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Eventful week turned out to be volatile, expectedly so. Ricocheting between key support and resistance levels, Nifty 50 (17,854) and Nifty Bank (41,500) finally ended the week with a gain as they were up 1.4 and 2.9 per cent, respectively.
The derivatives data ahead of the Budget week was hinting at a fall. But both indices avoided such a move and over the past week, the sentiment seems to have changed for the good. An analysis on the derivatives data of both indices below.
Nifty 50
The February futures contract of Nifty 50 rallied 1.2 per cent to close at 17,902. While this move happened over the week, the Open Interest (OI) dropped. On Friday, the outstanding cumulative OI of futures stood at 112 lakh contracts (lowest since July 29, 2022) compared with 121.6 lakh contracts a week before. A price rise and a drop in OI is an indication of short covering in Nifty futures, a good sign for the bulls.
Coming to the options, the Put Call Ratio (PCR) of the immediate expiry weekly options, which was at 0.51 on January 27, increased to 1.1 on February 3, showing participants were more interested in selling put options. This means the broader expectation is that Nifty 50 is likely to trade this week above a good base. Notably, a significant amount of put selling has happened in 17500, 17600 and 17700 strikes, hinting that the underlying index has a series of supports. With respect to call options, 18000, 18200 and 18500 are the ones with the most OI. These are potential resistance.
The charts show that Nifty futures has a strong hurdle in the 17,925-18,000 price band. Subsequent resistances as per the chart are at 18,300 and 18,400. Considering the prevailing positive inclination, a breach of 18,000 can result in Nifty futures witnessing a quick rally to 18,400.
On the other hand, in case the contract falls, there is a confluence of support between 17,500 and 17,750.
Nifty Bank
Like the Nifty 50, the February futures of Nifty Bank rose last week and saw a simultaneous decline in the cumulative OI, indicating short covering. The February futures rallied 2.4 per cent to end the week at 41,638 and the cumulative OI dipped to 25.8 lakh contracts from 26.7 lakh contracts over the last week.
The PCR of weekly options exhibited positive bias as it increased to 1.07 from 0.41 revealing more put writing last week. Taking a closer look, there was some drop in OI in 41800 and 41900 call options, whereas 42000 call has the second highest OI after 43000 call. Among put options, 41000-strike has considerable OI, most of which was added on Friday. Therefore, the Nifty Bank has resistance at 42,000 and 43,000 and the nearest support at 41,000.
Taking the broader picture into account, we expect the Nifty Bank futures to rally to 42,200 early in the week. If that level is taken out, the next stop could be at 43,000. That said, if there is a fall from here, the contract can find support at 41,000 and 40,000.
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