Trading Strategies | Sriram Speaks!
Finally, there was a rally in the last hour yesterday much to the relief of many, who were doubting whether Nifty would cross 11600 or would settle down below that but somehow we managed to cross 11600 and went up all the way to 11685 levels and closed almost at the high point of the day at 11671. Globally, however, things are not looking that great. US markets corrected close to 200 points and this is on the worry that came from IMF which has cut the global growth forecast and that seems to be having a major impact across all markets. Added to this is the Trump tweet which talked about imposing trade sanctions, this time on European Union. Asia is also negative today mainly on the IMF growth cut with both Hong Kong and Japan showing 150 points cut each.
On the domestic front, the campaigning for the first phase of elections finally came to an end and a positive close was mainly due to the positive outlook given for NDA that it might come back to power. India Today was the last channel to come up with the forecast and they gave a figure of 263-283 seats for NDA and surprisingly in UP BJP might get 42 seats which was much better than 20 plus seats forecasted 2 months ago. BJP is also doing well in Maharashtra with 40 seats almost the same as what they got last time. The other news today is going to be the IIP and the CPI data that will be released for the month of Feb and March. CPI for March is expected to be around 3% and if it comes in that range it will be a good trigger to look at another rate cut in the June policy of RBI.
On the derivatives front, there has been some selling in the Futures market in the last 2 days which has brought the Nifty futures long positions to 67% from the highs of 71%. This is in a way good as now there are 1/3rd shorts in the system. The options also has seen some trimming of Put call ratio and the Nifty put-call ratio right now stands at 1.42 which is a good level considering that tomorrow is the weekly expiry. Yesterday 11600 put added 5.3 lakh positions and that established 11600 put at the highest open interest which means we have firm support at 11590 levels. On the call side, 11850 call added 6.4 lakh positions and 11800 call has the maximum open interest followed by 11850 call. So, Nifty now has the legs to go up to 11800 by tomorrow. The range is now 11600-11800 mark.
All time high achieved yesterday and that too for just 10 seconds. I think it is the shortest all time highs that is possible in any market. 11760 was the previous all time high and Nifty went to 11761 and then fell. The fall was more in the last one hour of trade primarily due to the sky met forecast on this year’s monsoon. The global markets were positive yesterday with Dow Jones going up for the 5th day and closed in mild green of 40 points. Asian markets are in green, except Hong Kong which is down by 40 points while Japan is up 60 points and all other markets on mild red. Brent Crude however did not go past 70 dollars and has corrected a bit to 69.3 dollars now and the Rupee is going strong and strengthened 32 paise and closed at 68.42 to dollars and now we have a realistic chance of Rupee going to 67 zone.
On the domestic front, the technicals played out in the morning as there was a profit taking that happened as soon as Nifty crossed 11760 zone. But what has triggered a bigger fall was the forecast from sky met for this year’s monsoon which said that monsoon this year will be below normal. Sky met forecast this year’s monsoon to be 93% of LPA which is a 7% deficit from the normal. June is expected to be the worst month with a deficit of 23%, July will have a deficit of 9%. June and July are the sowing months so this can have a major impact on the agricultural production this year. August is likely to be 2% excess while September is likely to be 1% deficit. There was a big correction post this news on the fear of a slow down induced by a bad year. Another news is the credit policy announcement and at 11.45 we will know whether its going to be 50 bps cut or 25 bps cut.
On the derivatives front, yesterday saw the volumes dropping a bit compared to previous expiries and the turn over on the penultimate day to expiry was under 10 lakh crore at 9.8 lakh crore and we have to see how much we can expect today. In the futures market however the premium on Nifty is very high compared to the average and we have a 76 point premium on Nifty. The Nifty put call ratio in the options market however dropped to 1.42 from 1.52 from the beginning of the day. On put side yesterday there was a huge unwinding of positions and maximum unwinding was at 11700 put that saw 4.1 lakh positions unwinding and 11600 put saw next highest unwinding of 2.3 lakh positions. As a result 11500 put has the highest open interest today and 11600 put is closely behind. On the call side 11800 call added 8.4 lakh positions while 11750 call added 6.7 lakh contracts and we have 11800 call as the big resistance.
I had talked about Nifty falling to 11680 zone and a fresh position being initiated there. Yesterday Nifty fell much below that and its now at 11640 zone. If you have taken a long position between 11660-11680 you would be sitting on a minor loss. Today, we might have a good opening in 11660-11690 zone and immediately your positions will be in mild profits. There is a resistance coming in at 11760 which is the all time high and RBI credit policy at 11.45 will decide whether 11760 will be taken out on the upside and we will go to 11800-11810 zone. Otherwise if there is a disappointment we could correct to 11580 levels. So, it is better to have a target of 11750-11770 and exit the positions as soon as Nifty reaches there. This market is on its way to 12000 mark but its not going to be one way traffic. It will be a one step back and two step forward method to reach 12000 mark.