Bearish divergence may pull down NIFTY today

On 27th Mar, Tuesday, the broader Indian market represented by the Index NIFTY50 opened with a gap up but failed to sustain the momentum. It was a narrow range day with supply coming from 10200 level and plenty of support emerged from the 10150 area.

At the end of the day, our Sellers' Activity indicator has shown a hidden bearish divergence formed. Our Buyers' Activity indicator was already showing the same bearish divergence since 26th March but we were waiting for a confirmation.

Based on this status we can expect a downmove in NIFTY50 up to the last support zone 9950-60 or may have to revise our view if a confirmed bullish divergence formed before reaching there. The stop loss can be placed at the last swing high of 10228 (21st March High).

There could be different way to trade this setup using various combinations of futures and options. Our preferences would be to Sell Apr NIFTY futures and Buy the protective 10350 call option with 0.40 Delta. The ratio of futures to options lots should be 1: 1.6. Other low risk option could be only buying the 10150 put option with 0.40 Delta.

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