Nifty Outlook: Positional and Short-term

As long as the index trades above the key medium-term support band between 11,000 and 11,100, there won’t be any major threat to the uptrend. Why?

Sep 17, 2018 11:09 IST IIFL Derivative Desk Raushan Kumar |

Positional Trend
  • As long as the index trades above the key medium-term support band between 11,000 and 11,100, there won’t be any major threat to the uptrend. 
  • The Nifty broader structure will stay positive as the July-August rally is larger (1,156 points) in magnitude compared to April 2018 rally (977 points) and broader markets benchmarks
  • The Nifty midcap index structure is also positive as the recent pullback of July 2018 low of 17,700 (of 2,388 points) is larger in magnitude than the previous pullback in March-May 2018 (2,027 points).
  • PCR OI is above 1, indicating "Bull market". Historically, higher than 1, the higher the chances of the market going up. 
  • India VIX is below 30 percentile and currently at 14 (1-year-high/low = 23/10.80). Lower volatility suggests that the bulls are likely to hold the market near major support zones on declines. Historically, it has been observed that India VIX and Nifty50 enjoy a negative correlation. In a bear market, VIX level is at higher side and vice versa.
  • The positions built on Nifty put options expiring on December 27, 2018, show that the index high put OI is placed at 11,000. 
 
Short-term Trend: Range-bound consolidation 
 
The market is expected to move in a range between 11,150 and 11,760. Why?

1. Historically, it is seen Nifty that finds it difficult to move up sharply in one direction when the index cost-of-carry is high. This means the market may consolidate for some time before picking up one direction. So, consolidation is expected until this premium doesn't start getting lower. 
 
2. Short-term support is placed at 11200-11100, why? 
      a. Bullish gap on July 27, 2018 (11,210–11,167) 
      b. The monthly low of August 2018 placed at 11,235. 
      c. January 2018 peak at 11,171.
 
A fall below the key support at 11,200-11,100 will start threatening the uptrend. Such a fall can drag the index down to the subsequent vital base zone. A downward break of this base zone will alter the uptrend and pull the index lower to 10,800 and 10,600. Moreover, a decisive rally beyond 11,760 will underpin the bullish momentum and can push the index higher to 12,000 and 12,500 in the short-term.
 
What indicator to watch for to know Positional trend reversal?
  • India Vix above 21
  • PCR OI below 1 
  • WPI crude / MCX crude value 
  • Index Ratio below 2.33 
 
What are the global risks to watch?
  • Sino-US trade war
  • EM contagion risks 
  • US rate divergence theme 
 
What are the best Options Strategies?
  1. Positional trader: can use Put hedge, Bull call Spread, and STRAP 
  2. Short-term trader: can use Long Butterfly, Long Condor, Long Calendar, and ratio spread

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