01Cold open: the pin landed, the volatility leg lost
Yesterday I called a pin and it landed exactly three points out. And I also told you to buy volatility, and that leg lost. So this morning Brent is at 108 and the KOSPI is down 3 percent.
02The index went up and two in three stocks went down
The Nifty closed 23,477, up 46 points yesterday, but the cash market was 934 stocks up against 1,667 down. The advance decline ratio of 0.56 is the same ratio as the day before, when the index fell. So this was not a recovery. It was a narrow bounce on unchanged breadth. India VIX gave back Wednesday's bid in a single day, down to 11.72. And every sector that worked on Wednesday failed on Thursday. Banks led, with HDFC Bank up 0.98 percent after losing 2.26. IT stopped falling after exactly one day, the IT index minus 0.08 after minus 3.24. And yesterday's winners gave it all back. Adani Ports minus 0.39 from plus 3.80. Tata Steel minus 1.04 from plus 2.50. Trent minus 0.05 from plus 0.95. Metals minus 0.65 after plus 1.79. Nothing led two days running, and that is what the market is: rotating on a one day clock.
03The magnet came to the market
The max pain on the 15 September expiry came down to 23,500, only 22 points above the spot, from 23,600 and 168 points the day before. The Nifty magnet is doing exactly what the Sensex magnet did in the two days before it pinned that settlement. Calls added 2.48 crore against 2.41 crore of puts, the first time in this run both sides added the same amount, after two sessions of calls being written three to one.
04The map moved again, and one strike broke symmetry
The both sides strike was 23,700 on Tuesday, 23,500 on Wednesday, and 23,400 on Thursday, where the biggest call add of 38.76 lakh and the biggest put add both landed on the same strike. Meanwhile 23,500 broke its symmetry. Calls added 36 lakh whereas puts were taken off, 18 lakh. The put writers walked away and the call writers piled in on that strike. When both sides stop agreeing on a strike, it stops being a magnet and starts being a resistance. And one oddity. The biggest put add on the whole board was 34 lakh at the 22,500 strike, which is surprising, because that is 977 points below the spot. That is not a level. That is somebody paying for deep protection on a rainy day.
05The number of the day: the premium vanished
The Nifty September basis collapsed to 6.20 from plus 120 points. That is 114 points of premium gone in one session, and the futures open interest fell. So this was unwinding, not fresh selling. For two days I told you the rising basis on rising open interest was fresh buying of premium. Yesterday every bit of it came out. The people who paid for the future left. And the Bank Nifty basis fell to 124 points from 397, except that its open interest grew. So that one is fresh selling into the future rather than long unwinding.
06A fast book, and a screener that emptied out
The foreign futures short went to another run high. It has risen every single session of this run without one exception. But the professionals did a round trip in a day. Net short 44,990 on Tuesday, net long 14,552 on Wednesday, and yesterday net short again. They bought the upside on the day the index closed on its low, and sold it back the moment it went green. That is a fast book, not conviction. And retail finally covered 17,000 puts after three sessions of selling more into the fall. And the screener emptied out, which is its own signal. Energy went from plus 230 and rank one strong buy, to minus 2, in a single session. What is left in the buy list is volatility, the America 10 year, and the dollar index. That is all of it. When the only things a momentum screener will buy are volatility and a government bond yield, it is not choosing a sector. It is telling you to be out of the equity market. Both models remain in sell, the Sensex as well.
07The plan: maybe nothing to trade
Asia is in a rout. The Nikkei is down 3.6 percent, nearly 2,000 points. The KOSPI is minus 2.54, Taiwan minus 1.73, and Shanghai is down even if only 0.49. So Asia is down 2 to 3 percent and we are down half. Either we catch down, or the domestic bid is real, and the first hour decides which it is. The rupee has weakened a third consecutive session to 95.44, but note the difference: for two sessions this was a domestic story because the dollar was flat, and today the dollar is bid as well, so now it is both. Gold fell to 4,326 and was downgraded back to bearish, giving up the neutral upgrade of a day before. Gold falling while oil goes vertical and yields rise everywhere is the real trade. This is not a fear trade. It is a rates and supply trade. GIFT Nifty is at 23,346, down 114, which puts the open at 23,290 to 23,340, a gap down of 140 to 190 points, and it opens us below the band of 23,364 and below the 23,400 strike for the first time in this sequence. 23,400 is the map: reclaim it and the pin goes to 23,500, fail it and we see 23,200, the next level down, where 27 lakh puts were added yesterday. Resistance 23,400, 23,500 and 23,600. Support 23,364, then 23,200, then 23,000 where the heaviest put on the board sits. The band is 23,364 to 23,592, but we are opening below it, so expect volatility to rise and the band to shift a bit lower. Three sessions to expiry, volatility has given back its spike, the 23,400 straddle is only 210, and we are gapping into a global risk off. That is a bad setup for selling premium and not a great one for buying it either. Define the risk, if any at all. And the honest answer today is maybe there is nothing to trade, and stay on the sidelines.