Underperformance in Bank Nifty has given a pause in positive momentum of broader market.
The Nifty index has been moving in a narrow range of 100 points between 10,500 to 10,600 zone from last four trading sessions. It formed a Doji candle with long lower shadow pattern which indicates that decline is being bought as it got stuck in a range ahead of the expiry week.
Index has been making higher highs – higher lows on weekly chart which suggests continuation of uptrend till any immediate support is not broken decisively.
Now till it remains above 10,480-10,500 zone, it has potential to move towards 10,630 then 10,700 levels while a hold below 10,480 could end this immediate upswing to start a next down leg.
Nifty index started the week on negative note but managed to recover from 10,400 zone and remained in a consolidation mode between 10,500 to 10,600 zone in last four sessions. It has got stuck in the grip of option writers and finding trouble near to its 50 percent retracement of 10,565 zone on closing basis from last four sessions but bulls are also not loosening their grip.
Overall it is expecting a consolidation move with stock specific activities as per the outcome of quarterly earnings.
India VIX fell sharply by 8.49 percent to 12.94 and decline in volatility with higher Put Call Ratio suggests a limited downside with a rangebound bias in the market.
On the option front, maximum Put open interest (OI) is at 10,500 followed by 10,400 strike while maximum Call OI is at 10,700 followed by 10,600 strike.
We have seen marginal Put writing at 10,350 and 10,500 strike. Option band suggests an immediate trading range between 10,480 to 10,700 levels.
Option traders can go for Short Strangle strategy by selling Out of the Money Call and Puts to get the benefit of Time Decay as we expect the market to consolidate in broader trading range of 200-300 points and time decay will hurt fast as we are heading towards April expiry settlement day.
Bank Nifty underperformed the Nifty index in the last week as it fell by 1.02 percent versus Nifty gains of 0.80 percent. Bank Nifty failed to surpass 25,250 zone and started to form lower highs - lower lows on daily chart from last three trading sessions. It formed a Bearish candle on a daily chart and now till it holds below 25,250 zone it could extend its losses towards 24,750 while on the upside major hurdles are seen at 25,250 then 25,500 levels. Underperformance in Bank Nifty has given a pause in positive momentum of broader market.
Stock specific positive set up is seen in Tech Mahindra, Tata Elxsi, Hexaware Technologies, KPIT, Hindalco, NALCO, JSW Steel, IndiGo, MCX, Motherson Sumi, Amara Raja Batteries, V-Guard Industries etc. while NBFC, PSU and selective Private Banks are likely to be under pressure.Disclaimer: The author is Derivatives & Technical Analyst as Motilal Oswal. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.