Nifty 50 (23,466) and Bank Nifty (50,002) gained by a marginal 0.8 per cent and 0.4 per cent last week. While the derivatives data of Nifty 50 gives it a bullish inclination, Bank Nifty’s data gives more of a flattish signal. Below is an analysis.
Nifty 50
Nifty futures (June contract) (23,467), although producing a weekly gain of 0.6 per cent, was largely charting a sideways trend. Even so, the cumulative Open Interest (OI) of Nifty futures rose. It increased to nearly 149 lakh contracts on June 14 versus 146.3 lakh contracts on June 7. A rally along with an increase in OI denotes long build-up.
Options positioning, too, support the positive sentiment. The Put Call Ratio (PCR) of weekly and monthly options stood at 1.3 and 1.2, respectively. A ratio greater than 1 is because of a greater number of put option selling and traders sell puts if they are bullish. Therefore, the futures and options (F&O) data of Nifty hints at a potential rally from here.
However, the price action of Nifty futures suggests that the bulls are not likely to have an easy game. The recent candlesticks on the daily chart shows that there has been selling interest above 23,400. Only a breakout of 23,500 will really imply that the uptrend can continue. But this is not a bearish signal yet as Nifty futures has held on to the support at 23,200.
So, broadly, bulls should wait for the contract to rally past 23,500 whereas bears ought to first see the support at 23,200 become invalid before jumping in.
Here are the key levels. Resistance above 23,500 are at 24,000 and 24,200. Support below 23,200 are at 23,000 and 22,600.
Strategy: We suggested buying Nifty June futures at 23,325 last week. Liquidate this long at the current market price of 23,467. Traders who bought our alternative suggestion to buy 23,000-strike June call, too, can exit.
Wait for Nifty futures to move out of the 23,200-23,500 price band and take trade along the direction of the break.
Meanwhile, traders with higher-risk appetite can initiate short strangle option strategy by simultaneously selling 22,800-put and 24,000-call of June expiry. Exit the strategy immediately when Nifty futures break the 23,200-23,500 range.
Bank Nifty
Bank Nifty futures (June expiry) (50,042) ended up gaining a mere 0.3 per cent last week. Traders seemed to have made an exit in Bank Nifty futures, denoted by a drop in cumulative OI. It decreased to 27.3 lakh contracts on June 14 against 29.5 lakh contracts on June 7. An increase in price along with a drop in OI means short covering.
Unlike Nifty 50, Bank Nifty options do not show any leaning as the PCR of both weekly and monthly options are about 1. Therefore, the selling of calls and puts are almost equal.
It is not just options that fail to give a clue. The chart of Bank Nifty futures, too, show that it has been tracing a horizontal trend. It has been oscillating between 49,530 and 50,250. Similar to Nifty futures, Bank Nifty futures’ chart hints at selling interest, particularly above the psychological 50,000-mark.
The above factors indicate it is not the right time for both bulls and bears to take fresh exposure. The path in which Bank Nifty futures come out of the 49,530-50,250 range will largely determine the direction of the next leg of trend.
Above 50,250, the contract has barriers at 51,000 and 52,000. On the other hand, the notable support levels below 49,530 are at 48,400 and 47,500.
Strategy: Last week, we advised to go long on Bank Nifty futures at 49,900 or instead buy 49,000-strike June call option. Exit these positions at the current levels as the direction of the upcoming price swing remains uncertain.
Initiate fresh position based on the direction of the break of the 49,530-50,250 range.
Participants who can take higher risk can opt for a short strangle option strategy. Execute this by simultaneously shorting 48,000-put and 52,000-call of June expiry. Exit the strategy the moment Bank Nifty futures move out of 49,530-50,250 price band.
