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The Dow slips again to close 104 points down surprisingly, though, the S&P 500 closes absolutely flat while the Nasdaq loses 15 points. Europe finished the day in pretty much positive territory while Latin America presents a mixed bag with Argentina and Brazil closed strongly positive but Mexico loses 2%.

Asia, this morning, as we write this Market Outlook is largely in negative territory barring South Korea and Taiwan who are in the green. The average fall in Asia would be a little over 0.5%.

The SGX February Nifty is trading 22 points down at 4745 with small volume. So far, the international cues are flat to negative; at least, there isn’t anything much positive to talk about.

Our Nifty has shown a chart pattern that seems to suggest a probable short-term reversal even though the intermediate trend continues to be down. For today, the crucial support would be between 4734 and 4713—this range is likely to act as a trend decider for the day. If the Nifty falls below this level and stays below that then all hope for a continuation of yesterday’s recovery would be belied while the range between 4799 and 4826 would now act as the crucial supply zone above which the Nifty would display bullish strength. Bulls, however, would be able to establish their gaining better control of the market only if they manage to take the index beyond 4876 and sustain there. Unless they are able to do it, these gains will be largely ephemeral.

Studying the Put-Call Ratio (PCR) of the Nifty and the Open Interest (OI) data what we find is that notwithstanding yesterday’s brilliant recovery in the index the vice-like grip of the bears is far from removed. First, the PCR has fallen from 1.04 to 1.02, this is not a heartening sign for the bulls since with a PCR falling or staying flat would indicate that smart money does not much confidence in the recovery and are not willing to write puts again in a big way. If the market has to go up, the PCR would have to move up, no other way. In the recent past, we have seen that in the preceding rally of last Wednesday the PCR just did not move up and we all know what happened. Thus, we need to see the PCR going up today along with any continuation of market recovery else bulls have a serious problem.

Next, the OI data suggests that the recovery is not across the board; in fact, there are stocks like Hindalco where fresh short positions have got built up. And Hindalco is not the only the stock in the F&O segment to show that, there are quite a few of them; the number is larger than normal. This seems to suggest that bears have got so much confidence to display a devil may care attitude to build up large short positions in leading counters while the Nifty posts a recovery of 100 points or more from the day’s low. Bulls have a Herculean task ahead of them to salvage the scenario.

We expect a pitched battle being fought today between the bulls and the bears. It promises to be a volatile day. The thing going for the bulls is yesterday’s Nifty price action. First, the recovery happened from a level very close to the 200-day MAs. At the end of yesterday, the 200-day EMA is at 4655 while the Simple one is at 4657. Secondly, the wide ranging day at the bottom with large volatility, generally, tends to signify loss of directionality by the erstwhile trend—in this case, the downtrend. However, as we mentioned above, it needs to get past 4799 – 4826 range decisively with Nifty PCR moving up significantly.

Thus, while further upswing is not ruled out the pressure from the bears remain and below 4713 if the Nifty is sustained they might once again reestablish the much needed directionality, which purportedly had been lost in yesterday’s price action.

Trade prudently and do not take any rash and impulsive decisions in the day’s trading.

Rajat K. Bose