01Cold open: I was reading the old one
Yesterday the magnet moved 300 points during the session and I was reading the old one. The iron fly I gave you hit the max loss.
02The grade: one and a half out of five
One and a half out of five. That is what I want to give for yesterday's episode. We opened near 23,576, nearly double the gap I gave you. I said we open on the magnet at 23,450 to 23,500, and we opened 120 points above it. I said the support was at 23,400 and 23,300, and both broke easily. I said the band was 23,150 to 23,650, and the low took out the band. I said there were 180 points of implied move left after the gap, and the actual range on the day was almost 470. We settled at 23,118 and that was also the low of the day. So no buyers at the end.
03The useful part: I had written it down and did not apply it
Here is the part that is actually useful, because I had written it down and did not apply it. Max pain on Friday's file was 23,450 and I built a call on it. Recompute max pain from the settlement itself, and it is 23,200 right now. We settled at 23,118, that is roughly 80 points from the magnet and 331 from the one I quoted. The pin did not fail. The magnet walked 300 points during the session and then pinned inside 32 points, which is exactly what I told you the Sensex did on the 11th. The mechanism was right. The snapshot was four days old on an expiry day. The only max pain that matters is the one on the board that morning.
04Breadth did not weaken, it broke
On the tape, breadth did not weaken, it broke completely. There were only 371 advances against 2,263 declines, an advance decline of 0.164, against 0.56, 0.56 and 0.58 in the previous three sessions. That is fewer than one stock in seven. So seven stocks fell against one stock that rose. And the entire advance list was one sector. HCL Tech was up 3.95 percent, Infosys 3.79, Mphasis 3.62, TCS 2.28, Tech Mahindra 2.26. Seven of the top eight gainers are IT, and Nifty IT was up 2.19 percent on a day the index fell 1.19 percent. On the screener, IT is now the only equity index not sitting on a strong sell. The other end was ugly: Solar Industries down almost 14, CG Power 6 percent, SBI Card almost 6 percent.
05The new board: a 200 point box we are sitting under
The new board, the 22nd, has a max pain at 23,350, which is 231 points above the spot, and a PCR of around 0.65. Calls were added almost 5.73 crore against 3.12 crore of puts, nearly two to one, the other way from the board that just died. 23,400 is the resistance with the biggest call add on the board, 42 lakh, and the heaviest near the money call at 63 lakh. 23,200 is the mirror, with the biggest put add and 46 lakh puts sitting over there. So the board is pricing a 200 point box between 23,200 and 23,400, and we are sitting 81 points under that box.
06Three mechanics in three sessions
The basis has changed mechanics for the third time in three sessions. It went to 105 from 87, and the futures open interest rose by 1 lakh 6,015 shares. Rising basis on rising open interest is fresh buying of the premium. So that is long unwinding, then short covering, and now fresh buying, three sessions running. And it happened on a day the index fell 1.19 percent with the worst breadth of the run. Somebody paid up for the future on a day the cash market had not bid at all. On the positioning, the foreign book was right all along: short 2.91 lakh futures, short 3.13 lakh calls, long 6.79 lakh puts, into a session that fell with the worst breadth of the run. That futures short has risen every session of this run, and yesterday it got paid. A winning short does not cover. Retail did the exact opposite. The client call book jumped to 2,05,106, so they bought the upside on the day the index lost 279 points. And the foreigners sold 2,977 crore of cash, the biggest single day sell of this run, against 2,686 crore bought by the domestic funds.
07The plan: do not pin a structure to yesterday's magnet
The Sensex expires tomorrow and it is worth watching. It settled at 74,003, down 778 points, after opening 588 points above Friday's close. High to close was 1,432 points. Max pain for tomorrow is 74,500, almost 496 points above the spot, and the PCR fell to 0.698 from 1.19, so both boards swapped sides in the opposite direction. And there is no Sensex future at all for that expiry: the 17th is an options only expiry, the nearest future is 24 September, so the contango is at plus 275 points. Overnight, GIFT is at 23,217, up 15, so flat. Asia is quiet, America fell a sixth straight session, Brent is at 108.40 after settling 108.75, another 3 dollars in a session and up 78 percent this year. The rupee weakened a fifth consecutive session to 95.96 and the curve is really moving now, the 10 year at 7.10 and the 5 year at 6.79, up 0.20 in a single session. So the plan. The implied open is 23,110 to 23,150. Resistance 23,350, then 23,390 or 23,400, then 23,470 and 23,500. Support 23,200, then directly 23,000, then 22,700. The weekly band is huge at 22,700 to 23,540, the straddle is 359 and the implied move to next Tuesday is almost 450 points, with one SD of 420 for the week and 160 for a single session. Reclaim 23,200 and the box is alive; fail it and we see 23,000 with 47 lakh puts getting tested. The risks: breadth at 0.16, which is extremely bad, and that bid was IT, so if IT stops there is nothing underneath. Foreign shorts at another run high and just paid. Brent at 108 on a fifth weak rupee day with the whole curve lifting. And the Sensex expiry with its magnet 500 points above spot on an options only weekly. It is a fresh weekly with seven days to run, a 360 point straddle against a 450 point implied move, so there is room to work. But breadth says do not be long anything that is not IT. And yesterday says do not pin a structure to a magnet you computed on the previous day. Recomputing it every morning is extremely important, including on expiry.