Nifty 50 (22,125) posted a notable loss of 2.9 per cent last week. Nifty Bank (48,345) was down by 1.3 per cent, performing better than the benchmark Nifty 50. Here, we look at what the futures and options (F&O) data on both indices indicate.
Nifty 50
Nifty futures (March) (22,280) slipped below a key support at 22,820 last week and made a lower low on the daily chart. After marking an intraweek low of 22,233, it closed at 22,280 on Friday.
As the contract dropped, the cumulative Open Interest (OI) decreased. But this was largely due to expiration of February contracts. Nevertheless, a price fall accompanied by a drop in OI indicates a part of longs that were in the system made an exit, not a good sign for the bulls.
With respect to options, the Put Call Ratio (PCR) of weekly expiry is currently at nearly 0.7. A ratio less than 1 is due to comparatively higher number of call option selling than puts. Traders sell calls when they are bearish. That said, the PCR of monthly expiry is at about 1, failing to give any bias.
The chart shows a clear bear trend. But we might see a minor upswing from the current level, probably to 22,500 or 22,800. Post this, Nifty futures is likely to resume the downtrend. The price action indicates that the contract can fall to 21,830, a support. A breach of this can open the door for a decline to 21,150.
For Nifty futures to turn the near-term outlook bullish, it should top 23,000. As it stands, this is less likely to occur.
Strategy: Although there is high probability for Nifty futures to fall to 21,830, the risk-reward ratio at the current level for fresh shorts is not attractive.
So, traders can short Nifty futures (March) if it rises to 22,600. Keep a stop-loss at 22,950. When the contract drops to 22,200 after the trade is initiated, alter the stop-loss to 22,500. Exit at 21,830.
Alternatively, traders can buy March expiry 22600-put if its premium moderates to ₹280 from the current level of ₹489. Target and stop-loss can be ₹700 and ₹120 respectively. When the premium rises to ₹500 after going long, modify the stop-loss to ₹350.
Nifty Bank
Nifty Bank futures (March) (48,628) was down by 1.4 per cent over the last week. But like in Nifty futures, there was a drop in cumulative OI because of February series expiry last week. Also, the PCR of Nifty Bank options, too, lies around 1, not showing any inclination at the moment.
Even though the Nifty Bank futures declined last week, it managed to stay above an important support at 48,000. That said, this is not an indication of a bullish trend reversal either since there is a notable barrier at 49,800.
If the downtrend extends, leading to the breach of the support at 48,000, Nifty Bank futures will most likely extend the fall to 46,000. Note that the price band of 46,000-46,200 is a support. Subsequent support is at 44,000.
On the other hand, if Nifty Bank futures surpass the barrier at 49,800, it can touch 50,800. A breakout of this kind can confirm a bullish trend reversal. A rally past 50,800 can lift the contract to 54,000.
Broadly, the direction of the next price swing depends on whether the support at 48,000 or the resistance at 49,800, is breached first.
Strategy: Given the lack of clarity in trend, we suggest staying out.
Overview
Nifty futures below a key support
Consider short position on Nifty futures
Nifty Bank futures holds on to a base
