Bank Nifty is likely to find support at 22,200-mark as heavyweight stocks are gaining momentum.
Navneet Daga
The Nifty ended weekly expiry at the highest point towards the 10,8400- mark, gaining ~2.5 percent while the Bank Nifty was up ~5 percent for the week, a breakout above 10,500-mark fuelled the momentum for the Nifty stock led by financials in the past couple of days.
The week's highlights were: a) Leadership sector (Bank Nifty) evidently gained strength and is now approaching 23,000 mark b) Activity continued even in broader markets as both midcap and smallcap indices show traction c) Index options PCR moved towards 1.6x mark as traders unwind calls and writing OTM puts seen during the week d) India VIX collapsed below 25 mark, down ~4 percent for the week, as retracement and pullback remained sallow for Nifty.
Recently, the Nifty finding resistance zone at 10,800-mark with multiple attempts to break above while a decisive close above 10,850 will open up the gates towards 11,100-mark .
The index traded within prior session’s high/low range, it formed NR4 bar chart pattern (i.e. narrowest high/low trading band as compared to prior three sessions range) as implied vol’s on index options continue to decline, we expect markets to trade in a tight trading band with an upside bias. Larger gains are possible for banking stocks as Bank the Nifty scaled above the 22,000-mark, which proved its impending resistance zone to trade above.
The ratio of BankNifty/Nifty made a move above 2.11 in the day's session, a move above 2.13 on the ratio will result in outperformance of banks against the Nifty.
Global equity mood remained mixed as buying on dips was seen, while strong gains were seen for China markets during the week, fueling commodities and stocks higher.
Flows from FIIs' remained volatile both in cash and derivatives markets with no major trend established with bouts of short-covering seen on the Index futures positioning as the Nifty started to trade at par with spot levels against ~70 discount seen at start of the month for July series, indicating short covering from participants.
Volatility across the global equity collapsed as sustained up-move on equities seen, India VIX moved below ~25 mark as traders betting for sideways to positive bias.
On the sectoral front, larger gains seen on PSU banking stocks with large long buildup seen on select PSU frontline bank stocks, NBFC and financials saw round of short covering with large price gains during the week, while shed on OI seen for auto stocks during the week at higher levels.
Options positioning indicates, 11,000 likely to be challenged during the July series expiry as traders unwinding call positions and shifting base higher, buildup remained scattered across the strikes on put options.
We expect markets to remain buoyant with trading the and now shifting between 10,600 to 11,000 mark in short term, options traders likely to place short Vega and theta positions given volatility to remain under check. Bank Nifty is likely to find support at 22,200 mark while upside opening towards 24,000 as heavyweight stocks are gaining momentum.
The author is Senior Derivatives Analyst – Institutional Equities, YES Securities
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