F&O Tracker: Index Futures Eyeing a Downswing
The stock market’s pulse can often be gauged through the performance of Index Futures, with both the Nifty 50 and Bank Nifty serving as primary indicators for market sentiment. The past week saw mixed results, with the Nifty 50 experiencing a slight decline, while the Bank Nifty managed a marginal gain, highlighting the differing paths these indices might take in the near term based on futures and options (F&O) data.
Nifty 50 Overview
Nifty’s performance over the last week showed a slight bearish trend, with the Nifty futures for August settling at 24,700, down by 0.9%. This decline was also marked by an increase in Open Interest (OI), indicating a potential buildup of short positions. The technical analysis suggests that there might be further room for downside, with a key support level identified at 24,300. A breach below this level could trigger a sharper decline to 23,880, nearing a critical support band between 23,880-24,000.
However, if the index manages to rebound from the 24,300 mark, there’s a possibility of revisiting the 25,050 barrier, posing as a significant resistance level. Given these observations, traders who followed last week’s strategy of buying Nifty futures at 24,915 are advised to consider exiting at the current levels due to the potential correction ahead.
While the sentiment leans towards the bears, the setup is not yet ideal for initiating new short positions primarily due to the unfavorable risk-reward ratio. Traders with a higher risk appetite might consider shorting if the Nifty inches closer to 24,870, with a target at 24,300 and a stop loss at 25,100. An alternative strategy under these conditions would be to look at purchasing the 25,000-strike August put option, exiting as the futures touch the 24,300 mark.
Bank Nifty’s Current Stance
Last week, the Bank Nifty futures for August reported a negligible 0.2% decline, reflecting a relatively sideways movement. This led to a reduction in the cumulative OI for futures, signaling a phase of consolidation amongst traders. Despite this, a bearish inclination is observed with the resistance level at 52,200 keeping uptrends in check.
For bears to gain further ground, a decisive move below the support level of 50,900 is necessary. Such a move could potentially bring the futures down to the 50,000 mark, leading towards the next support at 49,300, corresponding to the 61.8% Fibonacci retracement level of its previous uptrend. Conversely, a break above 52,200 could catalyze a rally towards 53,500 and 54,000, setting the stage for bullish momentum.
The direction of Bank Nifty’s next significant move seems contingent on a breach out of the 50,900-52,200 range. Given the current price action, traders are advised to hold off on new positions. A viable bearish strategy would involve initiating shorts on a move below 50,900, targeting 49,500 with a stop loss at 51,600.
For those looking to employ options, purchasing the 51,000-strike August put option post a breach of 50,900 support could be a strategic move, exiting once the Bank Nifty futures approach 49,500. This tactical approach could provide traders a safer haven amidst the expected volatility.
With the market at a crossroads, it’s crucial for traders to stay vigilant and adapt their strategies in alignment with evolving market conditions, ensuring they are best positioned to capitalize on the forthcoming trends in Index Futures.
