)
The market bounced after revised US GDP data made it likely the US Federal Reserve would continue its Quantitative Expansion Programme (QE3) without tapering, at least until the next Fed meeting in September, when it might take a decision on timelines.
US jobs data expected over the weekend could change sentiment. If it's weak, the market will get another bullish push.
The intermediate trend must be reckoned. The rupee has seen some recovery as the foreign institutional investors (FIIs) have returned. The intermediate trend has reversed from 5,565-5,585. This range would now be the key benchmark in any new downtrend. If that support breaks, the next stop could be 5,477, the 2013 low, recorded in April.
The Nifty has climbed above its 200-Day Moving Average (DMA), which is around 5,830. This was a fast "V-shaped" recovery.
The index has also risen above its own shorter-term MAs, which suggests continued bullishness. The Nifty is now above its own 7-DMA, 10-DMA and 20-DMA. On the upside, the market has hit resistance 5,900 and it has resistance above, at every 25 points.
Other indices have also done well. The Bank Nifty has pulled back sharply till the 11,700-level and it could test 12,000 soon. That is a seven per cent upswing in the past four sessions. Even the CNXIT has done well on rupee weakness but could fall if the rupee continues to strengthen.
The dollar-rupee rate has recovered from close to 61 coming back till below 59.90. Further strengthening would be dependent on FIIs attitude in the short term. The FIIs have been net buyers in the new July settlement after selling over $7 billion (debt and equity combined) in June.
The Nifty's put-call ratio (PCR) has recovered from very bearish to comfortably bullish. The three-month PCR is at 1.25, while the July PCR is at 1.3. However, money put premiums are higher than the equivalent call premiums.
Option chains and PCRs might not have fully settled in the new settlement. But all the short-term signals are bullish. Intra-day volatility is likely to stay high. The July settlement is likely to be as volatile as June.
Option chains suggest there will be huge resistances at 6,000-plus because the call chain's open interest peaks there.
However, there is adequate liquidity until 6,200c. The call premiums run at 5,900c (96), 6,000c (54), 6,100c (27) and 6,200c (12).
With the index placed at 5,898, with the futures at a nominal discount, it makes sense for the trader to move one-set away from money. A straddle of long 5,900c and long 5,900p would cost 202 with breakevens at about 5,700 and 6,100. Be prepared for a swing of this much in the next five sessions.
A bullspread of long July 6,000c and short 6,100c costs 27 and pays a maximum of 73. A bearspread of long July 5,800p and short 5,700p costs 25 and has a similar risk-reward ratio with a maximum payout of 75.
Both these spreads could be struck if the short-term trend reverses again. The combined long-short strangles with these positions has an adverse risk:reward ratio, with a cost of 53 and maximum payoffs of 47. This is tempting simply because one could profit from both ends.
