Tuesday, September 2, 2014

Nifty touched 8100 levels exactly as expected! How to use Options data for imp levels?

Indian equity markets looks to be on steroids and have been making new highs with each passing day. 
Over past 2 days in our morning research report we have constantly re-iterated that move above 8000 and if accompanied by broader market can result into euphoric rise whereas if momentum misses in broader indices and high beta stocks it will be a trap. The former view has been vindicated and there have been strong participation from across the sectors and stocks as soon as 8000 was taken out.
How to use Options data to determine the resistance levels?
In previous updates we have mentioned crossing 8000 was difficult in August expiry due to highest Call writing and yesterday was 1st trading day of new series resulting into close above this level. The area of maximum Call and Put option writing becomes important resistance and support levels respectively. The main reason for this is the writers of options are the holders of risk and Options data should be evaluated from risk holder’s perspective. However, one should not simply rely on this data alone for finding out crucial areas of resistance and supports. It has to be used along with Fibonacci projections, Elliott wave counts to understand the maturity of trend and a few other parameters. Another parameter from Options is Put Call ratio (PCR) which is also a very important parameter to understand the maturity of trend. A strong uptrend will keep PCR ratio in the range of 0.80 to 1.10 and during important reversals PCR shifts to the range of 1.30 to 1.50. We do not use this as a contrarian indicator since it tends to work more number of times when one is placed in direction indicated by PCR ratio.
On 19th August in our morning research report we published the following:
Nifty daily chart: (as on 19th August 2014 morning research report)
Happened as of today:
Mentioned before on 19th August 2014 morning research report:
Coming back to Nifty, the trend has been up for 5 days now and prices have managed to cross above the previous high of 7840 level in lesser number of days thereby keeping the medium term uptrend intact. The participation was seen from across the sectors and high beta stocks. Bank Nifty has shown one of the strongest moves and can lead the index higher.
As shown on daily chart, the current up move is either wave a or wave 5. The upside target is now near 8100 level which is the channel resistance area and also equality zone with previous wave a/1 marked on the chart.The blue channel has been subtly shifted to connect the previous and should act as a very crucial channel.
Happened: Bank Nifty has been the best performing index since we published the upside level on 19th August and Nifty touched an intraday high of8101in the afternoon trade today!
To know why we have been bullish all the while and get insights into behind the scenes on how we apply various different techniques like Hurst Time cycles and Neo wave – Advanced Elliott wave attend the 2 days training workshop to be held in Mumbai on 11th and 12th October 2014. For more details write to us at helpdesk@wavesstrategy.com or call us on +91 22 28831358 / +91 9920422202.
To know where Nifty is headed from here along with equity stocks subscribe to the daily research report “The Financial waves short term update”.For subscription options visit http://www.wavesstrategy.com/index.php/store.html

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