COVID impact on May series! Traders should refrain from carrying long positions

Market Outlook

The first derivative expiry of the financial year 2021-22 remained quite volatile as we witnessed sharp swings in either direction. The market started the April series with light positions and moved towards the 15000 mark in the first half of the series.

However, the Nifty failed to cross this psychological hurdle and nosedived sharply towards the 14150 zone. But, we witnessed decent buying interest from the lower levels, and as a result, the index rallied by more than 800 points in the last five sessions of the series.

Technically, the index is holding above 50-DEMA and gave a breakout from the Wedge pattern on the daily chart. Eventually, it concluded the April series around the 14,900 mark with gains of about 4 percent over the March series close.

We witnessed the formation of mixed positions in the April series, wherein longs were a bit higher than shorts. However, most of these positions are now out of the system as open interest has moved up marginally by 4.10% on a month-on-month basis.

Rollover in Nifty stood at 66.28%, which is lower than its quarterly average of 79.06%. On the sectoral indices front, except for some selling pressure in the PSU Banking space, all major sectoral indices ended April series in the positive territory.

Among them, metal and pharma indices witnessed a massive rally of 30.58% and 12.54% respectively.

India VIX increased by 2.64 percent to 23.30 levels in the April series. Volatility needs to cool down below 20-19 zones to support the bullish market setup with a higher market base.

FIIs turned net seller in cash market segment in April series and cumulatively sold equities worth more than Rs 10,000 crores in April series.

On the other hand, DIIs remained net buyers on a major part of the series and cumulatively bought equities to the tune of Rs 15,635 crores in the April series.

On the options front, the maximum Put OI is placed at 14000 followed by 13500 strikes while maximum Call OI is placed at 15000 followed by 15500 strikes. Options data suggests a wider trading range in between 14500 to 15500 zones.

The Bank Nifty fell sharply in the first half of the April series and corrected below 30500 zone.

However, due to smart recovery from lower levels in the last six sessions, the banking index managed to conclude the April series above 33700 levels.

Bank Nifty relatively underperformed the benchmark indices as it moved up by 2.15 percent in the April series.

We witnessed rollover of short positions in Bank Nifty from the March series and the impact of the same was clearly visible in the prices.

However, the fall was not supported by fresh shorting and smart traders booked profit in their short positions in the corrective move.

We witnessed a huge unwinding of positions as the open interest came down by 52.69% on a series-on-series basis. The rollover in the banking index stood at 64.60%, which is significantly lower than its quarterly average of 80.16%.

At the current juncture, Bank Nifty is very light on positions as open interest fell to its eight monthly low. Now, fresh build-up from the current juncture will decide the further trends of the banking index.

As far as levels are a concern, crucial support for the banking index is placed at 32000 and then 30400 zone. On the flipside, immediate resistance can be seen around 35500 – 36500 zone.

On the stocks front, we witnessed a good amount of long rollovers seen in Dr. Lal Path Lab, Navin Fluorine, Pfizer, Cadila Healthcare, Bajaj Finserv, SRF, National Aluminium, Glenmark, Tata Steel, Deepak Nitrate, Hindalco, Aarti Inds, etc. While stocks like M&M Fin, Escorts, DLF, RBL Bank, Idea, Amaraja Batteries, HCL Tech, Eicher Motor, etc had short rollovers.

Note: This note is just an interpretation of derivative data and not trading advice.

(The author is Technical & Derivatives Analyst, MOFSL)

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