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The Nifty 50 (18,105) and the Nifty Bank (42,986) appreciated last week. While the former gained 1.7 per cent, the latter went up 3.2 per cent outperforming the benchmark index.
The Nifty 50 has produced a weekly gain for the first time in the last four weeks, whereas the Nifty Bank was up after losing for two consecutive weeks. You can find the technical outlook for these indices in our ‘Index Outlook’ column. Here, we look at the derivatives data and try to get the pulse of the market and predict the possible direction for the very first week of 2023.
Nifty 50
The January futures contract of Nifty 50 gained 1.3 per cent last week to close at 18,207 — at a healthy premium against the underlying’s close of 18,105. While the contract regained 18,000-level, it lies below the 20-day moving average.
Last Monday, the Nifty futures saw some short covering as there was a rally accompanied by a drop in cumulative Open Interest (OI). In the subsequent sessions, until Thursday, there was long build-up. On Thursday, the Nifty futures closed at 18,292 compared to the preceding week’s close of 17,973; the cumulative OI increased to 154 lakh contracts. But on Friday, as the price declined, the cumulative OI dropped sharply to nearly 117 lakh contracts, indicating considerable long unwinding. But broadly speaking, on a weekly basis, the data shows covering as there is a drop in cumulative OI from 143 lakh contracts on December 23. So, overall, both long and shorts have witnessed a loss of interest. Notably, OI, at 117 lakh contracts, is the lowest since August 26.
The option chain of weekly expiry options (January 5 expiry) shows that the Put Call Ratio (PCR) is at 0.69. This means more call writing than put selling which suggest a bearish bias for this week. 18200- and 18300-strike call options, with maximum number of outstanding OI, can be potential resistances as the market participants do not expect a move beyond these levels this week. On the downside, 18000- and 17800-strike put option and 17500-strike put have seen the highest action. These levels are the potential supports.
The futures and options data show that Nifty 50 might largely stay flat with a bearish bias this week.
Nifty Bank
The Nifty Bank January futures rallied 2.9 per cent last week and by closing at 43,166, it is at a premium to the underlying which is at 42,986. Over the past week, the cumulative OI dropped steadily — it decreased to 23.4 lakh contracts on Friday compared with nearly 29 lakh contracts by the end of the preceding week. The outstanding futures OI, at 23.4 lakh contracts, is the lowest since November 2.
The PCR of January 5 expiry stands at 0.73 hinting at bearish inclination as more calls are being sold than puts. That said, 43000-strike has the highest number of outstanding OI. This means, the Nifty Bank index could trade around this level until the expiration of the current weekly contracts.
Apart from 43000, 43500-strike call and 42500-strike put has seen more participation. Thus, the index could face resistance at 43,500 if there is a rally and find support at 42,500 if it declines.
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