Breadth is negative, volumes are low and the short term trend is obviously negative. FPIs have been net buyers in February while domestic institutions are small net sellers. Session volatility is rising now, and the Vix has risen in the last few sessions indicating nervousness. The rupee has not moved much this month.
Crude prices have risen, to three-month highs, which is one reason for the nervousness. Apart from Pulwama, political and geopolitical concerns include US-China trade talks, which are supposedly proceeding well. Also, President Trump has declared a National Emergency which is likely to face legal challenges. Brexit
continues to look chaotic. The Rafale row continues.
hit its all-time high of 11,760 in late August and it retracted to a low of 10,005. An eight -week downtrend led to 14.9 per cent retraction off the peak, before a rebound started in early December. The index has since range traded between 10,500-11,000 before it made a failed breakout above 11,000. On the reaction, it has broken the 200-DMA which is at around 10,850. If there’s a decisive move, say till 10,500, the trend could be traded with a lot of confidence.
The Bank Nifty
has also lost ground since the rate cut by the RBI. The futures is at 26,725. A long Feb 28, 27,500c (52) and a long 26,000p (118) are almost equidistant but the premium is much higher for the puts. This strangle can be offset with a short 25,800p (88), short 27,700c (27) for a net cost of 55 and potential maximum gain of 145.
The Nifty is at 10,640. A long Feb 28 10,500p (73), long 10,800c (59) can be offset with a short 10,900c (31), short 10,300p (36). This combination of spreads have a net cost of 65 and the short put is deliberately set further from money than the short call. A move till 10,300 would gain 135, while a move till 10,900 gains 35.