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A resolution to Greece could send markets everywhere up in relief rallies. At the same time, there is optimism on the Chinese front, where the Shanghai Composite has rebounded 13 per cent in the past three sessions, to come off recent lows. So, while volatility could well continue, sentiment is upbeat and trends could be uppish through the week.
The Indian market responded positively on Monday, gaining strongly after news came through of a possible settlement on the Greek front. News flow on Greece will be key through the next few sessions and the Chinese recovery will also be watched. Bad news on either front could hit sentiment hard.
But Indian traders are more likely to refocus on local affairs. Q1 results have started flowing. There is macro economic data to digest as well, with the IIP in the last week, and the price indices due. By end-week, there will also be political speculation as the monsoon session of Parliament is due to start. As of now, the Vyapam Scandal and Lalitgate seem to have pushed the BJP onto the back foot but optimists will hope that some legislative action is transacted on pending bill of high-priority.
The Nifty dipped below its own simple 200-Day Moving Average (200-DMA) last week for three sessions. But it stayed above the exponential 200-DMA and it recovered strongly on Monday. Some traders are hopeful that money pulling out of Shanghai will come to Mumbai instead. Breadth was positive, with advances outnumbering declines. Volumes were on the low side as both FIIs and domestic institutions waited for clarity on China and Greece. Pulling above the 200-DMA implies the big bull market is still alive.
The Nifty has now registered and confirmed higher lows, suggesting the intermediate trend is now positive. It needs to beat 8,561 on this up move to register and confirm high highs. If the uptrend is sustained for a few more sessions, targets of 8,800-8,900 are quite possible, even though there's resistance at every 50-point interval.
The Nifty Option put-call ratios (PCR) remains healthy with 1.2 for the 3-month PCR and 1.25 for July. There are still 13 sessions left in July but premiums have fallen as fears have eased. The Nifty's call chain has peak open interest (OI) at 8,500c but there is ample OI till 9,000c. The put chain has twin OI peaks at 7,900p and 8,300p.
The currency market is also likely to see high volatility. The dollar-rupee has seen the rupee gaining versus the dollar due to FII buying. As Greece resolves, the euro could strengthen, while the dollar eases some more.
The Bank Nifty looks quite bullish. The financial index can easily swing 350 points plus in a session. A long July 19,500p (120) and short July 20,000c (35) is tempting. The potential payoff is 415 for a maximum cost of 85.
A bullspread of long July 8,600c (53), short 8,700c (27) costs 26, pays a maximum 73. The strike at 160 points from money. Nearer the money, a long 8,500c (95), short 8,600c, costs 42, pays 58 and it is 40 points from money. A near-the-money bearspread of long 8,400p (73), short 8,400p (46) costs 27 and pays 73, at 60 points from money.
Combining a long 8,600c, long 8,400p, short 8,700c, short 8,300p costs 54 and it pays 46. This is asymmetrical in terms of distance from money. The aggressive trader might choose to focus on the BankNifty instead. If a positive trend is established, especially it is backed by good inflation numbers, bullspreads in the BankNifty will deliver more in the way of returns.
