The course correction

2 мая 2021 г.

In my last post on Wednesday I had listed three anomalies and said that since things didn’t match we might see a mighty fall. On Thursday and Friday we saw that fall and now if you see all the anomalies have been corrected-
Markets (Nifty and Banknifty) fell since covid cases and resulting deaths are rising everyday, forcing stricter measures, like lockdowns by states.
Banknifty and Nifty futures are now trading at good premium as compared to its spot prices [Nifty spot= 14,631.10 ; Nifty futures (May) = 14,660 ; Niftybank spot = 32,781.80 Banknifty futures (May)= 32,824 ].
FIIs (net) sold on Friday worth 3,465 Crs (highest in April) and DIIs bought (net) worth ,1419 Crs and as normally would have happened Nifty fell by 263 points. From Thursday’s high the Nifty has fallen by more than 400 points in 2 days.
Now what is expected on Monday 3rd May?
Reliance, which announced stellar results is expected to rule markets on Monday. Even though Covid cases are rising along with number of dead, the situation regarding availability of hospital beds, oxygen, medicines has improved in various states. Maharashtra, though still reporting highest number of patients seems to have plateaued with numbers between 60,000 to 65,000 since last 2 weeks. Mumbai, the commercial capital of the country is continuously showing reducing figures over last three weeks. So it now seems that with 400 points’ fall in Nifty and more than 1400 points’ fall (from Thursday’s high) in Banknifty these developments have priced in.
Let us look at Nifty option chain. On 14800 strike, on PUT side, we see fresh writing of 3,174 lots and total OI at 14055 lots. On higher strikes, although, there is unwinding. On lower strikes, highest total OI is at 14000 strike which is quite far, but near LTP, on 14500 we see total OI of 24,691 lots and fresh Put writing of 3,098 lots. On 14600 strike, there is fresh put writing of 6,238 lots. On CALL side, highest total OI and highest Call writing is obviously at 15000 but neat LTP also we see good Call build-up on 14800 strike ( total OI = 25,499 lots and Call writing = 19307 lots). So it seems, Nifty is likely to trade between 14600 & 14800 tomorrow as per option chain analysis.
On Charts, we see that both Nifty and banknifty has taken support at 20 DEMA and 20 DSMA which is also mid line of Bollinger band. So overall picture tells us that market is not likely to fall due to covid fears and might stagnate here or rise due to Reliance results since it has maximum weightage in Nifty.
Unfortunately there are no clear cut buy or sell levels in both the indices so trades will have to be taken in live market depending on moves.