Last week indices have turned volatile and closed with losses over previous week, since profit booking and long unwinding started from Muhurat Trading on 17.10.2009. While Sensex has breached 17000 level, which was observed by me as crucial for upmove to continue, Nifty also broke 5000 level on closing basis, though managed to close around the same level. The main drag on the indices was RIL which started receiving negative news after. of positive announcement of 1:1 Bonus, which became the target of Bear on slaught. Banking Sector is saving the day, due to outstanding performance, and SBI is continue to post new highs, however, RBI's monetary policy annoncements scheduled for 27.10.2009, bring any surprises will lead the further fall. Crude continuing to move upwards, and inflation showing upward tick week after week, shall force RBI and Govt to initiate some measures either through the policy announcement date or after it, which would bring the banking sector too under pressure of profit booking.
This week shall be quite interesting to see the future of the current bull rally in the major bear market which began in January 2008, after all time highs were made. The question is where the October Derivatives settlement of Nifty( September Closing was 4986.55) is crucial apart from the monthly closing for October(September Closing was 5083.95) on the last day of the week on 30.10.2009. Monetary Policy statement on 27th, Derivatives Settlement on 29.10.2009, on which date results from Oil Sector Majors like RIL,ONGC and Cairn will be announced, will bring in the much expected volatility. Dow was unable to sustain above crucial psychologicl figure of 10K though it was trying to climb and close above it on select occasions.
I was observing whether the Nifty movement around 5000 level is a consolidation phase or distribution phase, where clarity will emerge by this week end. If the Settlement is below 5000 level coupled with October monthly closing, then it goes to confirm that a top for this entire bull rally in the strong bear phase at 17494 (Sensex) & 5182 (Nifty), and markets will go in to deeper correction during November and December 2009, as the complacency levels among the put writers is quite evident from low put call ratio and CBOE and VIX indices are at normal levels. Higher volatility intraday coupled with inability to post gains will be one of the indication of top formation at the levels mentioned above.
I refer to my posting dated 15.10.2009 where in I have indicated that 17489 could be decider level on sensex, which was touched exactly and the current profit booking commenced from then, also support my above observation of formation of a top for this bull phase. High risk traders might buy 5000 straddle of October series and monitor the same for quick returns, since time value for money will be changing rapidly in consonance with Nifty movement.
Happy Trading!
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