Market shows strong momentum ahead of FOMC meeting; trade with positive bias, say experts

The FOMC (Federal Open Market Committee) interest rate decision is scheduled for Wednesday, May 1, followed by Fed Chair Jerome Powell’s press conference

Notwithstanding the FOMC meeting outcome expected on May 1, the trade set up is supportive of a further surge in Nifty and NiftyBank, traders said. Currently, markets are factoring in a no change in Fed rate in the current meeting.

According to a Bloomberg survey, economists are expecting two rate cuts this calendar year, down from three forecast in March. Jerome Powell’s commentary is also expected to be largely hawkish going by the rising concerns over inflation, and his recent comments that the Fed will prefer to wait it out.

This limits possible negative surprises on May 1. On the index front, benchmark indices are hovering near all-time highs, with the Nifty trading around 22,700.

Soni Patnaik, Assistant Vice President of Derivative Research at JM Financial Market, said, "Both Nifty and NiftyBank have surged past their congestion zones and all cues are positive. NiftyBank has tested new all-time high. The index seems to be heading towards the 50,000 mark”

"May rollovers data also looked very positive. Yesterday, Bank Nifty saw aggressive 26 percent long build-up positions. FIIs increased their long positions from 35 to 43 percent, especially in NiftyBank, " she added.
"Bank Nifty could also help Nifty to come out of its recent congestion zone of 22,600-22,630 levels, or take it even higher. Notwithstanding the FOMC outcome, Nifty is indicating a buy at current levels as it may head towards 22,850 levels, and a sustenance above 22,800-22,850 can propel it towards the 23,000 mark," added Patnaik.

Also read: May series FnO rollovers show bullishness in banking, financial, capital goods stocks

Ruchit Jain, Lead Researcher at 5Paisa.com, said while the market is expecting no change in interest rates in the current meeting, investors will be closely monitoring the Fed commentary to gauge when the first rate cut may be initiated. "Any hints about a rate cut sooner than expected will fuel the momentum further. We advise traders to trade with a positive bias for the near-term," said Jain.

According to Chandan Taparia, Head of Derivative Research at Motilal Oswal Financial Services, "The major trend is positive, and every minor decline is being bought. Bank Nifty has witnessed a decent run-up and started to outperform ahead of the Fed outcome. The overall stance is bullish, and we expect Nifty to hold the higher base of 22,300 to extend the rally towards 23,000 zones. Bank Nifty holding well above 48,500 can see a rally toward 50,000 zones."

Soni Patnaik proposes the following trade strategies ahead of the FOMC rate decision:
1) Bull Call Spread in NiftyBank - Buy 8th May expiry 50,000 CE (Call Option) around 200/220 & Sell 50,500 CE around 95/105. Total premium outflow is 110/- (maximum risk/stop loss) and target of 300 points in total premium.

2) Bull Call Spread in Nifty: 9th May expiry Buy 22,800 CE @ 100/120 & Sell 23,000 CE @ 50/55. Total premium outflow 57.5/- (maximum risk/stop loss) and target of 120 points in total premium.

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