Negative global cues plunged Nifty down 600 points at the start of the week. The index corrected to make an intraday low below 23,900 but managed to end the day above 24,000, with a loss of more than two and a half percent. The selling was widespread due to a global sell-off triggered by multiple factors, including the sharp fall in Japanese markets due to the unwinding of yen carry trades, concerns in US markets due to weak job data, and tensions between Israel and the Middle East.
The sharp sell rise in all asset classes, particularly equities, has led to a significant increase in the VIX across various global equity markets. India VIX closed at 20.45, up by more than 42 percent on a closing basis, and surged by more than 66 percent intraday—marking a significant intraday gain in recent times.
According to Jay Thakkar, Head of Derivative and Quant Research at ICICI Securities, “The sharp rise in VIX for two consecutive days indicates a high probability of further downside in the near future. On several occasions, the India VIX has risen to 30 levels, indicating a potential 50 percent jump in the coming days or weeks.”
Implied Volatility
Thakkar highlights that Nifty's implied volatility (IV) has jumped to 19 levels, with room to rise until 23 levels. “The implied volatility percentile (IVP) has reached its upper end, but it can continue to be at higher levels as the implied volatility rank (IVR) is still in the middle range at 57, suggesting more volatility ahead,” added Thakkar.
Nifty Derivative Outlook:
The Nifty closed above the 24,000 level, where the highest put OI exists. However, heavy call writing has been at higher levels, resulting in the PCR oversold at 0.47. “The max pain and modified max pain levels are at 24,300 and 24,350, respectively, acting as crucial resistance in the near term. Meanwhile, 23,800 to 23,600 is crucial short-term support, setting the near-term range for the index at 23,600 to 24,300, with potential resistance at 24,500,” said Thakkar.
Moderate Short covering recovery expected; Market in sell mode, Nifty 25,000 near term top
Thakkar believes the global markets have witnessed heavy sell-offs, particularly in Japan, which may trigger short covering in the near term, aiding the Indian markets to bounce back from support levels. "The short-term momentum indicators are in sell mode, indicating that the 25,000 level is now a short- to medium-term top. This could lead to time-wise or price-wise corrections in the near term. Thus, the short-term strategy on Nifty should be to buy on dips and sell on rises, as the trend has shifted from up to down,” added Thakkar.
Sectoral Outlook:
Long and Short stock bets recommended by Thakkar:
1. Sell SBIN at CMP: Rs 815.15, Stop loss: Rs 840, Target: Rs 780 Technical View: The stock has broken the sideways range on the lower side with a negative crossover in its momentum indicators on daily and weekly charts. From a derivatives perspective, it has seen short additions over the last four trading sessions, with a 3.45 percent increase in OI in the last session. Its IVs have reversed and are currently trading at around 30 levels, expected to rise to 40 levels, indicating further short-term weakness. The max pain and modified max pain levels are at 840 and 849, respectively, which will act as crucial resistance in the near term.
2. Buy BPCL at CMP: Rs 343, Stop loss: Rs 238, Target: Rs 360 and 370
Technical View: The stock has provided a breakout from a significant sideways consolidation with a bullish crossover in its momentum indicators in both the short-term and medium-term time frames. The stock has seen good OI addition at lower levels, from 300 to 330, indicating strong support. The max pain and modified max pain levels are 340 and 346, respectively, and the stock is trading above its max pain, indicating a good possibility of short-term upside.
"Falling crude prices in the near term also support the stock. It had seen good long builds recently and is currently witnessing some profit booking from higher levels. However, it has retested its breakout levels, offering a good risk-to-reward ratio in the near term.
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