Nifty opened in the green and tried to move forward but the volumes were not enough to sustain the upside. The OI in the morning was 23 million and hence in sometime, it started falling; once below 5580, the shorts opened up and the OI increased to almost 24.8 million which accelerated the fall and towards the end, there were a lot of shorts covered quickly. One must realize that the current gyrations are simply taking place to milk options premium on both ends.
Nifty Shorts opened in the 5608-5655 zone and Banknifty shorts opened in the 11350-425 zone all yielded good profits for those who took positions accordingly
Weakness can be felt only when 5532 is broken on the downside; difficult to gauge at this point whether all shorts have been covered but at EOD, the Nifty Futures OI stands at 25.2 million and there was a surge in roll-overs today for Nifty futures.
Banknifty is still well above 11k but LnT, Reliance and many other heavy weights collapsed today; A technical bounce is expected to the 5580-5625 zone once and likewise for Banknifty to 11250-350 zone
The crucial levels still remain the same
For Downside: 5408, 5440, 5480, 5532
For Upside: 5580, 5608, 5655, 5690
Bull story will only get stronger with 2 consecutive closes above 5740
Bears can only rejoice when 5480 is broken on the downside on EOD basis which will open Nifty for retest of 5408-5440 zone; however, looking at the movements in the major counters and options data, I still maintain the expiry target to be in the 5600-5690 zone; most falls will probably be arrested within the 5480-5532 zone for now; there is no need to panic to the extent 5408 is intact on EOD basis
Best strategy remains Sell on Rise as of now and the recommended levels are as follows
For Nifty Futures: 1 tranche of shorts in the 5608-5655 zone if it gets there and the next tranche below 5580
For Banknifty: 1 tranche of shorts in the 11250-350 zone if it gets there and 1 tranche below 11250
For options, I would recommend placing only 20% to 25% of trading capital and that too in August series options; high margin players can build a hybrid spread but low margin players should continue with the Long Straddle spread; best bets are a Straddle of August 5500 PE and August 5600 CE 1:1 ratio [15 point stop loss for each leg and trailing stop loss on the other leg] if the margins are lower, one could go for August 5400 PE and August 5700 CE but then the Stop Loss on each leg should be revised to 8 or 9 points maximum (adjusting for Delta Factor)
Stock Specific Ideas
Buy LnT as close to 1750 as possible for a short term target of 1850 via futures
There is a lot of noise regarding weakness in Crompton and Lupin; avoid shorting further as most of the weakness has already been discounted in the charts and hence the falls; the downside further is probably very limited and there is no point in scrambling for tit-bit remains of the pie
Keep an eye on Canara Bank and IRB as they have some upside pending with a 3 - 4 month horizon
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