Nifty 50 (24,541) appreciated 0.7 per cent last week, whereas Bank Nifty (50,517) wrapped up the week on a flat note. Here, we take a look at the derivatives data and give our trade plan.
Nifty 50
Nifty futures (August) (24,585) gained 0.7 per cent over the past week. The price action shows that it has surpassed a barrier at 24,450 on Friday. This increases the likelihood of further upside from the current market price.
According to the chart, the nearest notable resistance is at 25,000. Nifty futures is likely to touch this level soon. A breakout of 25,000 can intensify the rally, potentially leading to a quick rise to 25,500. That said, before the next upswing, the contract might see a minor decline from here, possibly to 24,480.
In case the downswing results in the breach of the immediate support at 24,400, Nifty futures might fall to the 24,125-24,000 price band. A break below 24,000 can turn the outlook bearish. Nevertheless, as it stands, the probability of a rally is high.
Supporting the positive bias, the Put Call Ratio (PCR) of both weekly and monthly options stood above 1 on Friday. A ratio greater than 1 is because of the relatively higher number of put option selling. Traders sell puts when their outlook is neutral to bullish.
Strategy: Last week, we recommended buying Nifty futures if it surpasses 24,450. Traders who have initiated this trade can retain. But revise the stop-loss up from 24,200 to 24,300. Exit at 25,000.
Those who have bought call options, too, can hold. Exit the option contract at the prevailing price when Nifty futures hit 25,000.
Participants looking for fresh trades can wait and go long if Nifty futures drops to 24,480. Suggested target and stop-loss are 25,000 and 24,300 respectively.
Bank Nifty
Bank Nifty futures (August) (50,624) closed the week without much change compared with preceding week’s close of 50,485. Despite rallying on Friday, the contract fell short of breaking the barrier at 51,000.
The contract has been charting a sideways trend between 49,850 and 51,000 since August 5. It ought to move out of the range to establish the next leg of trend, which depends on the direction in which Bank Nifty futures break the price band.
A breakout of 51,000 will give a positive impetus and can lift the contract to 53,400 in the near term. A breakout of 53,400 can lead to a swift upswing to 55,000. On the other hand, if the contract breaches the support at 49,850, we are likely to see the downswing extending to 48,000, a support. Subsequent support is at 47,000.
Strategy: We do not recommend fresh trades given the prevailing conditions. Traders can go long if Bank Nifty futures breaks out of 51,000. Place initial stop-loss at 50,400. When the contract rises to 52,200, modify the stop-loss to 51,500. Book profits at 53,250.
Alternatively, one can buy an ATM call option (monthly expiry) if Bank Nifty futures rise past 51,000. Exit this option position at the going price when Bank Nifty futures touches 53,250.