Nifty 50 (24,531) and Bank Nifty (52,266) ended last week on a muted note ahead of the announcement of the Union Budget on July 23.
The derivatives data shows that the FII (foreign institutional investors) have largely positioned themselves for sharp price-swings on either side. While they have marginally increased net long on index futures, they have added significant amount of net long on index call options. With respect to index put options, they now hold net long, whereas they held net short at the end of the preceding week.
On the other hand, retail traders are net short on index futures. But they have considerably decreased net short on index calls, but increased net long on index puts. Essentially, retail traders hold net short on both index calls and puts.
Nifty 50
Since July futures expires on July 25, we have considered August futures for analysis.
The daily chart of Nifty August futures (24,657) shows a formation of a bearish engulfing candlestick pattern, hinting at a reversal. But it is now hovering near a trendline support at 24,650. Below this, the 20-day moving average is at 24,370. Subsequent support is at 24,200, a breach of which can turn the near-term outlook weak.
But if the contract recovers from here, it can face resistance around 24,960-25,000. A breakout of 25,000 can trigger a rally to 25,500.
The futures and options (F&O) data on Nifty does not indicate a bias. While the futures ended the week flat, the Put Call Ratio (PCR) of July expiry options stood at around 1 on Friday as the number of calls and puts sold are nearly the same.
Strategy: Considering the event on Tuesday and the way derivative traders have positioned in Nifty, there are uncertainties ahead. To avoid risk because of potentially higher-than-average volatility this week, we suggest traders to refrain from taking positions.
derivatives outlook
Nifty futures form bearish engulfing pattern
Bank Nifty futures continue to consolidate
Monthly options data on both indices display neutrality
Bank Nifty
Bank Nifty July futures expire on July 31, unlike the Nifty July futures. Therefore, for analysis of Bank Nifty futures, we have stuck with the July series.
For nearly a month, the July futures have been shackled between 52,000 and 53,300. Particularly over the past couple of weeks, it has been oscillating within the narrow range of 52,000-52,800. It closed flat last week.
Technically, the path of the upcoming trend will depend on the direction of the break of the broader 52,000-53,300 band. A breakout of 53,300 can trigger a quick short-term rally to 55,000. Resistance above this is at 58,000.
But if Bank Nifty futures (July) slip below the support at 52,000, it can find its nearest support at 51,400. Subsequent support is at 50,000, where the 50 per cent Fibonacci retracement and a medium-term trendline coincide. So, there can be a bounce off this level.
The PCR of July expiry of Bank Nifty options (expiry date of July 31) stood near 1 on Friday, showing that the quantum of selling of calls and puts are almost the same. So, no inclination is exhibited by option traders.
Nevertheless, the PCR of options expiring on July 24 stood at 0.6, denoting selling of relatively higher number of call options. This gives a bearish bias, but only for the first half of this week.
Strategy: Volatility in Bank Nifty can be greater than of Nifty 50 on account of the Union Budget. Also, the chart exhibits a neutral trend at the moment. Therefore, stay out until a trend is established.