01Cold open: three indices closed on the exact low
Three indices yesterday closed at the exact low of the day. Not near the low, on it. Brent crossed 100 and then stayed above it all night. And this morning there is no green anywhere in Asia.
02The tape: nobody stepped in at the end
The Nifty settled yesterday at 23,431, down 203 points, and the low of the day was 23,431. The same number. The Sensex settled at 74,764 and that was its low too. The BANKEX did the same thing. There was no bounce into the close and nobody stepped in at the end. Thirteen up, 36 down inside the Nifty 50. And India VIX rose about 6.5 percent to just under the 12 mark, the first real bid for volatility in this entire run.
03Rising open interest with falling prices is fresh selling
So what did it? IT did it. The IT index fell 3.24 percent with zero names up and ten down. Infosys was down 4.34 percent, HCL Tech 3.70. Eleven of the eleven IT names in the official file closed lower on my screen as well. But here is the part that matters more than the fall. The money is going in against it. Infosys added 3.29 crore shares of fresh futures open interest while the future fell 4.64 percent. HDFC Bank added 5.44 crore while it fell 2.07 percent. Rising open interest with falling prices is fresh selling, not covering. Underneath, the shape has not changed but the participation has. The Nifty 50 fell 0.86 percent, the Nifty Next 50 only 0.13 percent, but the cash market overall was 938 up against 1,671 down. The damage is at the top and the number of stocks taking part in it expanded sharply. Metals and energy were the only places that worked.
04The board: both sides on one strike, now above us
Now the board, and there is one number on it. The biggest call add on the entire 15 September expiry was at 23,500, 72 lakh calls. And the biggest put add was also at the same strike, 35 lakh puts. Both sides piled on the same price, on the same strike. Two days ago it was 23,700 and it sat below us. Now it is 23,500 and it sits 68 points above us. Under it, it is a magnet. Take it and hold it and it becomes a trigger, because the people who just wrote 72 lakh calls there have to buy them back. Calls were written hard again and the PCR fell to 0.591. I think that should be the low of the PCR that we get.
05The tension: a level today's volatility does not reach
Max pain is still above the market and is at the 23,600 mark, 168 points above us. One standard deviation is 121 points for the day, and the band currently stands at 23,310 to 23,550. Notice the tension. Max pain is 23,600 and the band stops out at 23,550. So the board wants a level that today's own volatility does not reach. And the basis went to plus 121 points, with futures open interest up 6.14 lakh. So for a second day that is fresh buying of premium into a falling market. That means people are averaging.
06A magnet that follows the market is being repriced
The Sensex expires today and its magnet did something worth watching. Max pain is 75,000, 236 points above the spot, against 75,900 on Tuesday's file. The market fell 813 points and the magnet fell 900. That is the opposite of the Nifty expiry, where the magnet sat still and the market walked away from it. A magnet that follows the market is not defending the level. It is repricing it. On the positioning front, the FII futures short went to 2 lakh 76,250, another run high, and it has never once turned in this run. But one of them changed sides. The professional desks went from net short 45,000 index calls to net long 14,500 calls. So they stopped selling upside and started buying it, on a day the index closed on its low. And the retail sold 88,000 more naked puts, taking that book to 8 lakh 31,678 short, the third highest of this run, and they sold it into the fall.
07The plan: Brent held above 100, and that is the stronger story
Overnight, Brent settled at 101.21. Yesterday morning I told you it was 66 cents from 100 dollars, and that it was a risk that outranked everything else on the page. It took one day. This morning it is at 101.12, essentially unchanged, after trading overnight between 101 and 101.90. The entire overnight range sat above 100. That is the hold, not a spike, and it is the stronger version of the story. The rupee weakened again yesterday to 95. That is not a dollar story anymore. That is oil landing on the import bill. And Asia has gone red across the board, there is no green market on my screen: Hang Seng minus 1.52, KOSPI minus 1.03, Taiwan minus 0.93, the Nikkei minus 0.88. Last night the KOSPI was up 1.38 and Shanghai was up; this morning every one of them is lower. Gold is at 4,418 and has been upgraded from bearish to neutral, its first rating change in this whole run. So the plan. GIFT Nifty is at 23,496, which puts the open towards 23,440 to 23,460, so we open roughly on yesterday's low. That only stays true if the market cannot bounce off 23,500. Resistance stands at 23,500, then 23,600 and 23,700. Support is 23,420 and below it 23,330, with 23,310 the band low. On the Sensex expiry we are opening below 75,000, which is still max pain and the strike traders would try to reclaim; lose it and we go 500 points below, so 74,000 is what I am looking at. Trade extremely light today. Go long straddles, long strangles. Do not sell options on today's expiry. If you want to sell, put iron flies in place and carry those. No trading after 3:15, nothing in the cash session.