Last week, the Nifty 50 index (26,179), a key benchmark, rose by 1.5%, displaying solid upward momentum. In contrast, the Bank Nifty index (53,834) closed the week almost flat after a decline on Friday, wiping out earlier gains.
In this analysis, we’ll review the futures and options data for both indices and offer trade recommendations for the upcoming week.
Nifty 50
Nifty futures (October) (26,345) recorded a 1.8% increase over the previous week, with strong bullish momentum driving the contract higher. Despite this upward trajectory, there was a decrease in cumulative Open Interest (OI), which fell to 176 lakh contracts on September 27 from 182 lakh contracts on September 20. This indicates some level of short covering in the Nifty futures over the week.
The overall sentiment remains positive, as evidenced by the Put Call Ratio (PCR) of both weekly and monthly options, which are greater than 1. This shows that there is relatively more put selling than call selling, often viewed as a bullish indicator. Additionally, the price action itself suggests a continuing bull trend.
In terms of resistance, Nifty futures are nearing the key level of 26,500. If the contract manages to break above this, it could lead to a further rise, with the next potential target being 26,800. On the downside, if there’s a decline from the current level of 26,345, immediate support can be found at 26,000, followed by another layer of support at 25,720.
Trading Strategy: Consider buying Nifty futures at 26,340. If the price dips to 26,000, it presents another opportunity to accumulate. Set the initial stop-loss at 25,700. Once the contract rises above 26,600, revise the stop-loss upwards to 26,400. Exit the position and book profits at 26,800.
Alternatively, traders may opt for the 26,000-call option (October monthly expiry). Buy the option at ₹560 and accumulate more if the price drops to ₹350. Set a stop-loss at ₹200. Once the option price surpasses ₹750, tighten the stop-loss to ₹580. Finally, book profits when the option price reaches ₹900.
Bank Nifty
Bank Nifty futures (October) (54,220) posted an intra-week high of 54,640 last Thursday, but ended the week with a 0.7% gain after retreating on Friday. The cumulative OI decreased over the week, dropping to 21.2 lakh contracts on September 27 from 27 lakh contracts on September 20, indicating short covering in the market.
The PCR of weekly options stood at approximately 0.7 by Friday, which is a bearish signal as it suggests that more call options have been sold compared to puts. However, the PCR of the October monthly options remained at 1, leaving the outlook somewhat ambiguous. Despite the end-of-week dip, Bank Nifty futures managed to close above the critical 54,000 level. Below this, 53,400 is a significant support level.
Given the current conditions, there is a high probability of a rally from this point, and the contract could potentially reach 55,200 in the near term. The outlook will only turn bearish if the contract falls below 53,000, although this seems unlikely at the moment.
Trading Strategy: Maintain the long positions that were recommended last week at 53,800. Since Bank Nifty futures briefly moved above 54,500, traders who followed this advice should have already adjusted their stop-loss to 53,800.
Given the possibility of a slight decline before the next rally, traders can consider adding long positions if the price dips to 53,500. Revise the stop-loss to 52,800 for this trade. If the contract reaches 54,800, tighten the stop-loss to 54,200, and plan to exit the trade at 55,200.
For traders who purchased the 53,000-call option for the October monthly expiry at ₹1,400, it is advisable to hold on to this position. Consider accumulating more if the premium falls to ₹1,050. Set a stop-loss at ₹680. When the premium rises to ₹2,000, adjust the stop-loss to ₹1,500. Once the price of the option hits ₹2,200, tighten the stop-loss further to ₹1,800, and exit the position at ₹2,400.
Market Summary
Overall, the market sentiment for both Nifty and Bank Nifty remains optimistic despite some fluctuations. Nifty futures continue to show bullish momentum, and as long as key support levels hold, the outlook remains positive. In particular, a breakout above 26,500 could signal further gains toward 26,800.
Similarly, Bank Nifty futures show potential for a continued rally, especially if they hold above 54,000. A climb to 55,200 is likely unless the contract breaks below 53,000, which would alter the outlook. Short covering in both indices supports the chances of further upward movement.
For options traders, the relatively high Put Call Ratios in Nifty suggest a bullish trend, and buying call options at key support levels could prove to be a profitable strategy. In the case of Bank Nifty, the weekly PCR suggests a more cautious approach, but opportunities for long positions remain, particularly in the options market.
In conclusion, the futures and options data for both Nifty 50 and Bank Nifty indicate strong potential for further gains, though careful attention to support and resistance levels will be key to optimizing trading strategies. Traders are advised to maintain a bullish bias while keeping an eye on critical support levels to manage risk effectively