01Cold open: Friday tore through the ceiling
A very good morning, guys. On Friday this market did something it had not managed in a week. It tore straight through the ceiling. Nifty closed 23,622.90, up 461 points, almost 2 percent, with the entire move packed into the last 90 minutes. The Sensex ran 1695 points to 75,527.95.
The desk sitting short two and a half lakh contracts had one job that afternoon, cover while it is cheap. They bought back just 23,000 and stopped, betting the peace rally would cool over the weekend. The weekend just answered them. Crude fell again, Korea jumped almost 5 percent, Japan five and a half, and GIFT Nifty is pointing at a second gap up of 360 points.
My read today is simple, and it has not changed in three sessions. You buy the dips. You are listening to episode 60.
02Scorecard: eP59 graded 2.5 of 5
Episode 59 graded 2 and a half out of 5. The big call landed. I said 23,500 was the test and a hold above it opened 23,600 to 23,700, and that is exactly where Friday closed.
What I got wrong was the cover. I said firmly they would buy back 25 to 30 thousand shorts, and they came up short of that. Full breakdown is on rupeecase.com.
Hold that miss in your head, because today it is the whole story.
03Friday's tape: the afternoon squeeze
We came in expecting the global pop to fade, and instead the afternoon did the one thing crowded shorts dread. At one o'clock Nifty sat flat near 23,350. Then it lifted, 300 points in two hours, and closed on the high, the day's low of 23,313.90 already forgotten.
Look where the strength sat. Banks led, the bank index ran almost 3 percent and the BSE bank gauge added 2.94. Financials topped the table up 3.15. Realty ran three and a half. Bajaj Finance alone added 5.56 percent, HDFC Bank 3.73, Axis 2.92. Only one sector finished red, and it was IT, down a tenth.
The VIX crushed almost 6 percent to 14.72, because when sellers are winning they do not pay up for fear. And the rupee, the lone holdout on Thursday, finally confirmed at 95.08, its best day in months.
04The why: one word, peace
The why is one word. Peace. Trump's Iran settlement pulled the war premium out of crude, and over the weekend it did not stop. Brent is down another 4 percent this morning to 83.69, the US benchmark under 81, both rated very bearish.
Lower oil is a direct gift to a country that imports most of its energy, a lower import bill, a stronger rupee, softer inflation, more room for the Reserve Bank later. The bond market agrees, the US 10 year yield slipped to 4.43.
Asia took the baton overnight, Japan up 5.53 percent, Korea 4.70, Taiwan 2.68. GIFT Nifty sits at 23,988 against Friday's 23,622.90, a gap up of roughly 360 points, an open near 23,950.
05The desks: the only seller left is trapped
The official numbers are in, and they tell you why you buy dips and don't fade this. The foreign desk is still short 2,43,623 index futures, having covered just 23,000 on a 2 percent up day, only 33,000 lighter than Monday's peak across the entire week. Underneath that, they are short the calls and long the puts, a fully hedged bear book.
The proprietary desks, the smart money that flips first, are sitting long, long futures and long on both option sides, paid for the move. And the retail crowd is piled long with 1.8 lakh futures and a huge stack of sold puts, leaning bullish into the rally.
So the only bearish player left in the building is the one desk that is trapped short, and it is the fuel, not the warning. A short that refuses to cover does not escape the move, it pays for it later.
06The board: a ceiling at 24,000, a floor at 23,400
Lay that 23,950 open on the option board for Tuesday's expiry, and the structure says buy weakness. The big number is 24,000. That strike holds 1 crore 5 lakh written calls, by far the heaviest block on the board, a round number ceiling sitting just above the open.
Below us the old sellers are flipping to support, 23,800 with 63 lakh and 23,700 with 41 lakh, both now underneath price. And the floor is concrete, because the put writers planted themselves at 23,400 with 93 lakh contracts, 23,500 with 85 lakh, 23,300 with 89 lakh.
The whole chain reads with two puts written for every call, a bullish tilt, and the at the money straddle for Tuesday is around 280 points, the market's own price for the week's move.
07The plan: buy dips, three steps
The plan is a buy dips plan, three steps. One, buy the dips, do not chase the gap. Let the excited open settle, and buy pullbacks into 23,850 down to 23,750, right on top of the sellers who just flipped to support, with 24,000 as the first target.
Two, 24,000 is where you take something off, because 1 crore of written calls does not step aside on first contact, so sell a piece of the rise there. Only a 15 to 30 minute hold above 24,000 opens the next leg to 24,200 and then 24,500.
Three, if the open fades harder, the real buy zone is 23,650 down to 23,500, sitting on that put writer floor, and that is where strong hands add. The continuation is only dead if we lose 23,400 for half an hour, because that breaks the floor the writers built. Until then, every dip is a buy.
08Lesson and risk: don't chase the gap
The simpler trade is a warning about the gap, not a fade of it. The VIX is at 14.72, premium is already cheap, and a 360 point gap will fatten the call side and make chasing look smart. Do not buy that opening spike. The day before a weekly expiry usually belongs to the patient buyer of dips and the seller of premium once a range sets, not the breakout chaser.
The honest risk is the one thing holding all of this up. This entire two day move rests on a peace settlement holding, and we have watched settlements break twice on this show. A fresh Iran headline and crude back above 90 unwinds it fast, and a 360 point gift at the open is also 360 points of air below your entry.
Notice the one tell that is not confirming, IT, still the lone red sector, still flashing sell. The rupee at 95.08 is on our side. The laggard is not. Buy the dips, but keep the stop honest at 23,400.