The market continued its losing streak for the third consecutive week. However, Nifty has found support near 8800 levels and a small recovery was seen. Due to the recovery, Nifty index has formed a hammer candlestick pattern with a long shadow which is considered as a trend reversal pattern. So, we might see some pullback towards 9200 levels which is a trend decider resistance level and if Nifty manages to sustain above the same, then we can expect a continuation of a current pullback towards 9350 and then 9500 levels. On the contrary, If Nifty breaks below 9000, then it may retest 8800 levels.
In the coming truncated week, we have F&O expiry for the May series. The options data indicates that the maximum Put base is placed at 9000 followed by 8800 strikes. We have also seen fresh Put writing in 9000 and 8800 Put strikes, which are likely to act as a support zone.
The Call writers were active in 9300 and 9500 strikes, where 9500 holds the second-highest open interest. So continuous call writing at 9500 hints that Nifty may find it difficult to surpass 9500 in the May series. The options data indicates a broader range of 8800 to 9500. Based on the data, we are expecting some broader consolidation in the coming week.
However, the broader structure continues to remain weak as Nifty is making a lower top and lower bottom formation. We can expect Nifty to test 8600 levels once this pullback gets over. The formation will be negated if Nifty takes out 9600 decisively which is a previous swing high. So, as long as Nifty trades below these levels, every bounce should be utilized as a selling opportunity.
The volatility index India VIX fell 15% to end near 32 levels. The cooling off in the volatility is giving comforts to the bulls and thus, we can expect some stability and pullback in the coming week.
BankNifty continued its underperformance and breached its psychological support of 18000 levels. We have seen a build-up of a short position throughout the week. So, now if the BankNifty index takes out 18000 levels on the higher side, then a short-covering rally towards 19000 can’t be ruled out. However, the broader structure continues to remain weak as long as it trades below 20000 levels.
Author: Mr.Nilesh Ramesh Jain, Derivative and Technical Analyst (Investment Services), 26th May 2020