Nifty View: Update for 10th Jan 2019

Near Term Trend:  ↓ (Down)

Market update: Nifty opened on a strong note at 10870 levels and kept trading in a tight range for most of the day. There was violent fall in second session and index dropped to 10750 levels and immediately staged a smart recovery of 100+ points to close above 10850.

Markets were extremely volatile throughout the day. I have been mentioning in my posts everyday that volatility is likely to be picked up and if one is not careful or try to be too adventurous, hes likely to be trapped by market in these choppy moves. Today many traders got trapped on both sides and suffered heavy losses. Todays move was just one small example and one needs to be extremely careful about trading in such markets.

Overall, today was another day where Nifty dropped first and then recovered from day lows but at the same time not able to post any gain above the opening price. I mentioned in my yesterdays post that "Bulls are supporting market on every drop but are not willing to invest further above opening price" same thing we got to see today as well. So much of choppiness is suggesting that markets are preparing for its next move ( up or down) and its likely to  be violent and should come soon now ( surely choppiness can remain for few more days but that doesn't change anything)

Prices are still contracting, if you ignore the intraday volatility then Nifty has been able to add just 50 points today which is still very much within threshold of 'contraction'. If you notice daily charts, it took Nifty 3 days to fall from 10916 levels to 10630 and now it has taken 3 days to retrace around 80% of the fall. Ideally bulls would have liked to see full 100% retracement by now ( we still need to see how tomorrows trading goes because on Sensex chart this down move took about 4 days).

We maintain our bearish stance for now, however todays sharp pull back is capable of changing Niftys trend for short term as todays last hour move felt like a perfect 'Bear Trap' (depends on how Bull take it from here).

Trading recommendation: No trade is recommended at these levels. if someone is long he can square off his position and wait for markets to give confirmation and enter again. We are still holding 2 parts short ( 10840) and even though temptation was high to add shorts below 10800 levels we resisted as the nifty movement was not convincing. Many intraday traders did enter short below 10800 levels today were seen running for cover in last 30 minutes). 


Happy trading to you!

Nifty View: Update for 9th Jan 2019

Near Term Trend:  ↓ (Down)

Market update: Nifty opened slightly positive around 10795 levels made a high of 10819, low of 10733 and closed at 10800 levels up 30 points. On daily charts Nifty made a 'Doji' candle with a long down shadow. such a 'Doji' indicate indecisiveness with support at lower levels. 'Doji' occurs when both open and close point of day are roughly in same region.This shows though bulls are ready to support market at lower levels they  are not ready to invest further beyond the opening prices.

Overall there is no change in Nifty view, and as per my view Nifty still remains in a bear trend. We need a strength from 10800+ levels & then 10900+ to signify bulls are getting stronger, till the time that happens we prefer sticking to bearish stance.

Compression of prices still continues in Nifty it may finish in a day or two or it may continue for few more days but not much time remaining now and nifty should give a breakout in either direction pretty soon (our preferred direction remains on the downside).

If you look at Nifty weekly charts you will notice that since last 7-8 weeks, Nifty is consistently hovering in a tight range of  10600-10900. For positional traders its a very difficult phase because markets are absolutely doing nothing and there is no clear trend emerging that's why its important to be patient and keep a calm head always. Whenever market gives a break out we should be ready for it. Such  'Nothing' phases are expected in markets ( especially when markets have already given a fall of 1700+ points in 6-7 weeks ( from High of 11750 to 10K levels). Just FYI (though its not mentioned on the blog) we were short around 11600 levels and covered our positions around 10500 previously so we can afford to be patient.

Technically speaking, still believe its a diametric pattern (Markets have not given me any reason to doubt it so far) and we should patiently wait for either for completion of this pattern or for markets to prove that its wrong.

Trading Recommendations: We covered our 1 part short today around 10767 levels in the morning, there were signs of consolidation continuing so we thought reducing some positions at this stage will be wiser ( Intraday Nifty went 50+ points from that point). For now we are only holding shorts initiated @10840 levels but wont hesitate to short again the moment we feel market is ready for a down move. 

Nifty Trade Update -8th Jan 2019

Nifty Trade Update -4th Jan 2019

Update 09:54 AM:  Nifty CMP  10767- Exit 1 part shorts initiated . at right time we will initiate more shorts or cover existings ones.

Open short Positions
Trade 1 @ 10840 ( 2 parts)

Nifty View: Update for 8th Jan 2019

Near Term Trend:  ↓ (Down)

Market update: Nifty opened on a very strong note  above 10800 levels but couldn't sustain the momentum and late profit booking dragged index to around 10750 levels & it final closed at 10770 up 40 points. At one point of time Nifty was 100+ up but gave up more than 50% of its gain.

When Dow was 700 down Nifty was 50 point up ( Friday) now that Dow was 700 point up, Nifty could add up only 40 points. So one should not look at Dow and then take a position in Nifty. Having said that, I am of opinion that Nifty has been outperforming Dow for quite some time now however I don't think this will last for much longer. Soon we might have a situation where Nifty start underperforming Dow. anyways, we will cross that bridge when we get there.

We have been saying that overall Nifty remain in a downtrend and intermittent pull backs will keep coming and one should not attach too much importance to them. Even today when Nifty was trading at 100 points up, we had mentioned in our whatsapp updates that Nifty remains in a downtrend and this gap up opening/pullback doesn't change anything.

Extremely critical Juncture: I had mentioned in my previous post that support area for Nifty is rising and is compressing the price action. Now one can see even the resistance area is compressing (first it was 10980 then 10920 and today it was 10830). Support area moving up and resistance area moving down is compressing Nifty action from 2 sides. Once this compression completes (and not much time is remaining for same), Nifty will explode ( up or down). I am of opinion that it will explode in a bearish trend however markets can prove me wrong so the bullish option stays open too (though its not my preferred scenario under current circumstances). 

Technically speaking, Nifty is still in its last leg of diametric pattern. This compression is very symptomatic or indicative of final legs of Diametric and that's the reason I feel we might see a downward movement in Nifty. What we are seeing in market is clear sign of distribution and index management ( where only few heavy weight stocks are holding index). Many readers are asking me to put an overall long term wave count of Nifty and I will surely do that once I get time. For now we need to concern ourselves with near term movement of Nifty ( trust me its going to be extremely interesting).

Trading recommendations: Still holding the balance shorts for now and will square off or add more shorts depending on which way we feel market is moving in. Once again I suggest not to trade big, volatility can increase anytime and will chop you hands off if you are not careful.

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Nifty View: Update for 7th Jan 2019

Near Term Trend:  ↓ (Down)

Market update: Nifty opened on a positive note today shrugging the massive 600 point overnight fall in US stocks but selling soon emerged and took Nifty below 10650 however bulls again pulled the index back to 10700+ levels. After few wild swings Nifty final closed at 10727 ( up 57 points).

Nifty overall has a good support in 10640-10710 level range and even though same was broken during intraday, the final closing was above this level only. To change the current trend Nifty must start trading positively above 10750 levels and make a close above 10800 levels on Monday. Till that happens, we will continue with our bearish stand. On the other hand,for downward trend to pick speed, we must see a close below 10600 soon.

Overall indicators were pointing toward a short term bounce today and that's the reason we covered part of our short today (@10640). Now ideally this pullback should fizzle out soon and Nifty should resume its downtrend, however a strength in Nifty from here onwards would mean that this pull back might extend. We need to observe next few trading session to decide our next trading strategy.

Critical thing to note is that support area for Nifty is extending with each week. First there was a sharp intraday recovery from 10340 levels ( election day result) then we had sharp intraday recovery from 10530 levels few days back and today we have seen a sharp recovery from 10640 levels. So support area is moving up and its compressing the price action. Once this compression is complete, Nifty will explode( up or down). This usually happens when markets are preparing to move big in either direction. We need to be very careful now as markets are about to give a break up pretty soon. That's the reason I mentioned in my previous note that one should keep the traded qty in check. Keep position light.

Technically speaking, there is no change in my previous wave count and I still believe markets are making a diametric ( or complex corrective) from lows of 10k.

Trading recommendations: We exited part short ( 1 part) today @ 10640 levels and even did one intraday small trade. Still holding the balance shorts for now and will square off or add more shorts depending on which way market start trending.

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Have a nice weekend




  

Nifty Trade Update -4th Jan 2019

Update 10:34 AM:  Nifty CMP  10640- Exit 1 part shorts initiated in trade 1 ( 10688) . Hold balance 50% of trade-1 and 100% of trade-2 (10840). 1 part covered balance 3 part still open

Open short Positions
a) Trade-1 @ 10688 ( 1 part)
b) Trade 2 @ 10840 ( 2 parts)

Update 12:55 PM: Nifty CMP  10730- Sell 1 part again ( short covered in the morning sold again)

Update 02:00 PM: Nifty CMP  10700 Cover/Buy shorts initiated @ 10730 (1 part)

Open short Positions
a) Trade-1 @ 10688 ( 1 part)
b) Trade 2 @ 10840 ( 2 parts)


Update 03:05 PM: Nifty CMP 10720. Carry shorts for next week (net open position as mentioned above

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Buying Calls and Put? Big No No

Why Buying 'out of Money' Calls and Puts are not recommended

Lot of people keep asking me why we always go for Nifty Futures and recommend only writing ( selling) options and never recommend buying them. Well there are plenty of reasons, let me try and put few here for every ones benefit

Main cause of Leveraging and overtrade: Buying 'out of money call/put does create a leveraged position. If some has 1 lakh capital and he is trading in 'out of money option he would go and buy 10 lots of 100 Rs. If he is buying just 1 lot then its fine as only 10% of his capital is at stake. However people trade big and buy multiple lots and put 100% capital at risk. If you write call/put( i.e. sell first) then you can buy/sell only one lot with around 1 lakh capital so you are automatically restricted by exchanges to leverage. General rule of mkt is 1 lakh for one lot ( if you want to trade in 5 lots you should have 5 lakh capital) but how many people do you think do that? Every one want to trade 10-20 lot with 50K

Premium loss:  When you buy a out of money call/put you pay a premium. Lets say nifty is at 10800 and 10800 put is available at 200 Rs. Now nifty has to fall below 10600 in order for you to make any realistic profit. There is no guarantee that Nifty will start moving down the moment you buy puts. When you sell Nifty future you lose only when Nifty moves up (so chances of losing are 50-50). Now if you buy puts you lose when a) when nifty goes up and you lose b) when nifty does nothing and stay at same place so chances of you losing increases to 66%.. Now see what happens  when you sell puts. You gain when nifty moves up and you gain when Nifty does nothing. you only lose when Nifty falls ( so chances of losing drastically reduces to just 33%)

Math and odds are not on your side: like mentioned above, please remember that markets don't move or dont do anything 80% of times they move in big trends only 20% of time. So 80% of the times your put and call will become zero. If you buy call/puts then 4 out 5 times you will end up incurring losses its simple math. You might make money occasionally buying puts and calls ( if you are intraday trader) but if you are a positional trader and trading in out of money call/put then I am afraid you are going to lose most of the times. Premium you pay keep deteriorating every hour every day If the movement of market is not as per your expectations.

In nutshell you need 2 things to be in your favour if you want to make money by buying Calls and Puts a) Overall trend and b) speed of rise/fall and  if neither of this happens then you are done.

Out of money call/puts have no intrinsic value, its just a premium you pay to gamble on the underlying price and that premium keep on reducing everyday. If you really want to trade call/puts then go for 'in the money' options  like for example  nifty is trading at 10700 and 11200 put is available for 500rs (11200-10700= 500) so you pay NIL premium. Always see how much premium you are paying for calls and puts(premium is nothing but pure gamble).

Just see around yourself and ask any trader if hes made money consistently by buying and holding call and puts (its just not difficult its bloody impossible with odds and maths totally stacked against you). Why do you think people lose at casinos? its only because math is always tilted in the favour of casino owner and not in the favour of gambler. Same is here. For you to succeed bare minimum odds you need are 50:50 if its less than that then sorry you should not be interested. That's the reason big players always sell put/calls ( and collect premium)and retail investors buy them and lose it all.

I have seen lots of people wiping out their millions by buying calls and puts. if you are in stock markets purely for thrills and gamble then by all means go for call/puts. But if you mean business and serious about your trade then put your money where its worth.