Nifty may con­tinue its re­bound till 10,650


The Nifty con­tin­ues to rise, al­though the mo­men­tum of the up­trend has slowed. It has now pulled above the 10,500 mark, which is well above the 200-Day Mov­ing Av­er­age (200DMA). This could still be a dead-cat bounce. But, there are fair chances that the Nifty will con­tinue its re­bound till around the 10,600-10,650 mark. This is likely to be a trad­ing zone of 10,300-10,600. Break­outs from ei­ther side of this range will prob­a­bly lead to a 300-point move till ei­ther 10,000 or 10,900.

The in­dex move above 10,450 es­tab­lishes a pat­tern of higher highs, which sug­gests an in­ter­me­di­ate up­trend. A break­out above 10,600 would be a very pos­i­tive de­vel­op­ment though the Nifty would have to break out above 11,170 and set a new high be­fore we can call it a con­tin­u­a­tion of the bull-mar­ket. A drop be­low 10,200 where the 200-DMA is cur­rently placed, would con­firm this as a big bear mar­ket. The most re­cent low was 9,951 (March 23).

The short-term trend has been pos­i­tive in the set­tle­ment with gains of close to 3.4 per cent. The VIX has also dipped as the Nifty has risen, which in­di­cates that traders are less fear­ful. Breadth is pos­i­tive in the F&O seg­ment and there's more vol­ume in net win­ners.

Do­mes­tic in­sti­tu­tional in­vestors have been net buy­ers to the tune of ~36 bil­lion in April, while the for­eign port­fo­lio in­vestors (FPIs) are net neg­a­tive to the tune of ~10.8 bil­lion. Re­tail sen­ti­ment seems to be pos­i­tive again. The ru­pee con­tin­ues to slide how­ever, and it's down to 65.39 per dol­lar. This should help in­for­ma­tion tech­nol­ogy (IT) stocks in par­tic­u­lar but In­fosys has been hit by ham­mer­ing.

The FPIs have also been buy­ers of ru­pee debt in April. The pos­i­tive the Re­serve Bank of In­dia pro­jec­tions in the Pol­icy Re­view have helped turn sen­ti­ment. The sig­nals out of the bond mar­ket have im­proved a bit with the gov­ern­ment of In­dia an­nounc­ing that it would bor­row less from the bond mar­ket in 2018-19.

Trend-fol­low­ing sig­nals sug­gest a buy on the Nifty with a stop at 10,350. In the longterm, the Nifty has bounced twice from 9,675, post De­cem­ber 2016. If the 9,950 sup­port breaks, the 9,675-9,700 re­gion would be the next re­li­able sup­port.

The bounce in banks has been strong de­spite on­go­ing scan­dals. The Nifty Bank slid from 27,200 on the Bud­get day to move down till 23,600 be­fore it re­cov­ered to cur­rent lev­els of just above 25,339. That's above the 200-DMA, which is at 24,900.

A stran­gle on the bank with long April 26, 24,500p (41), long April 26, 26,000c (64) may be profitable. This could be hit in two big ses­sions. It is not ze­rodelta. This long stran­gle can be off­set with a short April 19, 26,000 (5), short April 19, 24,500 (13). The net po­si­tion costs 88.

Ex­piry ef­fects are vis­i­ble in both Bank Nifty and Nifty. The Nifty closed at 10,528 on Mon­day. A bull­spread of long April 10,600c (51), short 10,700c (20) costs 31, pays a max­i­mum 69 and it's about 70 points from money. A bear­spread of long April 10,500p (65), short 10,400p (40) costs 25, pays a max­i­mum of 75. This is only about 30 points from money.

These are both rea­son­able po­si­tions, as set­tle­ment ap­proaches. The risk:re­ward bias is favourable to­wards the bear­spread. How­ever, the PutCall Ra­tio is bullish at 1.44. The put op­tion chain has high vol­umes down till 10,000 level, with peak vol­umes at 10,300. Call vol­umes are high un­til 11,000, with peak vol­umes at 10,700. That 10,300-10,700 range cor­re­sponds well to the chartist trad­ing zone of 10,300-10,600 men­tioned above.

The risk is that news­flow may cause a big up­heaval as cor­po­rate re­sults start flow­ing. There is also the po­lit­i­cal volatil­ity as­so­ci­ated with the Kar­nataka elec­tions. Not to men­tion Syria and the USChina Trade War.

The short-term trend has been pos­i­tive in the set­tle­ment with gains of close to 3.4%. The VIX has also dipped as the Nifty has risen, which in­di­cates that traders are less fear­ful

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