Move above 20,750 may lead to short-covering bounce in Bank Nifty

Jay Purohit

The Nifty started the June series with some long positions and started moving higher from the first session itself.

The bullish momentum continued for seven trading sessions and the index rallied by more than 8 percent to make a high of 10,328 on June 8. The up-move was supported by fresh long positions, as open interest increased by 17 percent.

However, we have witnessed some corrective action in the last few days and as a result, the index has trimmed some of the gains and is currently up by 4.12 percent over its May expiry close.

We witnessed long unwinding in recent correction, however, some of the longs are still intact in the system.

In June series, so far, both FIIs and DIIs remain net buyers in the cash market segment to the tune of Rs 8,731 crore and Rs 1,373 crore, respectively.

While FIIs sold index futures and as a result, their ‘Long Short Ratio’ of index futures reached from 63.21 percent to 49.79 percent. However, they remained buyers in stock futures in June series.

India VIX has been moving higher for the last five consecutive sessions and has moved above 33 levels.

But it is still moving below its major hurdle of 41-43 zone. A further rise in volatility index may result in a roller-coaster move in the market. Currently, PCR of Nifty stands at 1.23 and the options data suggests trading range of 9,500 to 10,150 in the coming days.

Market breadth remains in favour of advancing counters, which is a positive sign for the market.

On sectoral indices front, beaten down sector like PSU Banking, Realty and Media are major gainers, while FMCG is the only sector trading marginally in the red.

Traders are advised to trade with a positive bias and should look for buying opportunity on dips.

In our May expiry rollover note, we clearly said short positions get rolled in the Bank Nifty and there is a possibility of a further short-covering bounce.

The Bank Nifty outperformed the benchmark indices and rallied by around 14 percent to the 21,800-mark in the initial days of June series.

On expected lines, up-move was majorly on the back of short-covering.

However, we again witnessed fresh short positions in the recent correction. Overall derivatives data of the Bank Nifty indicates that short positions are there in the system and if it sustains above 20,750, then we may see further short-covering move towards the 21,800 – 22,000 zone.

While immediate support for the Bank Nifty is now placed at 19,500 level and a sustainable move below it may drag the index to the 18,700-18,500 zone. Except for negligible loss in Axis Bank, all other banking counters are trading in the green as compared with their May expiry close.

On the stock front, we witnessed a good amount of long positions getting formed in counters like RBL Bank, Godrej Prop, Hind Petro, Escorts, Reliance, PNB, etc.

Stocks that added shorts in the June series are Bharti Infratel, Exide Inds, SAIL, Nestle, ITC, etc.

Note: This note is just an interpretation of derivatives data and not trading advice.

(The author is Technical & Derivatives Analyst, Motilal Oswal Financial Services)

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