The overwhelming cues in the market today are inflation, F&0 expiry and crude prices. F&O expiry will not do much but other events like crude, inflation and GDP numbers tomorrow may nudge the Nifty out of the narrow range. Overall, there is nervousness in the markets.

It is F&O expiry day today more importantly perhaps it’s inflation day as well and the number comes in after markets close and those are going to be the overwhelming cues as we head into trade. Keep an eye on crude as well because the storm is disturbing it and we are now approaching USD 119/bbl on crude as well. So these are perhaps the most important cues, as we get into trade this Thursday, not necessarily in that order but inflation, F&O expiry with an eye on crude.

Will we break the range?

I don’t know but that’s what people would be asking themselves this morning. My sense is the next couple of days is quite important. We have been extremely range bound for the last few days but may be in the next 48 hours, we have resolution outside that range. There are few triggers may be crude will be the tipping point, may be the inflation number will do it, or the Gross Domestic Product (GDP) number tomorrow, I don’t think the expiry will do much as such. But some of these triggers probably will nudge the Nifty out of that very narrow range.

I don’t know which way, it depends on the outcome of these events but yesterday was a little weak; we gravitated towards the lower end of the trading range. There is a touch of nervousness as we go into trade today by the time the week is out, may be traders will say we found direction one way or the other.

Asian Indices:

Asia is not exactly roaring this morning in fact the Hang Seng index is down 1.25%, China is limping back from the losses of the last couple of days, and the other markets are down 0.25%-0.50%. So they looked up for a bit this morning but now have drifted down into the red once again, so it is a sticky global environment.

Narrowing Nifty range:

It’s come down to the lower end of the range yesterday to 4,290 which is why probably getting important and getting tipped to that point where something will give in the next couple of days and we will either go up above 4,400 or go down to 4,200. It looks like a possibility that the range is about to get broken over the next few days.

These kind of narrow ranges do not stick around for a very long time but if traders are trading long and I suspect a lot of traders are still saying that the uptrend which started at 3,800 and took the Nifty to 4,600 has not quite ended yet; they have not thrown in the towel on that. A lot of people are looking at this as a mere retracement of that rise which happened and maybe there is more to go on the way up. For them the margin of safety is no more than 100-150 points on the Nifty from here. Below that one will start seeing some signs of panic.

We have had a big knee jerk rally from there we have given up quite a bit of ground but there is no panic in the market right now. But if for some reason in the next couple of days the Nifty were to go down to 4,200 below that 4,150 below that which is 100-150 points from here for whatever reason then one will start seeing the bears getting active. One feature which has been consistent over the last few weeks is that the bears are very cautious at this point in time. The Nifty futures discount is not visible that is because the bears are not confident that this pullback which started from 3,800 to 4,600 that has ended conclusively and now they have the liberty and opportunity to go out and short heavily this market again. That view will probably gain ground if the Nifty for reason were to break and trade below 4,200-4,150 levels.

My sense is if we do break those levels then the Nifty discount will probably start mounting. The bears will come back into play, the bulls will get weakened considerably and then we could see a far sharper fall which takes the Nifty maybe even sub-4,000 once again but for that something will have to give in the next couple of days for those levels to break. Conversely it could equally happen that there is inflation, positive surprise or a GDP (Gross Domestic Product) surprise in the next two days and as we start the series the bulls get back into play and push the Nifty successfully above 4,400.

But both are possibilities, which is why there is edginess in the market but if one of these events were to go wrong then I suspect one could see the lower end of the trend of the trading range breaking down.

The Nifty is precariously poised; I know its very boring for the last few days but maybe not for much longer. One could probably see one of the two camps getting stronger bulls or bears over the next 48 hours.    

On August Series:
 
We tend to look at the markets every day and therefore the daily volatility actually throws us quite a bit. So July 15, was a low and then from there we have seen a sharp bounce backs a lot of stuff has happened. But if you just look back and look at the series, the August series is going to end absolutely flat. We are down less than 1% on the Nifty on today for the whole August series; I don’t know if anything dramatic will happen today which will skew it but it looks like we headed for an extremely flat closing point-to-point for the whole August series. July was very turbulent but you just look back into July, the Nifty was up 0.4% in the month of July after so much turbulence.
 
So, net-net from the end of June to the end of August, the Nifty has done pretty much nothing point-to-point and that is an interesting observation. We have been absolutely sideways for two-months on the Nifty within which we have seen quite a bit of turbulence but basically we have been stuck around 4,200-4,300 levels on the Nifty. It’s being remarkably sideways and the way it’s rolling over to September, all the ratios probably are indicating that the view is that we are headed into another flat kind of series because the Put-Call ratio is almost at 1, which is about the most neutral. Either the Put-Call goes up to 1.3-1.4 or collapses to 0.8-0.9 but this time 1.03 tells you that the bulls and bears are almost evenly matched as we rollover to September and even the basis is not telling you anything.

The Nifty futures is neither at a big premium nor at a big discount, so there is certain neutrality over the last few weeks which has crept into the market also backed up by the absolutely appalling volume that we have been reduced to. It’s not a period of very easy lull as in people are very comfortable with the market level, people are edgy but they are confused and they don’t know which way the market will swing next which is why you are seeing almost every possible ratio flashing neutral.  

On global cues:

The interesting thing is that this kind of lull that we are describing in India is also reflected in US. The fact that yesterday NYC clocked the lowest volumes in 2008 at a time when we also were clocking perhaps the lower on a pre- settlement day is quite remarkable. The fact that everybody in the global market seems to be quite confused, we don’t know whether the next 10% move is up or down and volumes are diminishing here, volumes are diminishing in the US.

I think while we track the indices quite closely, the internals of every global market are pretty much suggesting the same. It is like the blind leading the blind; nobody knows what the next move is. The only thing which you can take on from the global markets is that crude has also been tossing around in USD 110-120/bbl range and maybe the move in global equities coincides with the next move in crude.

If crude does break USD 108-100/bbl and goes down to double-digits, that could be the start of another leg of a relief rally in global equities, if however it does not happen and crude because of the storm bounces back to USD 125/bbl then who knows this range will break on the down.
It is a very uneasy calm across global markets at this point in time.