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We continued lower in the week gone by and the big impulsive move of the preceding week proceeded to form a balance. Even though Friday was a spike lower, the weekly auction was a well balanced Gaussian profile and will have an immediate implication on the coming few weeks.
If we auction below the balance of this week gone by, the view remains short. However if we push lower and come back into the weekly balance, then first a push to the weekly POC is a high probability trade followed by a move above the week highs.
So on structure, we have a wild week lined up and the possibility of fierce 2-way moves is very high. The vix which is a measure of new puts added and enhanced trading ranges will continue to be on an uptrend above 18 in the week to come. Stability in the markets can return only when Vix climbs down below 18 levels for the week to come. On the higher end, we may see 20.82 and 22.22 as higher targets for the index. The USDINR remains poised around 68.06 levels for further continuation in the week. Elevated USDINR and Vx readings are not good indicators of the market attempting a rebound. However we are seeing MO at -108 which means that new shorts have to be cautious on aggressive position sizing even though the trend remains down.
It will be one of the weeks where knowing the trend will not be enough to trade but applying good measures of risk management and checks on position size should help to emerge winners by coming Friday. My advice to all would be to trade Intra and Positional Trades with a reduced size.
For the week to come, our first reference line would be 7377 spot ( roughly 7382 F). We look for the auction to stay below this point on a 60-minute time frame to confirm new sellers or potential long liquidation. If it manages that then the move down can hasten to 7314 and 7254
Any pull back will run into a wall of supply roughly around the POC of the composite. On the charts, we marked an area at 7498 spot or roughly 7510 F to check if the auction can stay above that zone. Possibilities on upsides include another visit to 7560 spot but over that further shortcovering can bring 7720- 7745 even.
BankNifty :
The BN spiked down on Friday and away from the zone it was consolidating in. Roughly around 15500- 15550 is the highs of the balance.
The BN has support in the coming week at 14870- 14945 spot. However, selling is expected to come back in this index at every attempt to climb higher. We see 15540 as the first supply zone on any move up followed by 15880- 15930 higher.
Lower down a push below 14870 will bring 14470 and 14200.