UPCOMING MARKET TREND:
With 5% moves in benchmark an index becoming a daily affair, volatility has suddenly assumed an altogether different meaning. This is reflected in

the adjoining chart of ET Intelligence Group’s Smart Money Ratio (SMR). As can be seen, the SMR — calculated by dividing the India VIX, with the near-month put-call ratio of Nifty option contracts — is now testing support at its previous resistance around 60.
What this essentially means is that extremely high SMR values, which used to act as a resistance and signal intermediate bottoms in the Nifty, are now acting as a support, signalling resistance points for the Nifty. So, until the SMR collapses below this support, a lasting respite for bulls looks unlikely.
As for Tuesday’s trade, a close at 2938.65 meant that uncertainty has reached an extreme level. So, between Monday’s gains and Tuesday’s losses, the Nifty has made a lower high and a higher low, within a very tight range. While a low below last weeks bottom of 2860 would have ensured that bears came back in hordes, it would have also triggered unwinding of long positions built over Friday and Monday.
Since that didn’t happen, both bulls and bears retired for the day, confused. This is clearly reflected in Nifty November futures, which added over 13 lakh shares in open interest on each of Friday and Monday, and saw virtually no change in the open interest on Tuesday.
If this reflected the uncertainty, then there was more in store in the options segment. Bucking the trend across strike prices, the 2900 put option added over 2 lakh shares in open interest. That it continues to see the biggest build-up of open interest across all option contracts of the November series means that Tuesdays build-up cannot be ignored as an aberration.
At the same time, fresh call build up at all call options from 2900 to 3300 and put unwinding across most strike prices pushed the put-call ratio of Nifty option contracts expiring in November to 1.04 from over 1.17 on Monday. However, the fact that even after the massive losses of Wednesday, the November Nifty put-call ratio didn’t fall below the psychologically important mark of one means that the highly volatile consolidation might just continue for some more time.