Pre Market Report 27-Mar-2025

Pre-Market Report Summary (March 28, 2024)

Key Concepts:

• Trump's 25% tariff on imported autos
• Third-day low as support in an uptrend market
• FII buying activity
• Month-end squaring off of positions
• Nifty and Bank Nifty correction
• Monthly expiry volatility
• India VIX behavior

Impact of Trump's Auto Tariff Announcement

The US markets experienced a downturn yesterday primarily due to President Trump's announcement of a 25% tariff on imported automobiles. This news negatively impacted the market, particularly NASDAQ, which is known for its high volatility. However, the Dow Jones Industrial Average was less affected, possibly because US-based auto companies might have benefited from the tariff, as American consumers would likely shift to buying domestically produced cars.

Asian Market Reaction and News Fatigue

Despite the US market reaction, Asian markets showed limited negative response to the tariff announcement. The speaker suggests that the market is becoming accustomed to Trump's announcements and is less reactive unless the situation escalates significantly. The GIFT Nifty showed only a minor negative reaction (around 10-20 points down), indicating a muted impact.

Third-Day Low Strategy in Uptrend Markets

The speaker highlights a strategy for identifying potential support levels in an uptrend market during a profit-booking phase. The core idea is that after two days of market decline, the third day's low often serves as a bottom. If the market opens gap down and forms a low before recovering, that low could be a significant support level. This is based on the observation that in a normal profit-booking scenario within an uptrend, the market tends to find support around the third day's low.

Important Note: This strategy is presented as a probability, not a certainty, similar to technical analysis. Stop-loss orders are crucial to manage risk.

FII Activity and Market Sentiment

Despite recent selling pressure, Foreign Institutional Investors (FIIs) have been net buyers, injecting over ₹25,000 crore into the market in the last six to seven trading sessions. Yesterday, they were net buyers for over ₹2,000 crore. This continued FII buying suggests underlying positive sentiment towards the Indian market, potentially mitigating the negative impact of Trump's statements.

Month-End Position Squaring and April 2nd as a Key Date

The speaker mentions the tendency for traders to square off positions before March 31st for accounting purposes. Since March 31st is a holiday, position adjustments are likely to occur today or tomorrow, with re-establishment of positions expected around April 1st. However, due to the recent Trump announcement, the speaker suggests waiting until April 2nd to assess the market's true direction, allowing the market to fully digest the news.

Bank Nifty Correction and Potential Uptrend Confirmation

Bank Nifty has corrected significantly, dropping approximately 800-900 points from its recent high. This correction, representing about one-third of the previous 3,500-point rally, is considered healthy. The speaker anticipates that today's low could be an important support level. Confirmation of the uptrend's continuation would occur if Nifty closes above 23869, a recent day high. The next target would be 23800 to 24150.

Expiry Day Volatility and Intraday Trading Caution

The speaker emphasizes the high volatility expected on the monthly expiry day and advises against intraday trading, as stop-loss orders are likely to be triggered frequently.

Option Selling Strategy with Risk Management

For those with a small trading volume, the speaker suggests a conservative strategy: selling a put option (e.g., 23400 put) if they believe that level will act as support. However, strict risk management is crucial. If the market moves against the position, a stop-loss order should be in place. If the market closes below the strike price (e.g., 23400), the trader should be prepared to book the loss and roll over the position by selling the same put option for the next week, hoping for a market recovery. This strategy is only suitable for small positions, not for traders deploying their entire capital.

India VIX and Market Sentiment

Despite Nifty falling significantly (over 200 points from intraday high to low), the India VIX (volatility index) did not increase substantially, which is considered a positive sign.

Monthly Expiry Outlook

The speaker notes that the January expiry closed around 23200. Despite the volatility in February and March, the market is expected to close above 23200 for the two-month period, indicating an overall positive trend.

Conclusion

The speaker anticipates a volatile day due to the monthly expiry. He suggests caution with intraday trading and emphasizes the importance of monitoring today's low as a potential support level. While Trump's tariff announcement has introduced uncertainty, continued FII buying and a relatively stable India VIX provide some positive signals. The speaker advises waiting until April 2nd to gain a clearer picture of the market's direction after the month-end position adjustments.