Uptrend to turn strong beyond 6,300 on Nifty

The short February settlement ended with a flourish as the FIIs were steady buyers towards the latter stages of the settlement. The Nifty inched up past the 6,225 mark by the end of the settlement. Retail also looked positive for the most part, with healthy volumes registered in smaller stocks and advances consistently outnumbering declines.

The rupee came under some month-end pressure but ended the month at a strong 61.99 versus the dollar. The Nifty has gradually worked through resistance at every 50 points or so. If it manages to push past the 6,300 zone, this uptrend will start looking serious. As of now, we're still seeing a pattern which could be about range-trading with the index having fallen to the support zone of 5,975, just above the 200-Day Moving Average (DMA). As things stand, there are no obvious macro economic triggers in the immediate future until updates come on inflation front and with respect to the IIP. Most corporate results have come in as well.

The global macro-economic situation is not likely to change too much either. The Interim Budget did not cause any panic. The 15th Lok Sabha has ended its last session. The news triggers if any, could be political or perhaps,geopolitical.

As of now, the market seems to be assuming a likely change in the central government with the BJP-led NDA taking charge. If the opinion polls, or other events do strengthen the NDA's position, the market will rise.

If the NDA's position appears to weaken, the market could fall. Technically speaking, the biggest danger remains the Bank Nifty. The financial index is w, even though it has pulled back till 10,700-plus. On the upside, it could test resistance at 10,900-plus. If the Bank Nifty breaks down below support at 9,850-9,900, it would take the entire market down with it. Despite good news on the inflation front, investors could be nervous about bank stocks,due to the rising NPA ratios of the PSU banks. The rupee has held up well to the acceleration of the taper.

There were some signs of pressure on the currency as end-of-month importers are looking to source the dollar. If the dollar does gain, IT and to some extent, pharma must play the role of hedges. The CNXIT could be an outperformer on every dollar uptick. Since the dollar swaps of the oil-majors are due for reversals over the next couple of months, there could be more intense pressure on the currency in March and April.

The Nifty's put-call ratio (PCR) looks healthy enough at between 1.2 and1.3. The bullish PCR could indicate that the market will continue to make incremental gains. It's worth pointing out that there is very little liquidity in May Nifty contracts and quite a lot in June. That situation could change rapidly as May is likely to be election month. If we look at March contracts, there are quite a few tempting spreads close to money.

The trader can expect the index to stay inside 6,000-6,500 in the next 10 sessions. Along March 6,300c (72) and short 6,400c (35) costs 37 and pays a maximum 63. Along March 6,150p (46) and short 6,050p (27) costs 19 and pays a maximum of 81.

The bullspread is much closer to the spot with the Nifty closing out Feb at 6,239. A straddle combining the long 6,400c (35) , long 6,100p (35) with a short 6,500c (14) and a short 6,000p (21) costs 35 with breakevens at 6,065, 6,435. This is also quite tempting since it is reasonably close to money. In general,the low volatility through February may have led to the VIX dropping and premia being somewhat depressed close to money.