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Ni yEdge

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New evidence for declines now?

The last weeks le er carried bullish expecta ons based on the hammer pa ern etc formed at the level of support. But what we got
was mild a empts to move higher and a lot of vola lity. The last two sessions in fact had excessive vola lity and probably took traders
to the cleaners. It would have been dicult not to have been stopped out of some trade, par cularly in the index. Looking at the
pa ern of moves it seems to me that it was typical operator play. Seeing the low levels of commitment among players, the market
was first dropped without warning on Thursday, forcing everyone to abandon their longs and possibly going short. These shorts then
spent much of Friday morning covering only to find to their absolute mor fica on that the market dropped like a stone. But no sooner
had the replaced all their shorts that the ground was once again yanked from beneath their feet with a strong advance into the close.
At the end no one quite knew whether they were coming or going!
Such vola lity has two eects on the trends. First, it saps the energy of traders because they take a hit and re re to the sidelines to
take stock or to raise some fresh cash. Second, it clears out a lot of posi ons from the market as longs and shorts are cleared out forci
bly. This leaves the trends quite neutral and therefore subject to crea ng new trends ahead. I believe we are at such a stage right now
and some newer trends should set in now. Coincidentally, we are also at the TCD of 17th and therefore I would watch the price ex
tremes of today as a reference or look for some trend pa ern to emerge today and ahead. So, even if you took a bit of a licking in the
last week, you will have to pay a en on to what the market is saying or doing in the week ahead.
In recent le ers I have been alluding to the steady decrease in the Ni y basis along with rise in OI. This happened in the last week as
well. Ni y OI increased about 3% while the basis has dropped to around 6. When you consider this along with a steady drop in the call
strike OI shi downward and a rise in the PCR to 1.14, it does paint a picture of short posi ons being created. Couple that with the
con nued swelling of the 6000P OI (now above 1cr) which clearly indicates long Put posi ons. Considering that the 200 dma is just
below at 5980 leads one to consider that por olio holders are the ones that are long this strike put. I men on this because a lot of
traders mistake a big OI posi on at a strike price as being a defacto support level. If the posi on there is largely a short, it can act as
one. However, with the dis nct possibility that the 6000P posi on is a long, it would suggest otherwise. One may ques on as to what
can happen if this long posi on comes in for liquida on? Well, if I am a por olio holder and have hedged my long stock posi on with a
long put, I am not really going to get shaken out of my long Put in a hurry. Therefore chances that this posi on will come in for a liqui
da on seems pre y remote to me. Only some event that changes the percep on of por olio risk can lead to changes in the OI posi
on at this level. So I would not really be expec ng much of a Put squeeze. On the other hand, the call OI has been shi ing down
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trendsintheNi y


Gaps in the downside direction..point to more drops...

steadily, as lower strikes are adding OI briskly. This is perhaps the handiwork of traders and if any squeeze has to occur, it could be in
this area. And that can happen only with a rise. But again, for that to happen, some big event has to occur. Right now there really
doesn't seem to be anything significant on the horizon. Hence it would be prudent to not expect any sizable move upward for the mo
The chart shown here is the daily Ni y spot. I have marked three ar
rows on this chart to highlight the gaps. Note that all three gaps have
been downward. Now, I have always found that gaps are created in the
direc on of the trend and since we have three of them a er the top
was made, we have to presume the trend is telling is it wants to go low
er. We may have arrested at the 38% retracement of the rise and all
that but the bounce from there has been pre y pathe c. Also note in
this chart that the rally went to the level of the moving average bands
and fizzled out there. Thursdays long body candle could not be over
turned any by Fridays short squeeze rally. Chances are bright that we
may therefore turn down afresh in the week ahead. Confirming that to
a degree is the layout of the RSI where we find that the range has
slipped into the oversold area a er trying to ba le valiantly for a while
to maintain the bullish grip. Even the higher levels of the index could
not ignite some momentum strength and with last weeks slide beneath
cri cal levels, the momentum support seems to be favoring declines
more. Thus, the price ac on and momentum signals are averring the
say of the deriva ve variables in poin ng further south for the index in
coming weeks.

Nifty spot daily

Gaps in downward direction.

It is not necessary that this should happen right o the bat from Monday. Like I stated earlier, the market is currently well liquidated
and there could be some a empt to hoist it higher to get be er prices to sell. I know that sounds like a bit of a conspiracy theory but
then the market is indeed ruled by some interested par es, no ma er how much we say they are not. The way I would suggest ap
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Shortposi onsifanyin
BankNi ywouldhave
le er.
visagedun lthereis

Monthly support area to break?

proaching it would be to have a bearish bias, look for levels from where the index should reverse to down, be alert for news and
events that may impact the market nega vely and iden fy some short term supports that need to break to rearm the bearish read
ing. For this I would suggest maintaining the moving average band levels (at 60856100 on Monday) as the higher levels from where it
should drop. At the me of wri ng of this le er, I find the Sgx Ni y trading at that zone already. So perhaps we should be alert for
early in the week for the trend signal to be set up?
The Ni y monthly chart is featured here. We can note the
bearish engulfing pa ern of January and how Feb candle has
been staying below the body of Jan candle, implying con n
ued bearishness. Some arrows are shown. The first one is at
the mid point of the Jan candle body, at 6215, which can be
taken as the resistance levels in case of rallies ahead in this
month. The second one is the mid point of the October 13
candle which was the nearest long body candle. This is at
6050 levels and ideally, this should not be breaking in case
the market does not wish to go lower. Hence a con nued
subsistence below 6050 levels would be a signal of what the
market intends to do ahead. The third arrow is the lower
por on of the candle body at 5800 levels which should be
treated as the major support zone in case of declines ahead.
We are currently on the verge of breaking below the middle
arrow and that would be a bearish signal, quite in line with
some of the other bearish signals that I have discussed earli
Nifty fut Monthly
Candle value areas for definNot shown here but the momentum readings in the monthly
ing supports resistances.
chart never really did confirm the push to new highs that we
got in the month earlier. This is true even in the weekly as
well as daily charts too.
One of the important contributors to the trends in the Ni y is the trends in the INR and hence it would be useful to look at the trends
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Watch the UsdInr progress..

in this area too. Wri ng in our Forex advisory le er CurrencyRadar, issue dated 8th Feb, I had wri en, Atradabledeclineinthe
UsdInrpairseemstobeintheongahead. Quite in line with this the INR has improved form its lows around 63.35 in end Jan to
around 62.05 by last week. This strengthening has been helped by some dis nct weakness in the Dollar. We had an cipated this in
our Currency Radar le er, commen ng Giventhemul plefailuresatthis
Dollar Index daily
out,itmaynotbeoutofplacetoexpectadownbreakfromthepa ern.
The Dollar index chart shown here exhibits a dis nct weakness, with a
down break from a triangle pa ern on the daily charts. The accompanying
Rsi chart also shows a slip beneath recent lows, implying that the down
break is accompanied by momentum so more declines ahead for the Dol
lar? Aiding the strengthening of the Rupee is the con nued inflow of FII
money into the debt markets. We have seen a slight resump on of flow
into the equity markets too a er a lull.
So we need to keep an eye out on the Rupee trends ahead because a
strong situa on here would probably slow down any decline in the equity
markets. It is not dicult to think that there is no sovereign yield running at 89% where the Central bank is in good control and the
governor actually raises the rates with an elec on a few months away! That too when the overall economic climate is nothing great.
This would definitely make the FIIs sit up and take no ce and want more of such a market. So con nued inflow of FII money into the
debt side is quite a probability and that ought to be enough to keep the Rupee afloat and the losses in the Ni y contained.
The situa on in the Bank Ni y is not much be er. In fact, the BNF con nues to be weak and any breakdown from current levels would
be an invita on to short further. However, it has formed a ledge and needs to break below 10000 for the declines to get a deeper bite
into the trend. The op on posi on is stacked at 10000 call strike and one can watch how the OI at this strike changes to take a view on
what traders are doing.
It is possible that we may get some vola lity but that could be small range and make trading dicult. I suggest s cking to one side for
trading rather than swing both ways. Current evidence bias is towards the downside and henceun l some new evidence presents
itself we want to look for points to sell and find stocks that are hi ng resistances or breaking down from consolida ons or forming
bearish pa erns etc to trade this week.
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Stock Trades (Update)
Post results this stock has shown fair bit of resilience and has been char ng higher grounds. We managed to
achieve our targets. The bias in this stock con nues to be bullish and stop can be trailed and held for further
Market whipsaws saw the fortunes fluctuate but this counter managed to hold on and eked out a new recent
high thus achieving our target. With room for more upside we shall revisit a reentry at lower levels.
Result season has seem some sterling moves from certain counters and this happens to be one amongst them.
The sharp rise beyond our target of 302 almost saw the prices reaching the final target of 308. One should look
to hold this counter with a stop trailed below 300.
IT sector is witnessing a sharp rebound however this counter is showing some hesita on. However with the bias
s ll undisturbed one should look to hold the counter with the stops as men oned below 130.

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