The first week of July starts today and we have mixed cues to welcome the series. Friday ended on a very positive note for Nifty where it closed just near the 10400 mark but if we dive deep things are not as bright as it seems. The Nifty futures premium dropped to 62 points discount even as Nifty rose 83 points. The call premiums were not rising and put premiums are not falling, indicating bearishness.

In a way, Nifty was preparing for some fall in global markets on Friday evening and that fall has come. Dow fell 730 points on Friday due to 2nd wave of Coronavirus cases seen due to large congregation of people in clubs and bars. Asian markets today morning also picked up the negative cues from the US and both Japan and Hong Kong down 250 points and 200 points each and all other markets are trading in the red. Brent crude is trading at 40.3 dollars.

Domestic Cues

On the domestic front, COVID and the problems associated with it seems to be dominating Nifty. Two big cities and the hubs of economic activity, Mumbai and Delhi are grappling with rising COVID cases. Both have crossed 80,000 cases and are moving rapidly towards 1 lakh mark. Apart from that states that have shown drop previously like Kerala, Karnataka and Andhra are also showing a fresh spike in cases and we are now at 20,000 cases per day and with no visible sign of peaking out.

This prompted some states to re-think on imposing fresh lockdown and if that happens it could further add to the economic disaster. We are almost at the end of Q1 of FY-21 and it is a washout. At this stage, India cannot afford another lockdown economically and especially in metro cities. This week will surely be about the rising COVID cases and where the peak for it lies.

Derivatives Action

On the derivative front, even though Nifty went up, most of the derivative market was showing a bearish trend. The Futures discount was expanding and that was due to huge short positions created there. This brought the overall long positions in Futures to 39% from 42% with which we started the July series.

On the options front also there was bearishness with call being shorted across the strikes. The Nifty PCR went down to 1.34 from 1.51 and this was mainly due to 11000 call that added 14.3 lakh contracts and 10500 call which added 12.2 lakh contracts. With this, both 10500 and 11000 have a similar open interest and on the put side 10300 put added 7.9 lakh positions while 10200 put added 6.8 lakh positions and 1000 put added 6.2 lakh positions and 10000 put has the highest OI indicating that 10000-10500 will be the range for this week’s expiry.

What is the Nifty call for the day?

One thing is very clear from Friday’s market. The cash market is bullish while the F&O market is showing signs of bearishness. Added to that, today we have negative Asian markets which means we are likely to open around the 10300-10330 mark and 10280-10300 is support that Nifty should hold. So, there are two trades that you can take.

One, if Nifty holds the 10280-10320 mark and trades above, then you can think of going for a long position with 10380-10400 as the target. If Nifty breaks 10280 and goes below that and trades below 10300 after the first hour then you can go for a short position with 40-60 point target. Nifty will go up if the cash market continues to be bullish and F&O supports it and Nifty will go down if F&O dominates and buying ends in the cash market. So, see which way Nifty goes and take positions accordingly.