Nifty 50 (24,502) advanced 0.7 per cent, whereas Bank Nifty (52,279) lost 0.7 per cent over the past week. The chart and the derivatives data show that Nifty 50 is better positioned to appreciate further. Below is an analysis.

Nifty 50

Nifty futures (July) rallied 0.7 per cent last week and ended at 24,522. On a weekly basis, the cumulative Open Interest (OI) of Nifty futures increased – it went up to 160.4 lakh contracts on July 12 from 157.7 lakh contracts on July 5. Therefore, Nifty futures witnessed the arrival of fresh longs.

In line with this positive bias, the Put Call Ratio (PCR) of both weekly and monthly options are greater than 1. A ratio above one means more puts have been sold. Traders sell put options when their expectation is neutral to bullish.

Corroborating the futures and options (F&O) data, the chart shows that Nifty July futures broke out of a range, opening the door for more upside. The contract can touch 24,800 in the short term. Nearest resistance above 24,800 is at 25,000.

But if Nifty futures declines from here, it can find support at 24,250 and 24,000. A breach of 24,000 can turn the near-term outlook bearish. Below 24,000, the immediate base is at 23,700.

Strategy: Last week, we suggested buying Nifty futures at 24,100 and 24,380 with a stop-loss at 23,800. Hold the longs, but revise the stop-loss to 24,200. Tighten the stop-loss further to 24,580 when the price touches 24,700. Book profits at 24,800.

Traders who preferred our alternative suggestion of buying 23800-strike July call can hold as well. This contract closed at ₹770.15. Keep a stop-loss at ₹530. Exit this option at the prevailing price when Nifty futures hits 24,800.

Derivative market
Nifty futures witness long build-up
Bank Nifty futures see long liquidation
Monthly options data on both indices reflects positivity

Bank Nifty

Bank Nifty futures (July) lost 0.7 per cent last week by closing at 52,367 on Friday. Thus, the consolidation range of 52,300-53,300 remains valid.

But the cumulative OI decreased. It dropped to 24.3 lakh contracts on July 12 from 30.3 lakh contracts on July 5. A simultaneous decline in price and OI indicates long unwinding. While this is not a bearish signal, it shows that the upward momentum is losing steam.

The PCR of weekly options stood at 0.8 on Friday, indicating selling of a greater number of call options compared with put options. Participants sell calls when they expect the underlying to stay flat or see a decline. The PCR of monthly options stood at 1.1. So, Bank Nifty futures might extend the sideways movement until the current weekly contracts expire and then recover.

The price action on the daily chart, too, shows that Bank Nifty futures is oscillating between 52,300 and 53,300. Note that the 20-day moving average coincides at 52,300, making it a good base. So, there might be a bounce off this level, possibly in the second half of this week.

An upswing can lift Bank Nifty futures to 53,300, the upper boundary of the range. A breakout of this can lift the contract to 54,000 and then to 55,000. On the other hand, if it slips below the support at 52,300, it can quickly decline to 51,400, its nearest support. Subsequent support is at 50,000.

Strategy: Last week, we recommended buying Bank Nifty futures if the price dips to 52,000. Traders who executed this trade can retain it.  But revise the stop-loss up to 51,350 from 50,500. When the contract hits 53,300, modify the stop-loss to 52,300. Exit at 55,000.

Participants who bought 52000-call option can hold. This option closed at ₹983.85 on Friday. Keep a stop-loss at ₹580. Liquidate this contract at the prevailing premium when Bank Nifty futures rallies to 55,000.

Published on July 13, 2024