By Gaurav Arora
Nifty Sep futures is currently trading at a premium of 70 points whereas Oct series is currently trading at a premium of 200 points.
The index made new highs after a consolidation breakout at 24,400 and has been gradually moving higher, inching towards 25,500 levels. This is exactly what we had discussed previously as well. But going ahead i.e. for this Sep series, things might not be that smooth since the index is showing some signs of overboughtness.
There was noticeable addition in OI in benchmark futures in the first 2 sessions of the series. To put it in numbers, the OI stands at about 6.44 lakh contracts compared to around 5.7 lakh at the start of the series.
Nifty is trading above its shortest EMAs by a decent margin, wherein 25,050-25,100 would act as a support in case of any dip on the flip side, 25,450-500 would be the resistance.
Bank Nifty Performance
Underperformance from Banking continues. The Ratio (Bank Nifty/Nifty) which was at 2.2 some time back is now hovering around 2.02-2.07 for some time.
Going ahead, expect this underperformance to continue.
50,500-600 would be the strong support for the Banking Index whereas 51,700-52,000 would be the Resistance. Having said that, we anticipate the index to test resistance first.
FIIs Activity
The Foreign Institutional Investors (FII) Net Index Long exposure was at around 70% at the start of the new series, though overheated but suggests some more steam left in this rally.
Support and Resistance Levels
The critical support level for Nifty is at around 25,050-25,100. A decisive close below this range could indicate some profit taking.
The Volatility Index (VIX) for Nifty is currently around 14, with an expected range of 12-18 moving forward.
Data points indicate a relatively volatile environment for the near term. This volatility may increase this and next month keeping track of US election and other Geopolitical scenarios.
The Volume Weighted Average Price (VWAP) for Nifty is around 25,050-100, marking this range as a key level to watch. Index has crossed and sustained above these levels, so it’s prudent to have a positive view and participants may consider buying the dips. Any dip towards the VWAP should be considered as a buying opportunity.
For Bank Nifty, the VWAP is around 50,500-600, only below which one may expect some downside.
Indications are in the favor of Bank Nifty continuing with its underperformance.
Sector Outlook
Sector-wise: All sectors have been contributing on a rotational basis.
Going ahead, we believe Oil & Gas, Pharma & Infra would be strong performers within Nifty.
Strategy: Put Ratio Strategy
A recommended strategy for Nifty is Put Ratio Strategy. This involves buying Nifty 12th Sep 25,200 Put Option (PE) at 135, selling 2X the Nifty 12th Sep 24,900 Put Option (PE) at 62.
The combined spread of 11 has a target of 70.
Conclusion
The Sept series for Nifty futures presents a profit taking outlook, wherein sector & stock-specific opportunities may continue to arise.
Options Data also suggest the same. The recommended Put Ratio strategy offers a tactical approach to trading in such a scenario. Oil & Gas, Pharma & Infra sectors emerge as strong contenders within Nifty, offering promising trading opportunities.
(About The Author: Gaurav Arora – Derivatives Analyst, Religare Broking)
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