Nifty support at 15900-16200 for expiry week, use call ladder for gains; Bank Nifty to remain negative

Nifty Put options OI distribution shows that 16000 has highest OI concentration followed by 15900 & 16200 which may act as support for current expiry.

By Rajesh Palviya

On  the weekly chart, the NSE Nifty 50 index has formed a bullish candle and remained restricted within last to last week’s High-Low range indicating lack of strength on either side .The chart pattern suggests that if Nifty 50 crosses and sustains above 16400 levels it would witness buying which would lead the index towards 16600-16800 levels. However, if the index breaks below 16000 level it would witness selling which would take the index towards 15800-15600. The weekly strength indicator RSI is moving downwards and is quoting below its reference line indicating negative bias. For the week, we expect Nifty to trade in the range of 16600-15800 with a mixed bias.

Nifty 50 Derivative Outlook

Nifty futures closed at 16253 on a positive note with 13.23% decrease in the open interest indicating Short Covering. Nifty Futures closed at a discount of 13 points compared to the previous day discount of 40 points. FIIs were Buyers in Index Futures to the tune of 3012 crore and were Buyers in Index Options to the tune of 4899 crore, Buyers in the Stock Futures to the tune of 2999 crores. Net Buyers in the derivative segment to the tune of 11081 crore. India VIX index is at 23.10 v/s 24.56. Nifty ATM call option IV is currently 20.25 whereas Nifty ATM Put option IV is quoting at 22.73. 

Nifty Put options OI distribution shows that 16000 has highest OI concentration followed by 15900 & 16200 which may act as support for current expiry. Nifty Call strike 16300 followed by 16500 witnessed significant OI concentration and may act as resistance for current expiry.

Nifty Bank Outlook

Bank Nifty closed at 34276 with a gain of 1155 points on a weekly basis. On  the weekly chart, Nifty Bank index has formed a bearish candle and has remained restricted within the last to last week’s High-Low range which signals indecision at current levels. The chart pattern suggests that if Bank Nifty crosses and sustains above 34800 level it would witness buying which would lead the index towards 35200-36000 levels. However, if the index breaks below 33600 level it would witness selling which would take the index towards 33000-32500. 

For  the week, we expect Bank Nifty to trade in the range of 36000-33500 with mixed bias . The weekly strength indicator RSI is in negative terrain and is below its respective reference line indicating negative bias.

Nifty Bank Derivative Outlook

Bank Nifty closed at 34243 on positive note with 2.88% decrease in open interest indicating Short Covering. Bank Nifty Futures closed at a discount of 34 points compared to the previous day discount of 41 points. Bank Nifty Put options OI distribution shows that 34000 has highest OI concentration followed by 33900 which may act as support for current expiry. Bank Nifty Call strike 34500 followed by 34000 witnessed significant OI concentration and may act as resistance for current expiry.

Stocks and sectors to watch

We expect Automobiles, FMGC, Oil & Gas, Cement, Metal and Sugar stocks to do well in the near-term. One can focus on stocks like M&M, Eicher Motors, Hindustan Unilever Ltd (HUL) , VBL, Ambuja Cements, Ultratech Cement, Reliance Industries Ltd (RIL), Balrampur Chini, Dwarikesh Sugar, Adani Enterprises, Vedanta likely show bullishness in near term.

Nifty 50 trading strategy for this week

As government has announced cut in excise duty on petrol & diesel market are likely to have a positive opening and hence the strategy which we are suggesting for this monthly expiry dated 26th May is a Moderately Bullish strategy called as CALL LADDER, which involves buying of one lot of Nifty 16,300 Call @ 152 and selling of one lot each of 16,500 Call @ 71 & one lot of 16,700 Call @ 27 as both the strikes have high OI and may act as resistance for the expiry. The cost of the strategy involves outflow of Rs 2,700 which is the maximum loss if Nifty trades & remains below 16,350 levels on expiry.The maximum profit of Rs 7,300 will be attained above 16,500 levels an important resistance zone, while strategy will start making loss if Nifty crosses 16,850, hence it’s advisable to exit the strategy in total to avoid unlimited losses above 16,850. Break Even points of the strategy are 16,846 on upside & 16,354 on the lower side.

(Rajesh Palviya, VP – Research (Head Technical and Derivative) at Axis Securities. Views expressed are the author’s own.)