F&O Manual: New day, new high for Nifty, but traders sound caution as day progresses

Despite some caution, the overall setup in the market remains bullish, with expectations of the Nifty 50 touching 19,500.

Continuing with its bullish upward trend, the Nifty scaled a fresh record high of 19,336.10 in early trade on July 3 to start the second half of 2023 with a bang. The rally in the headline index was supported by strong gains in banking stocks, particularly the HDFC twins, which gained following completion their merger.

However, as the Nifty extended gains to the fifth session, investors turned to book partial profits, which pulled the index off its day's high.

At 11.56am, the Nifty was up 104.80 points or 0.55 percent at 19,293.80, while Bank Nifty was trading 0.9 percent higher at 45,150.95 points.

Weekly options data also suggests the strong dominance of put writers at 19,300. However, call writers were also active at that level, putting pressure on the Nifty to sustain above that level.

Bars reflect change in OI during the day. Red bars show call option OI and green put option OI.

Given that the market seems to be in an overbought zone after five sessions of gains, analysts and traders are hinting towards some caution. Viraj Vyas, technical and derivatives analyst at Ashika Stock Broking, foresees some pullback in the market as he expects investors to take home partial profits. Vyas also sees 19,000 as a strong support level for the Nifty, though he expects the index to eventually test 19,500 in the coming sessions.

Bengaluru-based professional trader, Rajesh Srivastava also believes that the gains in today's session are unlikely to sustain as he expects the Nifty to witness a pullback towards 19,200. If the Nifty witnesses a pullback towards that level, Srivastava suggested investors to take the opportunity to buy the dip.

Major participants in today's rally were banking stocks, which not only lifted the Nifty but also helped the Bank Nifty surpass the 45,000 mark. However, the sentiment towards Bank Nifty is much more cautious. Vyas believes the sectoral index is much more vulnerable to profit booking as much of its gains are led by constituent HDFC Bank.

'Several investors who hold shares of both HDFC and HDFC Bank may want to offload some of their holdings as the entity completes its merger. This makes HDFC Bank and consequently, Bank Nifty more susceptible to profit booking," Vyas said.

Srivastava also backed the view as he foresees a pullback in Bank Nifty towards 44,800 points.

Among specific stocks, L&T Finance Holdings witnessed a strong, long buildup, following a management rejig. Other counters that witnessed addition of long positions were Zee Entertainment, Gujarat Gas, SAIL and IDFC.  Sentiment for stocks like NMDC and IDFC First Bank was strong as these counters witnessed covering of short positions.

On the other hand, automobile stocks like Maruti Suzuki India, Bajaj Auto and Hero MotoCorp saw formation of short buildup following their weak sales numbers for April.