The Nifty witnessed the sharpest fall of the last 9-month rally. Within 4 sessions, it fell by 400 points. Once it closed below 10,000 Put strike, the major cascading effect of the closure of Put writer's position started.
The index even closed below the second highest Put base of 9800. After such a sharp fall, the Call writers are primarily placed at 9,800 and 9,900 Call strikes.
Hence, immediate important resistance would be 9,830. Above this, only we can expect short covering of 100 points towards 9,890. We are not expecting the index to recover above 9900 soon.
The next highest Put base is seen at 9,500 strikes which may be the eventual target if Nifty doesn't recover above 9,830.
On account of adverse global and domestic new flows, quite high leverage closure was seen in the stocks which led to profit booking in so far performing stocks.
This may be the trend in the coming week as well and stock-specific profit booking could be seen on intermediate pullbacks.
Due to geopolitical tension between the US and North Korea, choppiness was seen in global indices where India was no exception.
Long liquidation was seen in the BankNifty index where the open interest has fallen nearly 24 percent with nearly 1,000 points fall from the highs.
More pressure was seen last Friday after the dismal quarterly numbers of SBI. Axis Bank which was holding well above 520 levels has also seen a steep cut in prices along with all major private sector banks which had kept the index move in check.
As the index slipped from 25000 levels, Call writers have gradually shifted their positions in lower strike Call options. The most active Call strikes are 24,300 and 24,500 which is likely to act as a hurdle going forward.
As 24,000 Put strike has seen sizeable additions followed by 23,500 strikes, we feel a close below 24,000 levels (futures) is likely to trigger a fresh round of selling which will push index towards 23,500 levels.
The price performance trend (Nifty Bank/ Nifty) has been hovering near 2.46 levels on the back of profit booking in banking stocks. The ratio is likely to move towards 2.42 levels, which will keep the index move in check
Geo – Political worries spook the global equity markets:
The global risk-off sentiment continued to go move higher as the tension between the US and North Korea increased.
Trump stepped up his campaign of pressure, warning the regime not to follow through with a missile test near Guam and promising a massive response to any strike against America or its allies.
This has kept the risk-off sentiment rising in EM’s, largest outflows were seen from S. Korea of over USD 500 million, while other Asian EM’s like India and Taiwan saw outflows in excess of USD 200 million each.
Inflows of over USD100 million was seen in Brazil. Profit booking trend emerged in the last couple of trading sessions of this week in other EM’s as well.
In the F&O segment, flows are negative. In the index future segment, there was the short addition of USD 87 million. They also bought index options worth over USD 920 million to hedge cash positions.
Indo-china standoff triggered some weakening in INR as well, as it hit 64.25 level (highest since Jul 26, 2017), this mild depreciation was also due to some pullback is seen in Dollar Index.
The MSCI EM index dream run halted in last two sessions as it fell from 1080 to 1056 levels. This is the lowest level for EM Index in well over a month.
However, the EM index still has given strong returns of over 25 percent for 2017 and looking at the commodity set up (be it Industrial metals or Crude), the positive bias for EM’s is likely to continue and from support perspective 1040 is a good entry point in this Index.
US-North Korea standoff needs to recede for the risk on sentiment to remerge and FIIs are likely to wait for the time being.
Missed
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