Quantitative data set up: #39;Nifty likely to trade in 14,000-14,600 range next week#39;


Greed and Fear Indicator: Volatility needs to cool down for continued strength (VIX CMP – 20.64)

India VIX was up by 5.5 percent from 19.56 to 20.64 levels week-on-week basis. Volatility needs to cool down below 20 zones to support the bullish market setup and fuel the next rally with the higher market base.

CBOE VIX: CBOE VIX was down by 5.23 percent from 22.75 to 21.56. Volatility rose at the beginning of the week but came down to lower levels, giving support at teh current juncture.

FIIs continue to pour money in the Indian market

FIIs were net buyers the entire week, barring one day, and bought Rs 8,758 crore worth of shares during the week. DIIs, on the other hand, had an offsetting position and sold worth Rs 4,948 crore of shares. The Long Short Ratio ranged from 77.87 percent to 81.45 percent to close the week at teh higher band. On the FIIs derivatives front, there was a long buildup in the index futures and stock futures.

Gold slumps (MCX CMP – Rs 49,035 per 10 grams)

Gold was down by 2.09 percent on the weekly scale and witnessed quite a volatile week. It opened gap up started but fell sharply during the week and moved below its 200-DMA. A dip was seen as the equity markets strengthened and investors shifted their money. The metal lost its shine inspite of expected US stimulus as higher bond yields dimmed the gold investment class and hope for the vaccine later this month.

Among other precious metals, silver fell down sharply by 5.58 percent this week.

Options Data: Nifty trading range between 14,000-14,600 (Nifty CMP – 14,347, Bank Nifty CMP – 32,084)

The Nifty futures closed the week with gains of 2.26 percent with addition in futures Open Interest (OI) by 10.22 percent on a weekly basis, which indicates longs are being built up. During the week, Put Call Ratio (PCR) based on Open Interest of Nifty moved in between 1.25 to 1.71 levels and closed the week at its higher band. On the options front, Maximum Put open interest was at 13,000 followed by 14,000 strike while maximum Call open interest was at 14,000 followed by 14,500 strike. Minor Call writing was seen at 14,400 then 14,700 strike, while Put writing was seen at 14,200 then 14,300 strike. The data suggests a wider trading range between 14,000 and 14,600, while the immediate trading range is between 14,100 and 14,500.

The Bank Nifty futures closed the week with gains of 2.76 percent with addition in Open interest by 20.25 percent on a weekly basis, which suggests longs are being built up in the banking index. Put Call Ratio based on Open Interest of Bank Nifty remained in between 0.73 to 1.11 and it closed at 1.04. Implied volatility (IV) of the banking index decreased to 23.4 levels as the week concluded. For weekly Bank Nifty, Maximum Put open interest was at 32,000, while maximum Call open interest was at 33,000. We have seen major Call writing in 35,000 and 34,000 while Put writing was witnessed at 30,000 and 32,000 strikes.

Rupee gained strength (USD/INR CMP – 73.316)

The USD-INR pair was up by 0.27 percent and but continued its downward movement on the weekly scale. The latter part of the week was quite volatile, where the dollar rose on January 7 but the rupee gained strength the next day. Strength in the equity market supported the rupee.

Oil surged (Crude Oil WTI, MCX CMP – Rs 3,738 per barrel)

Oil was up by 6 percent week-on-week and came out of its range. It escalated throughout the week and traded near its 11-month high levels. A positive outlook for oil was witnessed when Saudi Arabia decided to cut down additional production to wash away slower fuel demand worries and capped gains.

US Indices at record highs (DJIA CMP – 31,098)

The Dow Jones was up by 1.60 percent week-on-week and gave fresh highs in line with the global market. Improvement in employment, vaccine rollouts and stimulus ahead boosted sentiment.

The Nifty has to continue to hold above 14,200 to witness a fresh move towards 14,500. On the downside, major support exists at 14,100 and 14,000 levels. The Bank Nifty has to hold above 31,750 to move towards 32,500 and 32,613 zone, while on the downside, support is seen at 31,500 and 31,200 levels.

(Chandan Taparia is the Vice President – Research Derivatives & Technical Analyst at Motilal Oswal Financial Services.)

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