Story continues below Advertisement Remove AdShort covering fueled the Nifty rally in the previous week.
The maximum Call open interest is placed at 22,500 strikes and Nifty is unlikely to move higher unless Call writers (Bears) exit from this strike.
But the Call writers swung back in action on Friday and mounted a massive challenge on the bulls.
A nifty up move is unlikely unless Call writers exit from the 22,500 strike.
This level is likely to act as a major hurdle for the index.
Market Trend for Next Week
By Ashwin Ramani, derivatives analyst at Samco Securities
As the second phase of the 2024 General Election concluded on April 26, coinciding with the beginning of the May series, the long shadow of uncertainty seems to have gripped the market. Below-average Rollover data indicates the market confidence has taken a beating. Traders can expect a lot of volatility and uncertainty going ahead. The foreign portfolio investors (FPIs) activity in the coming week starting from May 29 and the India VIX movement is likely to keep all market participants on tenterhooks.
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Short covering fueled the Nifty rally in the previous week. Nifty respected the trendline support on the daily chart and gave a sharp bounce. The 21,800 level acted as a strong support for the index. Nifty ended the week 273 points higher and closed at 22,420. It has formed a Dark Cloud Cover candlestick pattern on the daily chart on Friday. This pattern is usually considered to be a bearish reversal pattern. The maximum Call open interest is placed at 22,500 strikes and Nifty is unlikely to move higher unless Call writers (Bears) exit from this strike.
Lower Rollover indicates hesitancy to carry forward positions to May series
Nifty rollover stood at 65.12 percent which is significantly lower compared to last month's rollover of 69.77 percent and its 3-month average and 6-month average of 71.25 percent and 74.48 percent respectively. Nifty rose 1.09 percent from 22,327 to 22,750 in the April series. The open interest went up by a meagre 1.55 percent in the April series. Nifty began the May series last Friday, with an open interest of 1.22 crore shares.
Lower rollover with a marginal cost of carry (0.31 percent) coupled with an increase in open interest (1.55 percent) and increase in price (1.09 percent) indicates hesitancy to carry forward the existing positions in the May series on the back of a high degree of uncertainty ahead of the General election outcome.
FPIs Long Short Ratio gives mixed signals
The foreign portfolio investors (FPIs) seemed to be making a comeback again on the last day of the April series as the long-short ratio rose sharply to 39 percent from 31 percent on Wednesday (April 24) as they liquidated short positions in Index futures. However, the ratio fell back to 35 percent on Friday as they aggressively built more short positions compared to long positions on the first day of the May series.
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Nifty is likely to move in a parallel channel
The Nifty has been moving in a parallel channel on the daily chart with the 21,800 level on the downside acting as a support and the 22,800 on the upside likely to be the resistance. In the coming week too, Nifty is likely to trade inside the channel and any breakout on either side of the channel will set the tone for the next leg of the rally in the Index.
India VIX saw its biggest single-day fall in nearly 5 years
The India VIX known as the fear indicator slumped to its biggest single-day fall in nearly 5 years on April 23, closing 19.72 percent lower at 10.20. As we move closer to the election outcome, any rise in the VIX can’t be ruled out, which can cause huge discomfort to bulls. The fear gauge closed the week at 10.92, down 18.82 percent.
Up move unlikely unless the 22,500 level is taken out successfully
On the last day of the April series, the Put writers (Bulls) successfully dethroned the Call writers (Bears) from the 22,500 strike in Nifty. But the Call writers swung back in action on Friday and mounted a massive challenge on the bulls. Strong Call writing was observed at the 22,500 & 22,600 strikes in the index. A nifty up move is unlikely unless Call writers exit from the 22,500 strike. This level is likely to act as a major hurdle for the index.
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