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Nifty 50 (26,179), the benchmark index, advanced 1.5 per cent last week. But Bank Nifty (53,834) ended the week flat as it declined on Friday, giving away the weekly gains made until then.
Here, we look at the futures and options data of both indices and give our trade recommendations for the week ahead.
Nifty 50
Nifty futures (October) (26,345) appreciated 1.8 per cent last week. The contract rallied through the week, exhibiting strong bullish momentum.
However, there was a drop in the cumulative Open Interest (OI). It decreased to 176 lakh contracts on September 27 versus 182 lakh contracts on September 20.
There has been short covering in Nifty futures on a weekly basis.
Supporting the positive bias, the Put Call Ratio (PCR) of both weekly and monthly options are greater than 1, showing relatively higher put selling, a positive sign.
Also, the price action denotes a bull trend. The nearest potential resistance is at 26,500. A breakout of this can take Nifty futures to 26,800.
In case there is a decline from the current level of 26,345, the contract can find support at 26,000. Subsequent support is at 25,720.
Strategy: Buy Nifty futures at 26,340 and accumulate if the price dips to 26,000. Place initial stop-loss at 25,700. When the contract rises above 26,600, revise the stop-loss to 26,400. Book profits at 26,800.
Alternatively, traders can consider 26,000-call (October monthly expiry). Buy at ₹560 and accumulate on a dip to ₹350. Place stop-loss at ₹200. When the price crosses over ₹750, revise the stop-loss to ₹580. Book profits at ₹900.
Bank Nifty
Bank Nifty futures (October) (54,220) rose to mark an intraweek high of 54,640 on Thursday. But then it declined on Friday, posting a weekly gain of 0.7 per cent.
The cumulative OI decreased over the week – it stood at 21.2 lakh contracts on September 27 compared to 27 lakh contracts on September 20, denoting short covering.
Notably, the PCR of weekly options stood at nearly 0.7 on Friday, a bearish sign as traders have sold comparatively higher number of call options. But the PCR of October monthly options remain at 1, not giving a clear indication.
That said, despite Bank Nifty futures declining towards the end of last week, it managed to close above 54,000. Below this, 53,400 is another key support.
So, the chances for a rally from here is high. The contract can potentially hit 55,200 in the short-term. Outlook can turn bearish only if the contract slips below 53,000, which is less likely to occur.
Strategy: Retain the longs that we suggested at 53,800 last week. Since Bank Nifty futures crossed over 54,500 briefly, traders are likely to have updated the stop-loss to 53,800.
Since there is a chance for a decline from the current level before the next rally, traders can add longs if the price drops to 53,500. Stop-loss can be revised to 52,800. Tighten the stop-loss to 54,200 when the price touches 54,800. Exit at 55,200.
Traders who bought 53,000-call of October monthly expiry at ₹1,400 can hold on. Consider accumulating if the premium dips to ₹1,050. Place stop-loss at ₹680.
When the premium rises to ₹2,000, trail the stop-loss to ₹1,500. When the option price reaches ₹2,200 tighten the stop-loss to ₹1,800. Exit at ₹2,400.
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