F&O Tracker: Weak Trends Persist In Index Futures

Nifty 50 (22,397) and Nifty Bank (48,060) lost 0.7 per cent and 0.9 per cent respectively last week. The futures and options (F&O) data hints at a bearish bias.

Nifty 50

Nifty futures (March) (22,444) was down 0.9 per cent over the past week. During this period, the cumulative Open Interest (OI) of Nifty futures across expiries saw a marginal increase of 1 per cent to 203 lakh contracts. This shows mild short build-up.

The Put Call Ratio (PCR) of weekly options stood at 0.70 last week. A ratio less than 1 is due to selling of a higher number of call options when compared to puts. Traders sell calls when they are bearish. So, the F&O positioning indicates that traders expect a fall.

In line with this, the chart, too, gives a bearish indication. Nifty futures was unable to surpass the barrier at 22,750 last week. The price also continues to remain below the 20-day moving average (DMA).

In addition, the broader trend being bearish, the probability of a fall from the current level is high. The nearest notable support is at 21,830 with a subsequent one at 21,150.

In case Nifty futures gathers positive momentum and rallies, it will face barriers at 22,750 and 22,850. For the contract to turn the outlook positive, it should break out of 23,200. At this price level, a falling trendline and the 50-DMA coincides, making it a strong resistance.

But as it stands, the odds are favourable for the bears and there is a good chance for another leg of downtrend from the current level.

Strategy: Hold on to the Nifty futures (March) short position initiated at 22,600. Retain the stop-loss at 22,950. Going ahead, when the contract drops to 22,200, revise the stop-loss down to 22,500. Book profits at 21,830.

As an alternative, we suggested buying March 22600-put at ₹280. The premium closed at ₹287.45 last week. Since the expiry is approaching, we suggest rolling over the put.

Exit the March 22600-put on Monday at the session open and consider buying 22400-put of April monthly expiry. This contract closed at ₹313.85 last week. Target and stop-loss for this trade can be at ₹600 and ₹180 respectively.

Nifty Bank

Nifty Bank futures (March) (48,160) lost 1.1 per cent last week. It dropped to mark an intra-week low of 47,751.60 early last week before reclaiming 48,000-mark.

Even though the contract managed to close the week above a key support, the price action shows a clear bearish bias. Another drop below 48,000 can trigger a fresh leg downtrend.

Supporting the bearish inclination, as Nifty Bank futures posted a loss last week, the cumulative OI increased 16 per cent to 45.5 lakh contracts, showing short build-up. Also, the PCR of March options stood at 0.90, showing slightly greater call option selling.

Hence, the chances for a decline looks high. Below 48,000, there is a support band between 46,200 and 46,000. Subsequent support is at 45,000.

That said, if Nifty Bank futures moved up from the current level of 48,160, it will face stiff resistance at 48,500 and 49,000. The 20-DMA coincides at 49,000, making it an important level.

A breach of 49,000 can turn the tide in bulls’ favour. In such a case, Nifty Bank futures can rise to 49,600 and 50,000.

However, the prevailing price action gives the contract a bearish bias and the likelihood of a fall is high.

Strategy: Traders can short Nifty Bank futures if it slips below 48,000. Target and stop-loss can be 46,000 and 49,000 respectively.