Dhupesh Dhameja, derivatives analyst at SAMCO Securities
Market strategy: Nifty index declined by 2.39 percent. In this, hopes of correction were lost and the dominance of recession increased again. Slipping to a six-week low, the index failed to cross the crucial psychological barrier of 24,000. This shows that the bulls remain sideways. The index remains below its 200-day exponential moving average (DEMA) due to persistent selling pressure. Due to which the technical setup remains disappointing. Any short term bullishness is becoming a victim of profit booking. Due to which the downward trend in the market is intensifying. Declining purchases The persistent recession is rewriting the market story. This is a sign of difficult times to come. Nifty has now moved into an important support zone between 23,350 and 23,270. If we look at the past data, the trend in Nifty seems to be changing from here.
The second 24,000 has emerged as a big registration. Nifty is now trading below the important moving averages and the market is in a cautious mood due to lack of bullish signals in its momentum indicators. Macroeconomic concerns are adding to investor fears. The rise in the dollar, inflation concerns in the US and signs of a global economic recession are increasing the nervousness, due to which traders and investors are in defensive mode.
Nifty futures open interest increased to 1.57 crore shares from 1.37 crore shares. There was an increase of 20.4 lakh shares. This surge, coupled with the 2.39 percent index decline, is indicative of aggressive short positions by bearish traders. The sharp rise in open interest is a sign of increasing selling pressure and reinforces the negative market sentiment.
FPI long-short ratio
Foreign portfolio investors (FPIs) further reduced their long positions. Due to this, the long-short ratio decreased to 15.87 percent on Friday. It was 18.05 percent at the beginning of the week. This reduction in bullish bets is a sign of indifference from institutional investors and strengthens the bears’ position.
important weekly series level
Options data shows that there is very high call open interest at the 24,000 strike. Whereas the highest put open interest is at 23,000 strike. Bullish action in 23,500-24,000 call range and 23,400-23,000 put range indicates immediate resistance at 24,000 and support at 23,000. Heavy call writing and put unwinding between 23,500 and 24,000 indicates strong bearish grip on the market. The put-call ratio (PCR) has slipped to 0.73. This is a clear indication of the bears strengthening their grip. The combination of rising OI and continuous decline in index value shows that the reins of the market are in the hands of the bears. Under this pressure, Nifty seems ready to go as low as 23,000.
Trading Plan: Will Nifty be able to maintain the level of 23,350, will Bank Nifty get support at 48,500?
How can the market move this week?
Continued failure to close above the previous high is a sign that there is continued selling pressure at higher levels. The index’s position at six-week low and below the 200-DEMA has seen a sharp turn to a bearish trend. This weakness has been further aggravated by the recent global economic shocks. The immediate range for Nifty is between 23,350 and 23,270. This is supported by strong put writing and the strength seen earlier in this zone. If Nifty manages to stay above this level then it may gain momentum. On the other hand, there is strong resistance in the zone of 23,800-24,000. If Nifty strongly crosses this hurdle of 24,000, then a short-covering rally can be triggered which can take Nifty towards 24,500.
The decline in FPI long positions and surge in OI (Open Interest) are indicative of persistent bearish sentiment. If Nifty falls below 23,250 then the pace of selling may increase rapidly. In this selloff, Nifty may fall to the level of 23,000. Unless Nifty regains the zone of 23,800-24,000. Till then the strategy of selling on market surge is expected to work. This will further worsen the recession and increase risks.
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