9,400. The IT index remains the popular hedge for currency weakness and pharma has also seen some investments in the past two sessions on the same grounds.
I would read this as a short-intermediate rally, which offers traders the opportunity to short at higher levels and investors a chance to lighten equity exposure. There are too many potential negatives including the very real chance that rupee interest rates and dollar bond yield will move upwards through September. Any indications of a turn around in the long-term trend would have to start with the Nifty climbing above 5,850, which is the 200-DMA level.
Both levels are important. The past four days saw a short-term uptrend within a big bear market. A rise past the 5,600-level could mean a test of 5,750 and potentially, a relief rally. A fall from here and a break of 5,118 could mean a fall till 4,950 or lower.
If the pattern of lower lows and lower highs holds, the index should not beat 5,565 and it should fall below 5,118 on the next downtrend. If it does clear 5,565, it could mean an intermediate uptrend. There are some mildly positive signals. Volumes and breadth (in terms of advances outnumbering declines) have both improved.
Also, the index has cleared its own short-term moving averages (MA) at the current level of 5,550. It is above its own seven-day, 10-day and 20-day MAs. However, MA crossover systems are still not signalling buy since the 20 DMA is higher than the 10-DMA. Typically bear-market rallies tend to be short, and very sharp so, this is holding true to type.
The rupee has stabilised to some extent against the dollar. The next serious pressure on the currency could come as and when, the US Federal Reserve starts tapering. Also of course, a flare up of West Asia tensions could push the rupee down. As of now, the dollar-rupee rate seems within a trading range.
The long-term technical signals remain negative. The index is way below its own 200-day MA and so are key sector indices such as the Bank Nifty. The Bank Nifty has also settled into some sort of trading range however. It seems to be moving between 9,000-9,400. The IT index remains the popular hedge for currency weakness and pharma has also seen some investments in the past two sessions on the same grounds.
I would read this as a short-intermediate rally, which offers traders the opportunity to short at higher levels and investors a chance to lighten equity exposure. There are too many potential negatives including the very real chance that rupee interest rates and dollar bond yield will move upwards through September. Any indications of a turn around in the long-term trend would have to start with the Nifty climbing above 5,850, which is the 200-DMA level.
Put call ratios (PCR) are looking better however, indicating that the trading perspective is somewhat less bearish. The September PCR and the three-month PCR are both at near 1.5. Options close to money are very high priced, with everybody anticipating volatility. The new option range at 50-points intervals could prove popular since they allow day-traders to exploit small moves.
The BankNifty at 9,195 may be worth a strangle of long 8,800p (224) and long 9,500c (228). This is an expensive position, however, and it will breakeven only beyond 8,350 or 9,950. If you have a directional view, better to go with a futures position.
In the next week, expectations range between 5,300 and 5,800, going by the near-money straddle of long 5,500p (122) and long 5,600c (115). September bullspreads are better taken at some distance to have decent risk:reward ratios. A long Sep 5,700c (71) and short 5,800c (40) costs 31 and pays a maximum 69. A long Sep 5,500p (122) and short 5,400p (94) costs 28 and pays 72.
The BankNifty at 9,195 may be worth a strangle of long 8,800p (224) and long 9,500c (228). This is an expensive position, however, and it will breakeven only beyond 8,350 or 9,950. If you have a directional view, better to go with a futures position.
In the next week, expectations range between 5,300 and 5,800, going by the near-money straddle of long 5,500p (122) and long 5,600c (115). September bullspreads are better taken at some distance to have decent risk:reward ratios. A long Sep 5,700c (71) and short 5,800c (40) costs 31 and pays a maximum 69. A long Sep 5,500p (122) and short 5,400p (94) costs 28 and pays 72.