Yesterday we discussed a possibility of finding a trend on wednesday, read the original report here
Although i was not sure about the direction yesterday, it turned out on the bullish side. Deep down i really wanted to see bank nifty break down & fall to the support levels of 39742 — mainly because the option premiums were very low due to the lack of volatility.
Its better to refrain from option selling than sell at low premiums, thats because with a beast like bank nifty — its hard to run for cover when the rally is against your short position, be it CE or PE.
Now thats alright, because there is no guarantee that a fisherman gets his fish everyday, still he packs his gear & goes fishing. When he gets 1, he enjoys & when he gets none, he isnt disheartened. Option selling is more like fishing, its because the option seller has to wait for the highest premium to sell (sell at top) to reduce any risk of counter rally.
So if he commits first, and the premium goes up — he either adds more position or squares off at a loss eventhough he got the direction correct. Option buyer on the other hand need not worry of buying at the bottom. All that matters is if he can find another buyer at a higher price & exit. Direction is the only benefit option buyer has.
Coming back to the post mortem analysis, bank nifty opened gap up at 40473 made a red first candle and then started moving higher. The rally stopped when the resistance level of 40704 was hit.
We had a 1% ~ 403pts upmove by 11.40 considering prices from prev. close. The main reason for the rally was the outperformance by SBIN +2.66% & Axis Bank +2.49%. IndusInd also support strongly at +2.11%. Now Axis rallied due to the news event connecting the acquisition of Citi bank's assets, SBI — i really dont know.
HDFCbk & ICICI bank did not move that much today, there was no bearish sentiment either. Otherwise the smart boys would have reduced hdfcbk & icicibank positions to keep the niftybank in the flattish territory.
Now this 1.07% ~ 429pts rally today by bank nifty did not break the resistance conclusively. It did close right at that level though. The next move will be exciting as further upmove will negate bearish bias on all lower timeframes.
15mts TF is showing the brief upmove & a possible break from the current bearish leg. Once it goes above 41000 bank nifty will no longer be bearish in the 15mts scale.
1hr TF — you might have noticed the W pattern marked in cyan color. What you might have failed to see is the beautiful bearish wave right from the 14th dec. So if bank nifty has to negate this bias it has to take out the resistance very quickly. Yes the current W pattern may give it momentum — but will it really hold only the next 2 sessions will tell.
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