Nifty gained 100 points or 0.9% today. What might seem as a good day or a day of recovery is nothing but continuation of the consolidation. Nifty was relatively quiet in the first half of the day and gained slowly but steadily towards the end of the day. With today being Expiry day, we saw good price action towards the very end of the day which propelled Nifty higher, right in front of its resistance at 11300. This entire week, we have seen Nifty trade within the support and resistance levels without making an attempt to break in either direction.
Let’s talk about the chart technical. Nifty has put in a bullish engulfing candle. This is usually a good sign for bulls, but today must be treated with extreme caution since this kind of a candlestick formation has little significance amid consolidation. What we must pay more attention to is the resistance at 11300 which is about to be broken. Given that beginning next Monday, we will have increased news based price movement and the market will behave irrational and erratic, a breakout above the resistance may not amount to any significant move on the upside.
Strategy for tomorrow:
Premiums for Futures and Options are relatively high, especially, the weekly options. Buying options would not have a good risk/reward ratio. Such a market is usually good for writing options. But, one must understand writing options in a volatile market carries an enormous amount of risk. A combination of futures and options could be used to build a well hedged position for tomorrow. Starting Monday, we will see increased volatility due to Exit Poll Surveys and a hedge seems like the best bet.