Nifty 50 (24,005), the domestic benchmark index, was up 0.8 per cent last week whereas Bank Nifty (50,989) lost 0.6 per cent. Below is the analysis of the futures and options (F&O) data of both indices.
Nifty 50
Nifty futures (January) (24,092) closed last week 0.4 per cent higher. During this time, the cumulative Open Interest (OI) of Nifty futures increased 10 per cent to 139 lakh contracts. This denotes long build-up on a weekly basis.
The Put Call Ratio (PCR) stands mixed; the ratio for weekly expiry stands at 0.7 whereas that for monthly series is at nearly 1.2.
While there is some non-alignment between futures and options numbers, the chart shows that Nifty futures, despite the rally last week, has remained below the key resistance at 24,250. The 20-day moving average (DMA) lies at 24,350.
For Nifty futures to turn the outlook positive, it ought to decisively break out of 24,350. Until then, we can expect sellers to come in, capitalising on higher price levels to initiate short positions.
If Nifty futures surpass 24,350, it can extend the rally to 24,650. A breach of this can lift it further to 25,000.
In case the contract declines from the current level of 24,092, it is likely to retest the support at 23,780. A break below this can drag it to 23,600.
Strategy: Short Nifty futures at 24,180 and place a stop-loss at 24,380. When the contract slips below 24,000 after the trade is initiated, trail the stop-loss to 24,250. Revise the stop-loss further down to 24,000 when the contract moderates to 23,875. Book profits at 23,750.
Instead of futures short, one can opt to buy put options. We suggest going long on Jan expiry 24200-put, whose premium stood at ₹394 on Friday. Buy this contract at ₹360. Keep a stop-loss at ₹225. When the price rises to ₹550, alter the stop-loss to ₹360. Move the stop-loss to ₹500 when the premium hits ₹650. Liquidate at ₹780.
Bank Nifty
Bank Nifty futures (January) (51,259) was down 0.9 per cent last week. As it posted a loss, the cumulative OI went up 20 per cent to 27.4 lakh contracts. This denotes short build-up.
The PCR of Bank Nifty January options stood at 0.8 on Friday. A ratio less than 1 is because of the relatively higher number of call option selling compared to puts. Participants generally sell calls when they have bearish inclination. So, the F&O data paints a bearish picture on Bank Nifty.
That said, the chart of Bank Nifty futures shows that neither bulls nor bears are in a commanding position as it has been in a sideways crawl.
The January futures of Bank Nifty has been oscillating between 51,000 and 52,300 for a little over two weeks. So long as the contract stays within this price band, the direction of the next major price swing will remain uncertain.
A breakout of 52,300 can give a positive impetus to Bank Nifty futures, potentially taking it up to 53,000 and 54,250.
On the other hand, if the contract slips below the lower boundary at 51,000, the outlook can turn bearish. But note that immediately below 51,000 is another support at 50,500. So, the bears can get to the driving seat only if they manage to crack the base at 50,500.
Notable support levels below 50,500 are at 50,000 and 48,000.
Strategy: Since there is no clarity with respect to the trend, traders can stay out.
