There is an unusual interest at 12,000 Puts and a break beyond 11,800-12,300 should force a change in IVs as well as maximum pain which has been hovering around 12,100.
A flawed Gravestone
A Gravestone Doji on February 11 appeared to throw spanner in the works throwing Nifty bulls off guard, but the bull candle on February 12 has reinforced the bullish expectations.
In fact, on closer examination of Tuesday’s trade, one could see that bulls were in play only for the first 15 minutes or so of the day, and that was not as much of a tussle between bulls and bears, that could have been inferred from a bearish candlestick pattern like Gravestone Doji.
Bulls seemed content to have made a +100 point leap from the 60 EMA, and looked content to lie idle in waiting for another day to make a fresh statement. Infact it did so on the next day by testing a 12-day peak, though trades were painstakingly flat after the first 2 hours. Ideally, this is suggestive enough for onward momentum to sustain, with Bollinger band’s upper range of 12,312 insight. However, the start-stop moves on both Tuesday and Wednesday begs a closer look to see if something else is brewing.
What is brewing?
Monday had closed within the 38.2 percent retracement of the 3rd to 6th February surge, while Tuesday’s slide stopped within the 23.6 percent retracement of the jump-off Monday’s lows. This is a sign of bullish continuation. The bull candle formed on February 3 after opening deep below 2 standard deviations, and the quick mean reversion thereafter is suggestive that a substantial move up is lined up.
This should ideally mean that not only we will see a new record peak in a few days, but a pattern that favours a much more expansive move towards 12,850-13,200 will begin to mature shortly.
Option traders concur
Option traders have been less of price setter lately and have been following price for some time now with positions switching between short-call & put-longs to call-long & put-shorts, multiple times. But one thing they have largely concurred on is a big trading range as wide as 1,000 points as inferred from the option accumulation in the last week.
The directional uncertainty, however, is yet to reflect any degree on the implied volatilities (IVs), as they have frustratingly remained near 10-11 for days on, despite Nifty switching directions multiple times. There is an unusual interest at 12,000 Puts and a break beyond 11,800-12,300 should force a change in IVs as well as maximum pain which has been hovering around 12,100.
That is a lot to expect with just two weeks expiry and especially on a low IV scenario, but with BankNifty looking much reinvigorated, expect the twin indices to fire in unison, with other sectoral indices poised to join.
First published in Moneycontrol.