Nifty below 8,290 a negative signal
FIIs have been net sellers but domestic institutional buying has been sufficient to keep market trending sideways
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The Indian markets have been range-bound for most of the past week. There was some nervousness after the Chinese devaluation. The Nifty duly recovered from support below 8,350. The July Inflation numbers and the IIP were both taken as positive signals.
The FIIs have been net sellers but the domestic institutional buying has been sufficient to keep the market trending sideways. There is some disappointment that the monsoon session of Parliament has been frittered away.
Volatility expectations appear to be down, given several sessions of low-amplitude trading. The Nifty has tested and failed to break out beyond resistance in the zone of 8,625-8,650. On the downside, it has successive supports at 8,500, 8,450, 8,400, etc. The index has rallied from the 8,325-8,350 zone several times. The simple 200-Day Moving Average (200-DMA) is at 8,460, while the exponential 200-DMA is at 8,290.
If the index falls below 8,290, it would be a negative signal. Volumes remain low, and advances and declines are balanced. The rupee has taken a beating, sliding below 65 against the dollar (and also losing ground against euro, yen and pound) after the Chinese devaluation. However, export-driven sectors such as information technology and pharmaceuticals have rallied as a result.
The Bank Nifty has been buoyed by a speculative rally in public sector unit (PSU) banks. Overall, the Bank Nifty is flat in the past month of trading but the PSU bank index has gained 10 percent. PSU banks have far lower weightage in the Bank Nifty compared to private sector banks. As of now, it looks as though there might be some profit-booking in PSU banks and that could mean a downtrend for the financial indices. The Bank Nifty could slide till around 18,200-18,300 if there is heavy profit-booking. On the upside, the index has resistance at 19,200-19,300.
It's hard to call the trend in the Nifty at the moment and it's possible that range-trading will continue, with the markets seeking some sort of additional trigger. The Nifty's put-call ratios (PCR) are at neutral levels, with PCR at 1.02 for one-month and 1.03 for the three-month data. The Nifty's call chain for August has big peaks at 8,600c, 8,700c, 8,800c and 9,000c. The put chain for August has twin open interest (OI) peaks at 8,200, 8,300 with high OI at strikes between 7,800p and 8,500p.
Premiums have reduced noticeably across the August chains, partly due to the settlement going into the third week and partly because of the range-trading. There are still nine sessions to go for the settlement.
The Nifty was held at 8,477 on Monday, with nominally positive carry on the Nifty futures and also nominally positive carry on the BankNifty futures. Close to money, a bullspread of long 8,500c (82), short 8,600c (39) costs 43 and pays a maximum 57, at only 23 points off the money. This is very attractive because it's practically on-the-money. A wider bullspread of long 8,600c, short 8,700c (16) costs 23, and pays a max 77, at 123 points from money.
A near-the-money bearspread of long 8,400p (54), short 8,300p (30) costs 24 and pays 76, at 77 points from money, a wider bearspread of long 8,300p, short 8,200p (17) costs 13 and pays 87 at 177 points distance from money. Either of the bearspreads could work.
Combined, a long-short strangle of long 8,400p, short 8,300p, long 8,600c, short 8,700, costs 47 and pays a maximum 53 with breakevens at 8,353, 8,647. This is not zero-delta but it will yield a profit if there is a breakout in either direction.
The FIIs have been net sellers but the domestic institutional buying has been sufficient to keep the market trending sideways. There is some disappointment that the monsoon session of Parliament has been frittered away.
Volatility expectations appear to be down, given several sessions of low-amplitude trading. The Nifty has tested and failed to break out beyond resistance in the zone of 8,625-8,650. On the downside, it has successive supports at 8,500, 8,450, 8,400, etc. The index has rallied from the 8,325-8,350 zone several times. The simple 200-Day Moving Average (200-DMA) is at 8,460, while the exponential 200-DMA is at 8,290.
If the index falls below 8,290, it would be a negative signal. Volumes remain low, and advances and declines are balanced. The rupee has taken a beating, sliding below 65 against the dollar (and also losing ground against euro, yen and pound) after the Chinese devaluation. However, export-driven sectors such as information technology and pharmaceuticals have rallied as a result.
The Bank Nifty has been buoyed by a speculative rally in public sector unit (PSU) banks. Overall, the Bank Nifty is flat in the past month of trading but the PSU bank index has gained 10 percent. PSU banks have far lower weightage in the Bank Nifty compared to private sector banks. As of now, it looks as though there might be some profit-booking in PSU banks and that could mean a downtrend for the financial indices. The Bank Nifty could slide till around 18,200-18,300 if there is heavy profit-booking. On the upside, the index has resistance at 19,200-19,300.
Premiums have reduced noticeably across the August chains, partly due to the settlement going into the third week and partly because of the range-trading. There are still nine sessions to go for the settlement.
The Nifty was held at 8,477 on Monday, with nominally positive carry on the Nifty futures and also nominally positive carry on the BankNifty futures. Close to money, a bullspread of long 8,500c (82), short 8,600c (39) costs 43 and pays a maximum 57, at only 23 points off the money. This is very attractive because it's practically on-the-money. A wider bullspread of long 8,600c, short 8,700c (16) costs 23, and pays a max 77, at 123 points from money.
A near-the-money bearspread of long 8,400p (54), short 8,300p (30) costs 24 and pays 76, at 77 points from money, a wider bearspread of long 8,300p, short 8,200p (17) costs 13 and pays 87 at 177 points distance from money. Either of the bearspreads could work.
Combined, a long-short strangle of long 8,400p, short 8,300p, long 8,600c, short 8,700, costs 47 and pays a maximum 53 with breakevens at 8,353, 8,647. This is not zero-delta but it will yield a profit if there is a breakout in either direction.
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First Published: Aug 17 2015 | 10:44 PM IST