On Friday Nifty closed below the 100 Day EMA. The bullishness in the market seems over?!
With the SGX Nifty Futures trading below 17000 for the first time in 3 months, and global markets sentiment bearish, we expect the Nifty to close below 17k in 2021.
With rising Covid concerns on the new variant, the Nifty fell about 3% on Friday. The global markets sentiment is also extremely bearish and the market is fearful, with major indices down by 3 to 4 percent on a single day.
We had seen a fantastic rally in Nifty once it broke the 15950 levels. Now it seems that the market has ended the bullish stance. Nifty breached the 100 day EMA mark and now the correction is expected up to the 200-day Moving average. The Indian VIX rose about 25% and that is very alarming as well. A pullback is definitely possible, but we are not expecting any strong moves above 17280 to 17350 zones for sure, sometime soon, at least this year.
Since 17000 was a massive Put Writing area, now it will act as resistance once the markets open gap down. Though the possibility for a pullback is very much possible, the overall sentiment is bearish, and Nifty can be expected to close below 17000 for the December series.
Because of the high volatility, we may initiate a debit spread that is bearish for December monthly contracts. So we short OTM Put and Buy ATM/ITM Put.
Buy 17050 PE and Short 16850 PE - DECEMBER Monthly Expiry Contracts
The capital needed to initiate the trade is around Rs: 38000, but the final margin blocked will be around 23K. So one can easily expect a 25% ROI. And the max loss is capped at just Rs: 2600.
We shall keep you posted on this trade idea. Keep checking Econalytix!
- Pitanjal Dutta (firstname.lastname@example.org)