If the Nifty stays below the 200-DMA for any length of time, say, the next three or four sessions, it would be time to call a long-term bull market.
The intermediate trend is obviously negative with falling peaks and bottoms. The short-term trend could reverse soon as short-covering must be around the corner, given a 3 per cent slide. Trend-following signals suggest holding a sell on the Nifty with a stop at 10,300.
The Index has bounced twice from 9,675 since December 2016. If the 200-DMA breaks, the 9,675-9,700 region would be the next support. The signals out of the bond market remain negative with G-Sec yields rising despite better inflation data in February. The Reserve Bank of India is expected to maintain status quo in its April 5 meeting.
Sentiment has been especially badly affected in banking and financials. The Nifty Bank has slid from 27,200 on the Budget day to hit current levels of 24,250. That's well below the 200-DMA, which is at 24,800. The sector is already in an extended bear market.
Given the trend, a bearspread with long March 28, 23,500p (116), short 23,000p (55) may be profitable. This costs about 61 and it breakevens at roughly 23,440. It could be hit in three big down trending sessions. The contrarian take would be to look for a bounce till 25,000 on short covering. In that case, consider a long March 28, 25,000c (92), offset by short 25,500c (27). This costs 65 and breakevens at 25,065.
The Nifty closed at 10,094 on Monday. There are only seven sessions to settlement. The put-call ratios are not very meaningful. A straddle of long 10,100c (109), 10,100p (91) costs 200. A bullspread of long March 10,200c (63), short 10,300c (32) costs 31, pays a maximum 69 and it's about 106 points from money. A bearspread of long March 10,000p (58), short 9,900p (35) costs 23, pays a maximum of 77. This is about 95 points from money. The combined long-short strangle would cost 54, with breakevens at 10,254, 9,946. One or the other side is likely to be hit. Take the bearspread or take the long-short strangle if you expect a bounce.