Thursday, 3 January 2019
Technical View: Nifty forms bearish candle, closes below 10,800; 10,777 crucial for bulls
Aggressive traders with high risk appetite can consider short positions in the index with a stop above 10,950 on closing basis and look for a initial target of 10,535.
The Nifty50 fell sharply on Wednesday after buying in last few sessions and closed tad below 10,800 levels following weakness in global peers and on profit booking.
All sectoral indices as well as broader markets caught in bear trap. Metal fell 3.4 percent on concerns of a slowdown in China and Auto lost 3 percent amid weak December sales while the Nifty Midcap and Smallcap indices dropped 1 percent each.
The weakness is likely to continue which could take the Nifty near 10,500 levels again, if the index trades below 10,923 levels.
The Nifty50 after opening lower at 10,868.85 followed by range bound trade extended losses in afternoon and hit an intraday low of 10,735.05. The index managed to show some recovery from day's low but still ended sharply lower by 117.60 points at 10,792.50 and formed bearish candle on the daily charts.
Nifty50 appears to be struggling to get past its critical hurdle of 11,000 as it faltered on multiple occasions from around 10,950 levels as it was sold off in Wednesday's session which resulted in a bearish candle
For the day the index appears to have found some support after testing the bullish gap zone of 10,764–10,747 levels registered on last December 27.
Hence, as long as the said index trades below 10,923 levels the possibility of breaching 10,534 remains higher and bullish outlook for the index shall not emerge unless it decisively clears the hurdle of 10,985 levels.
According to Mazhar, aggressive traders with high risk appetite can consider short positions in the index with a stop above 10,950 on closing basis and look for a initial target of 10,535.
India VIX moved up by 6.97 percent at 16.39 levels. VIX has again spiked higher which is not giving comfort zones to bulls.
On the option front, maximum Put open interest (OI) was at 10,500 followed by 10,000 strike while maximum Call OI was at 11,200 followed by 11,000 strikes.
Call writing was seen at 11,000 followed by 11,200 strike while Put writing was seen at 10,500 strike followed by 10,600 strike. Option band signifies a broader trading range in between 10,650 to 11,000 zones.
Nifty index formed a bearish candle on daily scale and negated its formation of higher highs of last four trading sessions. It remained highly volatile during the day and again moved near to its 50 DEMA,
He said the index has been moving in a rising channel and finding multiple hurdles near to 10,950-10,985 zones from last couple of sessions. "Now it has to hold above 10,777 zones to witness an upmove towards 10,850-10,888 zones while on downside support exists at 10,650-10,600 zones.
Bank Nifty failed to surpass its previous day high and witnessed selling pressure from higher levels. It formed an Inside Bar on daily scale and managed to closed above 27,000 at 27,174.70, down 217.70 points.
Now the index has to hold above 27,000 zones to witness an upmove towards 27,350 then 27,500 zones while on the downside support exists at 26,850 then 26,666 zones.
MORE WILL UPDATE SOON!!
Saturday, 27 October 2018
Technical View: Nifty forms 'Bearish Belt Hold' pattern; could hit March low of 9,950 soon
Nifty index made many attempts to hold 10,100 levels amid volatility, but failed and finally closed 94.90 points lower at 10,030.
Bears tightened their grip on Dalal Street for second consecutive session on Friday as the Nifty50 closed volatile session sharply lower but managed to defend psychological 10,000 levels.
The index formed large bearish candle which resembles a 'Bearish Belt Hold' kind of pattern on the daily charts as well as weekly scale.
A 'Bearish Belt Hold' pattern is formed when the opening price becomes the highest point of the trading day (intraday high) and the index declines throughout the trading day making up for the large body. The candle will either have a small or no upper shadow and a small lower shadow.
The index failed to surpass previous support of 10,138 and corrected towards 10,000 zones intraday by making fresh seven month low levels indicated that there could be possibility of breaking March lows of 9,950 levels in coming sessions, experts said.
The Nifty50 after opening flat at 10,122.35 immediately corrected sharply to hit an intraday low of 10,004.55. The index made many attempts to hold 10,100 levels amid volatility, but failed and finally closed 94.90 points lower at 10,030.
Bears continued their strength without giving any chance of pullback as intraday attempts of recovery by bulls from around 10,100 levels were thwarted thrice by the bears before signing off the session with a bearish candle which resembles a Bearish Belt Hold formation whereas on weekly charts it appears to be a strong bear candle with a 400-point range pointing towards the severity of correction.
He said as bulls are unable to make any meaningful recovery the chances of dipping below 9,950 to complete one corrective structure looks bright in next couple of trading sessions.
As markets are remaining choppy and volatile, Mazhar advised traders to take neutral stance till some sort of stability or strength is seen in the markets as even creating fresh shorts around these levels looks risky as markets are reaching critical support points.
India VIX moved up by 3.21 percent to 19.57 levels. Volatility is not cooling down further and that is the concern for the market. It has to go down below 17-16 zones to rescue the bulls after the sharp cut of last two months, experts said.
On option front, maximum Put open interest (OI) was seen at 10,000 followed by 9,800 strike while maximum Call OI was seen at 10,500 followed by 10,800 strikes. Call writing was seen at 10,100 followed by 10,400 strike while Put writing was seen at 10,000 followed by 9,800 strike.
"Now till the index remains below 10,130 zones weakness could continue towards 9,952 then 9,800 zones while on the upside hurdle is shifting towards 10,250 then 10,333 zones.
Bank Nifty breached its crucial support level of 24,650 mark and slipped sharply in last hour of trading session towards 24,350 level. The index closed 396.40 points lower at 24,421.05.
It formed a bearish candle on daily and weekly scale which suggests bears are holding tight grip in the market, experts believe.
Now till Bank Nifty holds below 24,650 it can slip towards 24,000 and even lower levels while on the upside hurdle is seen at 25,000 zone.
MORE WILL UPDATE SOON!!
Saturday, 15 September 2018
Deploy Ratio Call Spread this week to take advantage of time decay, falling volatility
Foreign institutional investors were on a selling spree in Index Futures as well as Index Options. During the week they were seller of Rs 2,239 crore in Index futures with net short position addition of 15,600 contracts.
Week gone by saw immense volatility as Nifty fell from 11,589 last Friday to intra week low of 11,250 in first half however towards the end of the week Nifty recovered smartly and closed at 11,515 with loss of mere 0.6 percent week over week.
Most of the sectoral indices like Pharma, Metal and Bank saw deep cuts at the start of week, however short covering led indices to recover majority of losses and close flat. Bank Nifty saw major correction as Index fell below its crucial support of 27,000 and made a low of 26,555 and ended down 1 percent at 27,163. IT stocks like Hexaware Technologies and Wipro remained safe bets during the past week.
Foreign institutional investors (FII) were on a selling spree in Index Futures as well as Index Options. During the week they were seller of Rs 2,239 crore in Index futures with net short position addition of 15,600 contracts. Similarly on Index options front Synthetic long (Call long+Put Short)/Synthetic Short (Put long+Call Short) ratio fell further from 0.86 to 0.81. Friday’s session saw short covering bout by FII’s.
Put-Call ratio -Open interest wise corrected sharply in September to 1.28 level. However, as market recovered from sentimentally oversold level, PCR too closed at 1.38 for the week.
India VIX, Volatility Index, another sentiment indicator to gauge Fear and Greed surpassed 14 percent and made an intra week high of 15.45 percent however, as Nifty recovered VIX fell drastically and closed well within the band of 11-14 percent. As it trades near the upper end of the band, some cool off is expected in coming week thereby providing support to the market.
Option data suggest 11,400 is acting as a crucial support for the market. Despite Nifty falling below 11,400, Put writers were firm and did not cover much of the short positions indicating strong possibility of Nifty recovery. Higher end Call writers initially added short position in 11,400-11,500 strike but later on saw unwinding propelling the momentum on higher side.
Overall Nifty moves back in the range of 11,400-11,800. Respite if nor, reversal from lower level looks like high probability along with further dip in volatility. With relatively less trading days left for the expiry, writer would have an upper edge due to higher faster decay in time premium. To take advantage of this, Ratio Call Spread is recommended in Nifty
Ratio Call Spread is a Neutral to Bullish strategy that aims to make money from slower bullish momentum, time decay and falling volatility. Under this strategy we are buying 1 lot of lower strike Call and selling 2 higher strike OTM strike. Maximum profit would be realised if Nifty closes at higher strike..
MORE WILL UPDATE SOON!!
Saturday, 1 September 2018
Technical View: Nifty forms 'Long Legged Doji' pattern; keep stoploss below 11,640
Nifty50 gained 3.70 points on Friday and rallied 123.4 points during the week to close at 11,680.50.
The Nifty50 after opening gap down traded in a big range of around 90 points throughout the session and closed flat with a positive bias on Friday. The consolidation for last three consecutive sessions indicated that traders turned cautious after sharp run and ahead of Q1 GDP data due later today.
The index made small bullish candle and formed 'Long Legged Doji' pattern on the daily charts. On the weekly charts, it formed 'Shooting Star' kind of pattern.
A typical long-legged Doji pattern is formed when the opening price is almost equal to the closing price but there was a lot of intraday movement on either side.
A 'Shooting Star' pattern is formed when the index comes under selling pressure as traders start booking profits at higher levels.
This pattern is usually formed in an uptrend and is treated as a reversal pattern, but it would require confirmation before we can conclude that the trend will get reversed in near future.
The Nifty50 opened at 11,675.85 and closed at 11,680.50. After opening with negative bias, the index immediately rebounded to hit an intraday high of 11,727.65 but at the end of first one hour of trade it corrected to hit day's low of 11,640.10. Overall it remained rangebound throughout the session.
The index gained 3.70 points on Friday and rallied 123.4 points during the week to close at 11,680.50.
The Nifty 50 appears to be chalking out a consolidation zone, for last 4 trading sessions, between 11,760–11,640 levels as it recoiled on Friday after testing critical supports placed on short term charts before signing off the session with a Long Legged Doji kind of formation on daily charts where as a Shooting Star was registered on weekly charts with a long upper shadow suggesting intra week profit booking at higher levels.
He said post Friday’s price action stakes are favouring bulls in the immediate session and hence sustaining above 11,640 levels there is a fair chance of testing 11,760 in next couple of sessions.
Unless the said index closes below 11,628 bears will not able snatch the game away from bulls, he feels. According to him, in case if 11,760 is decisively cleared then next target can be close to 11,950 kind of levels.
Hence, traders should focus on stock specific opportunities with a stop below 11,640 on closing basis, Mazhar advised.
India VIX increased 2.17 percent to 12.68 levels.
On the options front, maximum call open interest (OI) of 27.79 lakh contracts was seen at the 11,800 strike price, which will act as a crucial resistance level for September series, followed by 12,000 (with 26.46 lakh contracts in OI) and 11,700 (20.55 lakh contracts).
Maximum put open interest of 32.71 lakh contracts was seen at the 11,600 strike price which will act as a crucial support level for September series, followed by the 11,500 (32.04 lakh contracts) and 11,400 (29.92 lakh contracts).
The Nifty has been flirting with the lower end of a medium term rising channel for last couple of sessions. After a tough battle in the last session, the bulls managed to contain the index within the channel. The bulls managed to defend the swing high of 11620, which is a positive sign for the short term up trend to persist.
Consequently the index posted a positive weekly close for the sixth consecutive week. The week gone by witnessed strength in the broader market as well.
In terms of the wave structure, a leg on the upside looks pending in Nifty in order to complete an Impulse structure. "To complete the same the index needs to take out the recent high of 11,760. From short term perspective the index is expected to head towards 11,840.
MORE WILL UPDATE SOON!!
Saturday, 25 August 2018
Technical View: Nifty forms 'Doji' pattern; may be on verge of short term trend reversal
India VIX fell by 3.35 percent to 12.33 levels and overall lower volatility suggests that bulls could support the market on declines.
The Nifty 50 snapped four-day winning streak and closed rangebound session on a weak note Friday, forming an indecisive pattern known as 'Doji' on the daily candlestick charts, which also resembles 'Spinning Top' kind of pattern. On the weekly scale, the index formed bullish candle.
A 'Doji' is formed when the index opens and then closes approximately around the same level but remains volatile throughout the day which is indicated by its long shadow on either side. It appears like a cross or a plus sign.
Spinning Top is often regarded as a neutral pattern which suggests indecisiveness on the part of both bulls as well as bears. It can be formed in an uptrend as well as in a downtrend.
The Nifty 50 after opening lower at 11,566.60 managed to claw back immediately to hit an intraday high of 11,604.60, but wiped out gains in the first hour of trade itself to hit day's low of 11,532 and remained range bound for rest of the session. The index closed 25.70 points lower at 11,557.10 while it rallied 0.75 percent during the week.
Albeit Nifty 50 registered a Doji kind of indecisive formation enough sell signals emerged on lower time frame charts, post Friday’s price action, suggesting that the said index may be on the verge of a short term trend reversal.
Hence, selling shall get accelerated if it breaches the 39-day old ascending channel, whose support is placed around 11,532, which is in progress from the lows of 10,550 levels. A decisive breakdown below the said channel shall open up a new target placed around 11,350 levels.
In next trading session a close below 11,498 levels shall confirm the short term down trend there by intensifying the selling pressure further which shall eventually lead to the test of 11,340 levels.
Contrary to this a close above 11,620 shall reinstate the bullish sentiment with initial targets placed around 11,700 levels.It looks prudent on the part of traders to book profits and remain on sidelines till further signs of strength are seen in the markets.
India VIX fell by 3.35 percent to 12.33 levels and overall lower volatility suggests that bulls could support the market on declines.
On the option front, maximum Put OI is moved back 11,000 followed by 11,500 strike while maximum Call OI is at 11,600 then 11,500 strike. Put unwinding was seen at most of the immediate strike price while Call writing was seen at 11,600, 11,650 and 11,750 strikes.
The Nifty has negated its formation of higher highs - higher lows of last four sessions and formed a small Bodied indecisive candle on daily scale however weekly scale still holds its overall bullish setup. It failed to surpass 11,600 zones and witnessed a profit booking-led decline towards 11,532 marks.
He believes overall trend is still intact to positive to rangebound as it has been trading in a rising channel with the support of rising trend line.
Now it has to continue to hold above 11,550 zones to witness an upmove towards 11,635 then 11,666 while on the downside immediate major support is seen at 11,500-11,450 zones.
Bank Nifty remained under pressure for third consecutive trading session and has been underperforming the Nifty index. It has recently failed to surpass its multiple hurdle of 28,333 zones and fell towards 27,782 marks.
"The index formed a Dark Cloud cover on weekly and an early formation of Double top on daily scale which suggests that some more profit booking could be seen if it doesn't surpass immediate hurdle of 28,000 zones.
Now if it sustains below 28,128 zones then more profit booking could be seen towards 27,650 then 27,440 zones.
MORE WILL UPDATE SOON!!
Saturday, 18 August 2018
Technical View: Nifty at record close, forms bullish candle; next target seen at 11,630
The index formed bullish candle on the daily candlestick charts as well as weekly scale. It closed half a percent higher for the week.
The Nifty 50 after opening sharply higher above psychological 11,400-mark extended rally to move near its intraday record high and finally ended at record closing high on Friday, driven by broad based buying.
The index formed bullish candle on the daily candlestick charts as well as weekly scale. It closed half a percent higher for the truncated week.
The broader markets also participated in the rally today with the Nifty Midcap index rising over a percent while all sectoral indices ended in the green with Nifty Bank, FMCG, Metal and Pharma rising 1-2 percent.
The Nifty 50 started off session above 11,400 levels at 11,437.15 and rallied further during the day to touch an intraday high of 11,486.45 but failed to reclaim its intraday record high of 11,495.20 seen on August 9. The index ended at record closing high of 11,470.75, up 85.70 points.
Even on weekly charts a decent bull candle can be seen for fourth week in a row as intra week dip towards 11,340 was bought into by the market participants considering it as an opportunity, he said. "Post Friday's recovery trading set up is once again favouring bulls."
Hence, he said sustaining above 11,430 levels Nifty 50 should once again create history with new highs by clearing the recent top of 11,495 levels. In such a scenario next resistance, on medium term charts for Nifty 50 is placed around 11,630 levels.
On the downsides it looks critical to sustain above 11,400 levels below which bears can once again dominate in short term, according to him.
Volatility in the market has again started coming down from the proximity of 14 percent. Today the India Volatility Index fell by 3.48 percent to 13.17.
In the last few months, whenever volatility has come down from 14 percent the Nifty has traded positive for a few weeks. Hence, the coming week is likely to see limited downsides, which should limit till 11,400. The move should extend towards 11,600 on higher side.
The highest Put base is still placed at 11,000. However, as the index has started moving higher, the base is getting formed near 11,400 as the last three weeks had seen a move around this level.
The highest Call base is still placed at 11,500. "However, no major addition of open interest was seen at this strike, which shows reluctance of Call writing in this market. This can open up further upsides in the coming days.
MORE WILL UPDATE SOON!!
Sunday, 12 August 2018
Bring peace to your trading by locking profits and restricting losses via ‘Hedging’
To hedge a position in cash (participating F&O stocks) & futures market, use options (Buy Put for Long Futures & Bought Stocks, Call for Short future).
Let’s talk about ‘Hedging’ today. Financial dictionary adaptation of Hedge is ‘an investment to reduce the risk of adverse price movements in an asset’.
In simple words, additional positions that create compensatory positive cash flows when the original position starts bleeding.
Simple example is life insurance, a hedge against death. But more than what is a hedge, the most important thing to understand is ‘How to & When to Hedge’.
But before we do that, let us understand two minor but crucial details of Hedge.
1. A Hedge always comes at a cost which is irrecoverable
2. A hedge can prevent future damage but cannot undo past damage
Now once that is clear, let us understand when to hedge? There are three scenarios where hedging becomes crucial, which has to do with dealing with past, present and future risks.
Past:
Let us say one already has a position in the equity market (cash, futures or options). The position starts incurring losses. Now many of us (including me at times) would not be willing to exit at our pre-defined level.
When it comes to taking that bit of extra more risk beyond calculation, create a hedge.
Result: The position won’t bleed any further and we would still be in the around, just in case the position turns favourable after hitting the stop loss.
Present:
This one is my favorite. This compensatory trade would occur when we are sitting on profits right now. In that case, instead of mulling over whether or not to book take a cost to create an opposite position in option and sit on it keeping the upside open at the same time locking accrued profits.
Future:
Now here, why not many of us resort to hedging is because of the very first characteristic, it comes at an irrecoverable cost. Even so, have a big heart and create a trade with a hedge alongside to safeguard the future. The benefit is very simple our maximum loss is defined hence, just track profits, do not track losses.
Now comes the answer to the question - How to Hedge?
To hedge a position in cash (participating F&O stocks) & futures market, use options (Buy Put for Long Futures & Bought Stocks, Call for Short future) most of the times the cost of hedging wouldn’t go beyond 3-4% even if the hedge is kept for a good 20+ sessions. I have always found prudence in choosing the strike close the current market price.
Now for the stocks not participating in F&O, if one is trying to hedge a bunch of stocks against market falling then the following equation viz. Contract value (Lot Size * Strike Price)of Index Put Options Bought = 2-3 X Portfolio Value, has made sense for me a few times.
However, many times behaviour of a peculiar portfolio could be very different, hence try resizing and exiting, keeping this hedging as last resort.
Last but not the least, if it is about short options to be hedged, take a compensatory trade in higher call or lower put (OTMs) depending upon the position. In case of an entrapment into options that have gone in the money, I would rather buy multiple of OTMs so that adverse move can be reasonably compensated.
While if one is trapped in the Long Option position, restrict selling options 1:1 unless otherwise it’s the week of expiry and one can keep a close track of it.
MORE WILL UPDATE SOON!!
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