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Nifty 50 (22,494) and Bank Nifty (47,836) advanced 0.5 per cent and 1.1 per cent respectively last week. The derivatives data broadly suggest that the upward momentum persists and both indices can extend the rally further. Below is an analysis.
Nifty 50
While the underlying Nifty 50 gained 0.5 per cent, the March futures of the index only produced a marginal gain of 0.2 per cent by closing the week at 22,507. But note that the contract saw a decline in the first half of last week and then saw a good recovery.
As the contract went up, the cumulative Open Interest (OI) increased – it stood at 154.8 lakh contracts on March 7 versus 141.9 lakh contracts on March 2. Because the week ended on the expiry day, the OI might have got a little boost. Nevertheless, on a weekly basis, it has gone up and Nifty futures has seen some long build-up.
The options, too, support the bullish bias. The Put Call Ratio (PCR) of the weekly and the monthly Nifty options stood at 1.1 and 1.3 respectively. A ratio greater than 1 denotes higher number of put option selling compared with calls. This is a positive sign, as traders generally sell puts if the expectations are bullish.
The price action of Nifty futures, too, hint at a rally from here, possibly towards 23,000 in the near term. Before that level, there is a resistance at 22,700 as per the chart. Also, the call option with this strike has considerable OI outstanding.
The nearest support according to the Nifty futures chart is at 22,500 followed by 22,350. Only a break below the subsequent support at 22,250 will turn the trend bearish. The weekly option chain shows that put options with strikes between 22,500 and 22,300 have a good number of OI. So, this region can act as a strong base.
The broader trend is bullish, and the futures and options (F&O) data also substantiate the same. So, traders can buy Nifty futures or at-the-money (ATM) Nifty monthly call options based on an individual’s risk tolerance.
Bank Nifty
The March expiry Bank Nifty futures rallied 0.6 per cent over the past week as it ended at 47,958. As this occurred, the cumulative OI of Bank Nifty futures rose – it went up to 47.2 lakh contracts on March 7 as against 36.1 lakh contracts on March 2.
A price rally along with an increase in OI indicates long build-up. Thus, Bank Nifty futures has seen fresh longs coming in for the second consecutive week.
That said, options data is not bullish like futures. While there are no signs of weakness, the PCR of both weekly and monthly Bank Nifty options stood at about 1 last week. So, there seems to be a tug of war between the bulls and the bears.
However, the chart is positive following the breakout of the barrier at 47,700 last week. Although 48,000 can resist the bulls, we expect the contract to eventually surpass this level and rally towards 49,000 in the near future. A breakout of this will take Bank Nifty futures to 50,000.
As per both Bank Nifty futures chart and the option chain, the nearest resistance levels are at 48,500 and 49,000. On the other hand, the immediate support is the price band of 47,500-47,700. Subsequent support is at 47,000.
Traders can consider buying either Bank Nifty futures or ATM Bank Nifty monthly call options now.
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