Monday, August 22, 2011

EOD Analysis for 22nd Aug 2011 and Outlook for 23rd Aug 2011

As we head closer to expiry, the OI in Nifty futures is surging. Throughout the day today, the OI in Nifty futures was around 31 million. A lot of rollovers are taking place and safe to assume that these are rollovers on the Long side as the futures are quoting at a premium. Most of the upside today was a result of short-covering than fresh long position build up. Unless Nifty posts a close above 5092, market will continue to remain weak. 

Banknifty did not join the upside for most of today and in fact at one point of time it was losing 80-100 points. Without cheer on Banknifty, any rise in Nifty is illusory. Unless Banknifty takes out 9450-9500 levels on EOD basis, shorts will keep entering the system. However, one should refrain from just going ahead with a short on Banknifty because when banks rise, Banknifty ends up clocking more than 200 points on the upside. A relief rally towards the 10k mark on BNF points is highly likely in September series so this counter should be played with Long-Short pairing with Sep/Oct series and exit the losing side at about 40 points and continue with the winning side for 80 - 100 points intraday. [Only for high margin players] Good buy levels are 9200-9250 or above 9450 on EOD basis.

The initial expiry targets were based on the huge Put Writing seen at 5400 levels and I had expected a technical pullback at least after the 15th of the month. This month has been terrible for Put Writers and each weekly close actually has been below the previous week's close. The next couple of days will be subject to a lot of manipulations so one may be better off waiting for the signals to emerge. The bull story and meaningful upside all got quashed with the close below 5092 and repeated failure to take it out on the upside. Now the crucial level to be monitored is the 4780 level. To the extent 4780 holds, some relief rallies will come through. The fall has been too fast, too furious. A close below 4780 will make Nifty vulnerable to test the 4650-4680 levels and seal all hopes for a long time to follow. Apart from Dow and FTSE, the other leading indicator will be the Rupee-Dollar exchange rate; if the Rollar rate swells past 46.1 [give or take a few pips] on closing basis, there will be a sharp sell-off on Nifty.

Low margin players should wait on sidelines and let expiry go through before taking any fresh position. VIX will start cooling down from next week. There is a holiday as well on 31st August. So options premium will dry up pretty quickly. Kindly keep that in mind while building options straddles.

Crucial levels remain the same as indicated on Thursday and Friday last week.


nalin said...

hi nagraj ji......xhetani here...i have a request if u have time some day...can u elaborate the imporatnce of dollar index n how to view it...since on money control we usaully catch d tail of wave and get set 2 d ride of wave prefreblly on moneycontrol so all other learners will learn...if u want i will remind u

reachnagraj / theknight16 said...

@nalin: the dollar index can be tracked on any forex site with the sign DXY

Since dollar is the universal payment currency, movements in dollar index affect other currencies and all asset classes like treasuries, equities and commodities.

You can look up investopedia on the different aspects of DXY. Good Luck