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Biggest Fall Since 2020. Will the selling continue?

India’s most volatile Bank Nifty Future plunged almost 5,000 points intraday and successfully pushed the bulls out of the market. Today’s sharp fall is a classic example of why it is extremely dangerous to hold heavy positions during Election Day. Going forward, Bank Nifty is likely to face stiff resistance around Monday’s Value Area Low (VAL) which stands at 50,639. The two most important questions are, why did Bank Nifty fall today despite a buy trend a day prior and will the selling continue?



 

Why Did Bank Nifty Fall Despite A Buy Trend? 


Today’s fall can be linked directly to the elections and the absence of the institutional buyers for a follow up buying which was proved by the opening of  Bank Nifty and falling almost 1,500 in first 10 minutes. This move pushed all put sellers out of the system by triggering a massive volatility. Mind you, Election results had just started and there was no outcome as such. Then why did put sellers gave up in mere 10 minutes? Although the ruling party presented a promising manifesto to drive India into a powerful economy, the market was not convinced with the loss of seats by India’s biggest state i.e., Uttar Pradesh and also defeat of BJP in  West Bengal and Maharashtra.

 

Will Selling Continue?


The 3D Delta system is indicating that today’s fall has pushed Bank Nifty into the negative territory and the index is likely to face stiff resistance around Monday’s VAL (50,639). The best idea is to short Nifty at rise. There are three important factors that traders must keep in mind at this point; first Bank Nifty should be sold only if it fails to trade above Monday’s range high. Second, the index might witness a big fall if institutional sellers enter the market again this week. The third and the most important factor is since the elections is almost over and India VIX.  There is a possibility of India VIX starts falling in coming week. Therefore, traders must keep all options open and stay away from all pre-defined strategies when the market functions for the next few days.


 

Live Example


We have been warning through our newsletter that either stay away from market for few days or trade in debit spreads. Three things influenced us to trade today :-


1) A Gap Down in presence of Buyers which shows lack of confidence by them

2) Formation of Sellers in first one hour right at Monday’s VPOC (please refer to Auction screenshot)

3) Volatility kicking out all put sellers.


In the same lines we created bear put spreads in the ration of 1:1 and couple of call sells spreads. 50,000 CE of 5th June 2024 contract was sold @336 and covered at @142 and similarly 50,600 CE was sold @239 and covered @64. All the spreads were appropriately hedged.


One has to improvise with the changing scenario in the market with alert and follow their respective systems. Just because I believe in ruling government doesn’t mean I will not short the market. These things make traders very emotional and they lose their edge.





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