Nifty 50 (23,907) produced its best weekly performance since the week ended October 4 by appreciating 1.6 per cent. Bank Nifty (51,135), after posting loss for two consecutive weeks, managed to stay positive last week by going north by 1.9 per cent.

Here we look at the derivatives data of both indices. Since November contracts are expiring this week, for the purpose of analysis and trade suggestions, we are considering the December series.

Nifty 50

Nifty futures (December) (24,023), powered by a sharp recovery on Friday, put up a weekly gain of 1.2 per cent. During this time, the cumulative Open Interest (OI) of Nifty futures saw a decline. A price rise accompanied by a drop in OI denotes short covering.

The Put Call Ratio (PCR) of Nifty November and December monthly options stood at 1.15 and 1.25 respectively on Friday. A ratio above 1 shows writing (selling) of more puts compared to calls. Typically, traders sell puts when they hold a positive outlook.

Despite short covering in futures and the options positioning giving some hope for the bulls, we cannot be certain that the bears are defeated.

The broader trend remains bearish and Nifty futures is trading below the 20-day moving average. Moreover, there is a crucial barrier at 24,250, where a trendline resistance coincides. So, until this level is taken out, the bulls cannot claim to have taken control of the rudder.

A breakout of 24,250 can lead to the rally gaining more momentum and can push Nifty futures up to 24,800 and 25,200, notable resistance levels. But if the contract resumes the downtrend from the current level, it can decline to 23,100.

Strategy: Stay out. Go long on Nifty futures (December) with a stop-loss at 24,000 if it tops the resistance at 24,250. When the contract touches 24,600, revise the stop-loss to 24,400. Book profits at 24,800.

Alternatively, one can buy 24200-call option (December monthly) once Nifty futures surpasses 24,250. Exit the option at the prevailing premium when the futures rises to 24,800.

Bank Nifty

Bank Nifty futures (December) (51,401), which managed to stay flat till Thursday, surged on Friday, leading to a weekly gain of 1.6 per cent. Nevertheless, there was not much change with respect to cumulative OI on a weekly basis.

Unlike in Nifty 50, the options’ PCR of Bank Nifty does not indicate any bias. The ratio for both November and December series remains near 1, showing writing of nearly equal number of call and put options.

The chart shows that breaking past 51,500 can be a challenge for the bulls. Even if this happens, Bank Nifty futures has a trendline resistance at around 52,200. Just above this is the trend-defining level of 53,000. Only a rally past 53,000 can be a strong indication of a bullish trend reversal.

However, if Bank Nifty futures falls off 51,500, there is a possibility that it could slip below 50,000 and touch 49,500. A decline below 49,500 is less likely as this is a considerable demand zone.

Strategy: Traders with higher risk tolerance can buy Bank Nifty futures (December) if it breaches 51,500. Target and stop-loss can be 53,000 and 50,800 respectively. After initiating the trade, when the contract touches 52,200, modify the stop-loss to 51,500.

Alternatively, traders can also consider buying 51500-call of December monthly expiry to capitalise the potential 1,500-point rally between 51,500 and 53,000. But buy only after Bank Nifty futures decisively breaks out of 51,500.

Key points
Short covering in Nifty futures
Price action yet to turn bullish
Traders can buy post a breakout
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