01Cold open: the headline said red. The chart said something else.
Very good morning. This is The Tanmay Edge. Episode 49. Tanmay Kurtkoti. Let's go.
Wednesday at close the Sensex was down 142 points. The headline said red. Nifty closed at 23,908. Basically flat. Most people who looked at the index and walked away thought the market did nothing.
The market did a lot of things on Wednesday. The BSE Power index closed up 3.27%. Capital Goods closed up 3.21%. Metal closed up 1.74%. All three sectoral indices touched fresh 52 week highs during the day. On the same Wednesday the Sensex closed in the red. The drag was idiosyncratic. The bet underneath was something else entirely.
02The HDFCBANK story: one stock ate the Sensex
Two letters explain Wednesday. HDFCBANK down 2.63%. Given its weight in the Sensex that one stock ate roughly 260 index points by itself.
Strip HDFCBANK out and the Sensex closed up Wednesday. The headline number lied about the underlying tape. The Sensex moved on one ticker. Everything else moved the other way.
Bank Nifty cash closed 54,854 down 0.43%, also dragged by the private bank pack. The Nifty intraday range was 23,858 to 23,984. That is 126 points on a 23,900 ATM. Calm. Advance decline on the Nifty 50 was 34 advances to 16 declines. The breadth was buy under the headline.
03VIX 15.24: the cost of insurance just collapsed
India VIX closed Wednesday at 15.24 down 5.5%. Some prints during the day hit 14.98. Either way that is a sub 15 print and a regime change from where we were last week and last month.
The market is pricing calm into a holiday shortened week with a Saturday and a Sunday of news risk ahead.
DIIs bought 3821 crore on Wednesday. FIIs sold 1042 crore in cash. The domestic absorption ratio runs 3.66 to 1. In past episodes when that ratio runs above 3 the buyer conviction has carried for one to two weeks. The flow story is the loudest part of this read.
04Three players three bets one market
The NSE participant report for Wednesday shows three different desks doing three different things on the same chain.
Retail (Client) closed net long 1,37,000 index futures and short 7,05,000 puts. They sold the floor. Bullish, confident, pocketing the premium as the market oscillates.
Professional desk closed almost flat on futures at minus 8810. Long both option legs. Net long 96,000 calls and net long 2,35,000 puts. Long gamma. Paying for movement in either direction with a heavier hand on the downside. Not bearish. Buying the cheapness of the insurance.
FII closed net short 1,63,000 index futures and added to that short. Wrote 2,00,000 fresh calls. Bought 4,37,000 long puts. Three lane conviction short. Betting on a ceiling and paying for protection underneath.
05Chain map: magnet 23,900, Wall 24,000, range 23,525 to 24,289
Magnet on the Nifty 02 Jun chain sits at 23,900. Cushion below runs 23,800 to 23,700 where put writers have been selling the floor.
First real obstacle on the upside is 24,000 where call writers stacked the heaviest open interest of the entire chain at 8.65 million contracts. Above that 24,200 sits as secondary resistance.
ATM straddle 305.25. One standard deviation move on Friday by 1.25 is 382 points. Expected day range 23,525 to 24,289.
GIFT Nifty 23,889 is plus 0.07%. Flat open into the gap. India 10 year bond yield 6.98%, first sub 7 print of this cycle. The bond market is pricing rate cuts and duration buyers are showing up.
06The trade plan: buy the dip, protect over the weekend
Three steps for Friday.
One. Buy the dip on any open back to 23,870 or below. Magnet says 23,900. Base case is a touch of 24,000.
Two. If 24,000 breaks on volume with call writers covering, look for 24,200 as the next resistance zone where the market should start consolidating.
Three. Do not carry short option positions into the Friday close. Long volatility over the weekend is a good bet given how cheap insurance is. A US holiday weekend with headline risk the market is not pricing. Buying insurance when it is cheap is what professionals do.
Simpler version. Buy Nifty Bees or one Nifty futures lot on any dip into 23,850 to 23,880. Carry the position with a 23,800 put for weekend protection. Cost is pocket money. If 24,000 breaks the upside is open.
07Sectors, catalysts, and EP48 grade
Power, Capital Goods and Metal lead the breadth read with three fresh 52 week highs. Auto closed up 1.45% Wednesday with 93% of constituents advancing, the strongest breadth in the entire sectoral pack. Pharma, PSU Bank, Energy and Infrastructure all came in green with 80% plus advance decline ratios. Defensives FMCG, IT and the private banks were the drag.
Catalysts. US holiday weekend. Brent sub 100 for the seventh consecutive session. India 10Y at 6.98%. US fresh record close S&P 7563 and Nasdaq 26,917. Asia open green Nikkei plus 1.83%, KOSPI plus 2.47%, Taiwan plus 2.13%, Hang Seng plus 0.4%.
EP48 5 point grade. 4 hit, 1 strict miss. Sensex closed inside the band. Sensex intraday low above the 75,330 floor. VIX closed below 16.5 by a huge margin. Auto closed green. The one strict miss was the band by 32 points. 80% of EP48 predictions set and locked. Tracked live on rupeecase.com.