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Bears continued to drag Nifty 50 (23,533) and Bank Nifty (50,180) leading to a weekly loss of 2.5 per cent and 2.7 per cent respectively. Both the charts and the derivatives data show that broadly the sentiment remains bearish.
Nifty 50
Nifty futures (November) (23,602) breached a key support last week and continued to make lower lows. It lost 2.6 per cent over the past week.
Along with a fall in price, the cumulative Open Interest (OI) of Nifty futures increased. This means, participants largely added fresh short positions, a bearish signal.
Supporting this, the Put Call Ratio (PCR) of the Nifty weekly options stood at 0.75 by the end of last week due to the relatively higher number of call option selling.
Now that Nifty futures has invalidated the support at 24,000, it has opened the door for a decline to 23,000-23,100 price band, a potential support. Note that 23,500 is a minor support but is likely to be broken.
In contrast, if the contract recovers from the current level, it can face resistance at 24,000. Subsequent barrier is at 24,500.
For the trend to confirm a bullish reversal, Nifty futures should break out of 24,500. Until then, it is the bears’ game to lose.
Strategy: Last week, we suggested initiating short positions if Nifty futures slips below 24,000. Retain this trade but with a stop-loss revision from 24,300 to 24,000.
Going ahead, if the price declines to 23,350, revise the stop-loss to 23,600. Book profits at 23,100. Note that we have revised the target slightly up from last week’s suggestion of 23,000 to adjust for the recent price action.
Traders who bought put options instead of futures short can hold as well. Exit them at the going price when Nifty futures touch 23,100.
Bank Nifty
Bank Nifty futures (November) (50,297) witnessed considerable selling pressure, leading to the breach of the support at 51,000. It posted a weekly loss of 2.9 per cent.
Similar to what happened with Nifty futures, there was a fresh short build-up on Bank Nifty futures as the price decline was accompanied by an increase in cumulative OI.
While there is support ahead at 50,000, given the prevailing downward momentum, we expect Bank Nifty futures to extend the fall to 49,500, a potential support below 50,000.
A breach of 49,500 means the contract can move further south to 49,000.
On the other hand, if Bank Nifty futures rises from the current level, it will face stiff resistance at 51,000. Hurdles above 51,000 are at 51,700 and 52,750.
Only if the contract surpasses 52,750, we can be confident, at least to some extent, about the bullish reversal in trend. Till then, sellers are expected to create new short positions in case of any intermittent rallies and block the upswing.
Strategy: Last week, we recommended going short on Bank Nifty futures if it breaks below the support at 51,000. Hold on to this trade.
But bring down the stop-loss from earlier 51,800 to 51,500. When the contract drops to 49,800, alter the stop-loss to 51,200. Liquidate the shorts at 49,500.
Participants who initiated put option longs instead of futures short can retain their trades. Exit the option at the prevailing price when Bank Nifty futures drop to 49,500.
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