Nifty Trading Strategy | High Probability of a Downtrend


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Nifty Futures were sharply up intraday before giving up all its gains in the latter part of today’s trading session. The up move stalled around 5979 levels a shade higher than our expected level of resistance of 5960 – 5970 levels. We had written in our yesterday’s post  Nifty Trading Strategy | Overview of Earnings, Valuations and Fund Flows that Nifty would face resistance from the down trending channel, the previous peaks and valleys around these levels and the 55 day MA.

nifty-futures-trading-strategy-february-13-2013-stay bearish

More technical weakness emerging in the Nifty Futures Chart

Technical observation point to an internal breakdown

In today’s trade a number of important technical observations were noticed

  • the downward channel was broken (we have reconstructed a new one to include the new price action.
  • two day up move so vital in Gann analysis was established
  • Nifty closed below the 55 day MA for the 4th consecutive day, and
  • the market in the last 4 trading sessions is trading in the same price territory despite the huge intraday volatility

To the bulls we may seem biased, but the third factor is of importance to us as per the Gann school. Any support / resistance level if it remains broken for three consecutive days then the probability of the markets moving in the direction of the breakout increases.

Heavy FII buying and tempered selling by DIIs fails to cheer markets

Despite continued heavy FII purchases (+ Rs 800 crore) and tempered selling by the DIIs (Rs 289 crore), markets gave up all their gains. It proves my strong belief that markets cannot be bought simply on the might of liquidity. Price discovery is done at the margin and is the direct effect of who’s sway rules at the time of the margin trade. Only time will tell if the fund flow bulls would prevail or the sentiment bear traders in this tug of war.

Will the Augusta helicopter scam be the fool proof evidence of the current regime’s corrupt practices

Add to the already muddled politics another scam – this time the Augusta helicopter purchase deal–  pertaining to kickbacks during the Congress regime going back to 2005. What is significant in this case is that the bribe giver has been arrested in Italy. So the question of bribe not being paid does not arise. In my opinion this will really nail the ruling party and cause untold damage to its brand. Let see how the story unfolds. But will FIIs stop buying because of this. Again a million dollar question as they have been buying Indian equities in the recent past at an unexpected pace.

Nifty options data provides clues that point to the down side

Nifty options are also leaving some vital clues. At-the-money (ATM) 5900 Feb Puts OI is nearly 3x the ITM Feb 5900 calls. As per my theory, markets rise as the put call ratio rises but extreme reading serve as contrarian indicators. There is a possibility that the same is being signalled by the PCR ratio of the 5900 strike price. My interpretation is that in case markets sell off below 5855, at that price  all the put writers will run like hell to cover and this could give credence to a violent downside move. We will find out over the next few days. On the other hand the activity at the 6000 strike price is normal and the interpretation is that 6035 would serve as a resistance level.

Recommended Strategy is to buy naked puts below 5920 levels on the Nifty

Summing up all the above we conclude that though markets were oversold, the recent 3 day side ways move has helped markets recover from being oversold. Despite the time relief and today’s price spike, Nifty Futures could not sustain and the weak closing is an indication of more downward price movement to follow. Recommended strategy is to initiate a naked Put purchase should Nifty Futures close below 5920.

So whats your take, will markets sell off or rally to everyone’s delight. Let us know through the poll app below.

 

For daily updates on our trading view on Nifty Futures & Options  please send us an email at bolinjkar.vinit@gmail.com or  SMS / WhatsApp on 9730836363. We would be more than happy to oblige our community of investors / traders.

Disclaimer: The opinions expressed here in are strictly for education purpose only. Before investing please make your own thorough analysis or speak to a qualified Certified Financial Planner / Advisor. We are not in any which way responsible for trading losses arising out of  trading decisions taken based on the above. 

This blog is the personal blog of Vinit Bolinjkar. The views expressed in this article are entirely my own and do not reflect the views of my employer. This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither http://winningtrades1.com or myself accepts any liability arising out of the above information/articles.

logo Vinit Bolinjkar Head of Research, Ventura Securities Ltd
Vinit Bolinjkar
Winning Trades
| Mobile: +91- 9730836363

http://winningtrades1.com http://in.linkedin.com/in/vinitbolinjkar

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