India's benchmark index, which also happens to be the poster boy for derivatives trading in Indian equity markets, has been experiencing a rangebound activity ahead of election verdict. The index made a handsome move from sub-11000 levels in early March and closed the March series on a strong footing at 11570.
The months of April and May(thus far) have witnessed consolidation in a tight range of 150 points, between 11600 and 11750. I have done the analysis of Nifty chart on a 30 min candlestick and observed 2 futile attempts to form a trend. Below is the chart for your reference.
As can be clearly seen from the figure above, 11560-11575 remains a support at the lower end of the range and 11750 remains a resistance at the upper end of the range. Which way will the range break? Well, it seems the market is waiting for getting confirmation on 2 important events: 1. The ongoing results season, which has been mediocre till now, 2. Results of the ongoing Lok sabha polls.
Yesterday (6th May), there was significant call writing seen at 11700 and 11800 levels. This call writing has taken the Put Call ratio (PCR) below 1 for the May series. A put-call ratio below 1 is not considered From a valuation perspective, this range comes at a PE ratio of 29. At such high valuations, we are perhaps experiencing a range-bound activity for the first time. The dilemma that one would have is whether this is an impending PE expansion on the hopes of Modi Government returning to power or is it preparation for the next correction?
The rangebound activity, after a strong uptrend is frustrating for traders, but do not lose your hopes, wait for the range to break and jump on the right side of the trade. Happy trading!