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Quantitative data set up: Nifty set to knock out 12,000, while Bank Nifty may go beyond 25K

Gradual cooling of the VIX suggests bullish stance and buy on decline strategy to continue in the market.

August 30, 2020 / 08:29 AM IST

Chandan Taparia

Greed and Fear Indicator: Lower volatility suggests bullish setup (VIX CMP – 18.35)

India VIX was down by 8 percent on weekly basis to 18.35 levels and it has been forming lower tops since last 10 weeks. Gradual cooling of the VIX suggests bullish stance and buy on decline strategy to continue in the market.

CBOE VIX: CBOE VIX was slightly up by 1.9 percent at 22.96 levels. Overall, lower volatility suggests bullish bias but slight bounce in indicator may cause some volatile swing in US market by week ahead.

Fund Flow: FIIs investment boosts the market

Close

The FII flows trend signals strong times ahead as August saw the highest investment made in the year to the tune of Rs 19,145 crore till date. They have been net buyers for most part of the month and the concluding week saw Rs 5,450 crore investment. DIIs, on the other hand, continued their selling streak of the month and have sold Rs 11,728 crore in this month till date. They had an offsetting position and sold worth Rs 3,056 crore in week gone by.

On the FII derivatives front, there was long built up in index futures and long liquidation in stock futures. The Long Short Ratio ranged from 61 percent to 77 percent in the week to close the week near its 31-month high levels of 77.2 percent. Record levels of FIIs index long short ratio gives boost to the bullish market sentiment.

Safe Haven: Gold continues its southward movement (Gold, MCX CMP – Rs 51,050 per 10 grams)

Gold prices ended the week red by 1.91 percent and continued its lower top formation on a weekly frame. It is currently trading near its 50 DMA and needs to hold this level to prevent the bears to take grip. The precious metal formed a red candle on a monthly frame after eight consecutive green months. As equity shows bullishness, investors shift their asset class composition away from the precious metal.

Among other precious metals, silver traded flat and was marginally down by 0.92 percent on a week-on-week basis.

Option Data: Nifty immediate range 11,200 to 12,000 (Nifty CMP – 11,648, Bank Nifty roaring CMP – 24,524)

Nifty futures closed the week with gains of 1.75 percent with addition in futures Open Interest (OI) by 8.8 percent on a weekly basis which indicates long built up. During the week, Put Call Ratio (PCR) based on Open Interest of Nifty moved in between 1.52 to 1.69 levels and closed the week with higher PCR OI of 1.64 which indicates bullish outlook ahead.

Since it is the beginning of the September series, option data is scattered at various strikes. Maximum Put open interest is at 11,000 followed by 10,500 strike, while maximum Call open interest is at 12,000 followed by 11,500 strike. We have seen marginal Call writing in 12,000 and 11,900 strike while Put writing was seen at 11,000 then 11,600 strike. Option data suggests a shift in higher positional trading range in between 11,200 to 12,000 zone.

Bank Nifty futures closed the week with gains of 7.5 percent with decline in open interest by 0.94 percent on a weekly basis which suggests that shorts are covering their position along with built up of long position. Put Call Ratio based on open interest of Bank Nifty remained in between 1.15 to 1.44 and it closed the week with near the upper band of 1.44 levels suggesting huge strength moving forward. Implied Volatility (IV) of Banking index moved up to 31 levels as the week concluded. Maximum Put open interest is at 23,500, while maximum Call open interest is at 25,000. We have seen Call writing in 25,500 and 25,000 while Call unwinding and Put writing at 24,000 strike.

India Rupee: Rupee appreciate as FIIs flow knocks the multiple year highs (USD/INR CMP – 73.11)

The USD/INR pair was down by 1.08 percent on a week-on-week basis. The Rupee is near its 5-month high at 73 levels which was supported by the FIIs investment in the country. The greenback loses strength and breached its 200 DMA on daily frame nearing its 127 day low. This change in the currency value will bring positive outlook in equity market while a consolidative halt in IT stocks.

Crude Oil: Oil moving in a range (Crude Oil WTI, MCX CMP – Rs 3,149 per barrel)

Oil was marginally up by 0.5 percent on week-on-week basis. Its 50 DMA is crossing its 200 DMA on daily frame which is a bullish sign moving ahead. It was up for the fourth consecutive month. However short term bounces were witnessed as hurricanes hit the US oil refineries causing widespread damage.

DJIA: Ready for higher zones (DJIA CMP – 28,654)

The Dow Jones Industrial Average was up by 2.5 percent on a week-on-week basis and has been showing strength as it is nearing its 6-month high levels. It is ready for 29,000 plus levels after five straight green months. Corporate earnings were major drivers for this week.

Moving forward, Nifty has to continue to hold above 11,500 zone to witness an upmove towards 11,750 then 12,000 zone while on the downside medium term support shifted at 11,400-11,350 zone. Bank Nifty has to continue to hold above 24,000 levels for a fresh momentum towards 25,000 and 25,500 while on the downside now key support exists at 23,750 levels.

The author is Vice President – Research Derivatives & Technical Analyst at Motilal Oswal Financial Services.

Disclaimer: 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.
Chandan Taparia is the Vice President and Analyst-Derivatives at Motilal Oswal Financial Services Limited.
first published: Aug 30, 2020 08:29 am

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