Volatility has been peaking since last few sessions, not just in India, but around the world. This brings some fear among traders. If we talk about some crucial factors signing a massive move ahead are: 1) Cash Portion avg in US Mutual fund is at 5.5% which is near to the same level it was in 2008 just before crisis. 2) VIX position in US is at record high levels. 3) Foreigners Open Interest in Indian Derivatives is at record high levels of life time. These are the few points which gives me strong intuition of a massive move on either side ahead!……..Which side? …….I would say preferably Sell Side! In my last post i did mention to go Sell on rise on Nifty and we got ample opportunity to go short at higher levels than the day i posted. Let me point out to you a downside channel which is just confirmed today making support for near term around 8550 while for resistance side 8800 is upside channel resistance as well option resistance built up today. So may be for this 8800 could act as resistance and 8550 as downside target. All saw Nifty PCR at 1.10 ! But why arent we getting that downside move quick?….Because we need a reason to confirm downside… This reason could come in from FED, BoJ or War…It wouldnt matter what the reason will be but its going to get a tag for next fall….So strategy remains sell on rise with first target at 8550 and SL at 8980.
Finally it seems, Nifty has given a sell sign on Weekly charts after many months. In my last post “Behind Enemy Lines” , i mentioned to go short below 8720 level and we have seen for two sessions that we traded below the same level giving her intentions of further move. Though it doesnt mean we are going to witness strict sell-off from this point of time but we may see some short covering before sliding ahead. Some factors which are supporting my bearish view are block trade selling in banking stocks which are high beta to Nifty Movement, Weakening Global charts and Shifting Option Data Range. Today many of the banking stocks including PSU banks so more volumes than the last 5 days average volume so may be some fund action or profit booking by HNI portfolio holders. Secondly, Global markets are weakening on charts suggesting bearish sentiments over the inflow. Thirdly, option data which was suggesting 8750 as the base until Monday sell-off, has shifted to 8600 by today and on the upper side 9000 resistance has shifted lower to 8800
Now coming to Technicals, though Daily charts may signal a short covering but weekly charts are reflecting a Upcoming Evening star pattern on D-street which could be confirmed with Fridays close. But until now it has satisfied 3 out of 4 rules of the Evening star pattern: 1. First candle should be a long green candle, 2. Second candle should be a Doji , which in our case is Grave stone Doji, with a gap over first candle. 3. Third candle should open with a Gap down . But only condition remaining to confirm is ” third candle should close atleast at distance equal to half the body of first candle” So looking at other factors above, i feel last condition may be fulfilled by Friday’s close. Which means if we close around 8668 we would confirm the pattern. So the strategy remains intact ” Sell on rise with stop loss of 8980, while targets are 8550/8300″
Nifty has been in a strong up-move with liquidity around the world flowing inside the markets which has been just supported by improving fundamentals. To say , last rally can be accredited to liquidity while still a long term fundamental move is yet undone. Since February we had seen a complete game in hands of Bulls but somewhere bears are getting charged up for a furious war around the corner. But last weeks sell off got some fear waiting for bulls “BEHIND ENEMY LINES”. Technically charts haven’s given yet any strong bearish pattern on Daily charts, but there are few small Enemies waiting for Bulls at the Lines:
Enemy Line 1: 8820, a gap unfilled since the last weeks opening which could act as some support for intraday Low
Enemy Line 2: 8800, which has been lined by Option writers as a support for longs on closing basis which should be watched out
Enemy Line 3: 8750, which is indicated as the last support to bulls and should be considered as a stop loss to all longs initiated for a short term trade
Enemy Line 4: 8720, which was the breakout level from the consolidation pattern of last 2 months could acts the trigger point for Fresh Shorts.
So, Behind these Enemy lines, Bulls are going to be beaten up like hell and bears could take over them easily.
“Strategy”: Keep stop loss to all current longs at 8750 and short Fresh if Nifty closes below 8720 for a day!
Though expect markets to be volatile and you should hedge your self with appropriate options! Have a wonderful week ahead.
Finally Nifty has closed convincingly above my first tgt 8720 given on 20th July in my post: “Why Closing is important“! And Now since my longs initiated on 14th July around 8370 at: “Time for Investors to be Active“, i would recommend to book 50% profit on trading longs!! Though after such a breakout from the consolidation pattern, my new target for the short term would be 8950 which is approximate targets of such breakouts. Looking at option data, as i had been saying earlier still 8500 is acting as strong support of the expiry and resistance 9000 is near to my target so chances of achieving it this expiry are getting stronger after todays move. Indicators have given internal positive crossovers confirming todays breakout. On weekly charts yet the channel support is intact indicating a strong move in upcoming days. But volatility index VIX is indicating a steady move ahead as its a flat on indicators as of now. So to conclude, Nifty could move further 200 points from here but that would signal end to short term long trades! Keep a trailing sl of 8500 on closing basis on rest 50% position.
Last expiry had been around 1% of the July close and it has irritated traders. But analysts were more irritated as Stop loss were triggering on both side of traders. But finally today we could get some signs of movement from Jackson Hole where yellen could sign some sign of rate hike in near future. If at all a rate hike signs are clear from the speech, it could bring a sigh of relief amongst US traders as its “Happening Finally” after a decade long wait. But surely this could come as a much awaited reason for a profit booking in Indian equities. Since the Budget day low of 6825, we have moved almost 25% at todays close. This move could be credited to Good monsoon, GST bill and better earnings so now profit booking to this rally could be accredited to Rate hike chances in US. Technically we have been in a consolidation wave bin the range of 8500-8720 which was indicated by Elliot Wave, but now 8500 is a turning point from which markets could either bounce to 9000 or could active 8290! Option data suggesting strong support between 8400-8500 while technical support is at 8480. So for next week, as i have been mentioning in my previous post, keep 8480 as trailing SL to all recommended previous longs and Fresh shorts could be initiated below 8400. And am of fear that a “Head and shoulder breakout” could happen which could have 8500 as neckline. Fingers crossed!!
In last few weeks we have got constant signs of accumulation in cash markets and also longs on futures market making us believe that bulls are leading the race but they are yet racing on the edge and doesnt seem to be in full control. As i have been mentioning in my previous posts about Nifty’s daily channel, we could notice that since last 7 trading sessions we are taking technical support on the channel line. Though indicators on daily charts are still in overbought zone but weekly and monthly charts are enjoying bull momentum. One good thing of last weeks move is that we have got higher highs and higher lows which is one of the factor which is helping me to take contra long call against bearish indicators. But being expiry next week, traders should be on high alert. Put/Call ration is at 1.06 which is considered to bearish if it was early start to expiry but now as we enter expiry week this could be pretty confusing. Next 4 sessions could be most volatile experience in recent times as suggested by option data. Highest PUT OI is at 8500 and for CALLS it is at 8800 which means Nifty is exactly at the mid-way and have equal chances to move either side before expiry. So be ready for some thrill next week! but as i always say i am a medium term traders and only recommend positional trades, my strategy is still same: Buy on dips with stop loss of 8480 on closing basis!!
In recent times we have achieved almost a new high on Nifty and now bears, pessimists are talking about “Overvaluation of stocks” but that ain’t what statistics are saying. Nifty surely has given a strong upmove but many of the stocks have yet not performed at all. Nifty is just 4.9% below life high of 9119 but look at the stock performances of all Nifty stocks in attached file: Nifty_Stocks ! If you compare performances respect to Nifty, only 15 stocks out of currently 51 stocks are performing better than nifty compared to respective life-highs. So understanding with a plain vanilla logic , there is way more to go on stock specific trading.
Now lets talk about market-cap of Nifty which is currently trading $1.63mln which is way lower than 2008 high which was at approx $1.83mln which means index has crossed 2008 high in terms of absolute value but not yet in terms of market-cap valuation. Check out the graph below:
In above graph i have compared Nifty (Yellow Line), USD/INR (Pink line) and Market-cap (Blue line). Red marked boxes are the event when nifty has topped. During such period of time we often have stronger rupee vs USD and market-cap is way above Nifty on relative terms. Green market boxes are times when rupee is the weakest and Nifty hammers a low and initiate a new rally. So keeping other factors constant, currently we have hammered low for time being and new rally has been triggered. Strengthening rupee is the best sign of strengthening equity markets.
So to conclude, we are going to get the best time of our trading period in coming months but the strategy should be stock specific as we noticed that we have many under-performing stocks. And yes we dont need to search for stocks out of Index because these stocks would also give you best returns. So stay with the best. Though always hedge your positions in option markets.
“Perfection is not attainable, but if we chase perfection we can catch excellence” and its just the case for Nifty traders since channel breakout a month back. If you have been chasing this perfect support of channel you would have attained excellence in profits. Had been recommending to carry forward longs with the trailing SL of 8480 and its still holding. But Week on Week channel resistance line is being stronger and stronger support for the traders. 5 consecutive lows on the channel line making it most valid support line in recent years.
So from the above graph we got that Nifty is clearly taking a strong support on the weekly channel but for the trader what matters is daily charts and i tell you its not less perfect too.
Just since the next day from the breakout of weekly channel in July, Nifty started trading in another channel on daily chart which is been holding true since then. But on Friday we got interesting Boosting sign with a support on channel and also a morning start pattern making support more valid. Though indicators are all on over bought zone but it doesnt mean we can move up. So still the mood stays positive on the street with next week support at 8480 while target on the upside could be resistance line at 8820. So my view continuous to be long but stay hedged with 8450 PE!
This week has been just like another Dream Run for all traders in India but ofcourse it was associated with one of the most volatile week in recent times. Last week i mentioned about GST Booster for Nifty which did work at the last moment of the week. As its always believed, boosters are used to overtake components with surprising speed and thats what exactly happened today on Indian D-street. Yesterday at close it just seemed that bears are getting in favour and it was expected that today my trailing stop loss 8480 could just be triggered but Bulls pressed booster button and took away the game back from the bears. Todays move has given highest 52 weekly closing which is a clear sign of bulls strength. As marked in the graph attached, Nifty has confirmed a channel on Daily chart and it seems we may face small resistance at 8760 above which a new short term bull run may start. On the downside my trailing SL is still valid at 8480.
Markets have moved unexpectedly for those who did not gave attention to my last two posts but those who read it have earned many points on Nifty and we were left just few points away from my target of 8720! Its always tough to reach last lag of a game and it just seems the case here. Bulls MIGHT have to wait a little more to rally again. Today’s trade have got little pause to “Traders GST Booster”. Though overall trend is still intact to towards 9800 we might have to pass through great volatility to reach there. Looking ahead to GST update we might reach 9000 in August Expiry but looking ahead for some profit booking on next two days towars 8500. As we can notice in the attached chart, weekly channel breakout has been confirmed on Nifty charts as we got third confirmed closed over the channel today. So one thing is confirmed that we are heading towards new high but looking at daily charts we might get some correction but that will be an opportunity to buy for those who left out. we might stop around 848-8500 which derivative support as well as channel support but i would again revise my stop loss back to 8380 (which is neckline of inverted H&S) as GST is set to bring high volatility but also would revise my target to 8890-9000 from 8720. Still would always suggest to hedge your position with appropriate Nifty PUTS.