The level of 22,000 is getting tough for Bank Nifty bulls to break above, until it sustains above 22k mark, fresh leg of upside looks difficult for broader markets as well.
Post March’s vertical fall, Nifty continued its volatile ride, the index settled the penultimate session for June series at 10,290. Nifty and Bank Nifty gained 8.5 percent and 12.3 percent, respectively, on (eoe basis). However, profit taking encountered near 61.8 percent retracement (i.e. 10,550).
Despite the recent setback from 200-EMA & presence of multiple Gann numbers, the structure of Nifty continues to be bullish, trading above the support of upward sloping trendline on the daily chart. Nifty and Bank Nifty gained 8.4 percent and 12.3 percent on expiry to expiry basis.
In the June series, leadership was driven by Reliance Industries marking fresh life high levels with strong buildup and comeback of laggards from NBFC and financial space. VIX remained at lower band throughout the series near 30-mark. Two consecutive months of large negative cost of carry for Nifty index making short rolls unviable.
Rollovers for Nifty and Bank Nifty stood at 79 percent (1.14 crore shares) and 81 percent (13 lakh shares), respectively, against 76 percent (1 crore shares) and 81 percent (14.3lakh shares), respectively, previous month. Higher rolls with hint of long buildup on heavy weight index stocks. In June series, Rollcost on Nifty remained negative ~(-42 points) to long rollers during expiry day.
Funds flows also remained sharply volatile as periodic shift in sentiment seen due to global and domestic factors. Index futures long/short ratio stood at ~.7x levels for start of July series, while FIIs turned buyers in cash segment in past couple of days. Positioning on the index remained strong as heavy weights, likes of Reliance Industries and Hindustan Unilever, select banking stocks holding ground with strong traction from traders suggesting buy on dips approach will work for Index.
US markets remained jittery as sharp retracement seen after large gains in past couple of days, key levels to watch 24,900 on Dow and 2,950 on S&P500 in near term breaking and sustaining below the same likely to keep bears active with mild periodic short covering, CBOE global VIX remained stubborn near 30 mark seen multiple bottom near it, expected to remain elevated in near term. India VIX remained largely sideways with no major panic seen even on significant down days.
On options front, July series starts with the buildup on monthly series 10,000 put strike holding ~2 million shares while on call 10.5k strike holding ~1.7million shrs, Scattered buildup on options indicates wide trading range participants betting on while near term we expect trading band of 10,100 to 10,500 for Nifty. However, joker on the pack remains directional moves on Bank Nifty as 22,000 hurdle is getting tough for Bank Nifty bulls to break above, until it sustains above 22k mark fresh leg of upside looks difficult for broader markets as well.
Bank Nifty continued its overall under-performance (this year it’s down by 33 percent against Nifty’s 15 percent decline). Weekly options data for July 2 indicates consolidation for the markets with downside support seen at 10,100 mark and upside capped near 10,400 levels.
PSU stocks showing signs of revival along with metals while pharma stocks continue to show signs of momentum going into long July series, setup indicates Nifty to remain volatile while dips towards 9,950-10,000 mark likely to act as strong support zone for July series. Profit taking encountered near 61.8 percent retracement (i.e. 10,550) of the entire previous decline, hence a decisive breakthrough above 10,550 is essential for gaining further momentum on the upside.
(The author is Senior Derivatives Analyst – Institutional Equities, YES Securities)
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