Bank Nifty to see short covering above 48,200 levels

Bank Nifty witnessed short covering of 4.6 percent up and its put-call-ratio open interest (PCR_OI) improved to 0.99, indicating a slightly positive outlook.

Bank Nifty gained 300 points on April 22 to near the short-term resistance levels​, after ending down 2 percent for the week on April 19. In the early morning trade, the banking index was trading above 47,800, with strong resistance seen at 48,000 / 48,200. Crucial support stands at 47,000 on a closing basis.

ICICI Securities suggests that "It is likely to close the April monthly series below the volume weighted average price (VWAP) levels of 48,200. Only a move above it may trigger fresh buying in Bank Nifty.

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Derivative Data

Bank Nifty witnessed short covering of 4.6 percent up and its put-call-ratio open interest (PCR_OI) improved to 0.99, indicating a slightly positive outlook. Bank Nifty is seeing writing in both Call and Put strikes for the coming week, with the highest Put base at the 47,000 strike and Call base at the 48,000 strike. The highest OI is now at 47,000 PE & 48,000 CE, each with 1.69 Lakh contracts and 1.83 Lakh contracts, respectively. Resistance remains strong at 48,000/48,200, with crucial support standing at 47,000 on a closing basis.

Fresh longs should only be initiated above the 48,200 resistance level.

According to Soni Patnaik, Assistant Vice President of Derivative Research at JM Financial, "Fresh longs should only be initiated above the 48,200 resistance level as the range of 48,000 - 48,200 may still act as a supply zone. A sideways trend between 47,000 to 48,000 / 48,200 is expected until either side of the level is breached to determine the further trend."

ICICI Securities notes, "Bank Nifty futures open interest increased sharply last week as fresh short build-up was seen in both index and stocks. Thus, a short covering move cannot be ruled out during the week if it starts moving beyond 48,200 levels. On the contrary, fresh weakness may be on the cards if it fails to hold 47,000 levels. Only a move above VWAP of 48,200 may trigger some covering in the banking index."

According to Sameet Chavan, Head of Research, Technical and Derivative at Angel One, "Despite Friday’s bullish formation, buyers still have much to achieve to demonstrate a convincing comeback. A glance at the monthly and weekly chart of the rate-sensitive index clearly shows that the index is still stuck in the range of recent few weeks and months. Additionally, the presence of two bearish overhead gaps suggests that the path higher is not going to be smooth for buyers. At the same time, sellers who have performed well during the week are now likely to encounter a stiff challenge in pushing the index further lower, given the current price location is very close to a strong demand zone."

"Considering these factors, alongside the ensuing global and domestic environment, it is highly probable that Bank Nifty remains sideways from hereon. As far as levels are concerned, support for this high beta index is placed at 46,600-46,550 levels, and prior day’s high around 47,800 and the bearish gap zone of 48,250 are likely to impose stiff resistance," added Chavan.

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