F&O expiry outlook: Further pain ahead, avoid bottom fishing; Nifty may fall to 17450-17200

November 22, 2021 9:42 AM

If Nifty manages to hold 17700 and move higher first, then 18000 – 18200 are to be considered as strong hurdles, which as of now we do not expect to get surpassed in the near future.

For the coming monthly expiry, we noticed massive writing in 17800-18000 call strikes which may now act as a sturdy wall now. (Image: REUTERS)

By Sameet Chavan

We had an excellent start to last week owing to favourable global cues. However, markets failed to sustain at higher as the early morning gains just disappeared in the first half. During the remaining part of the day, Nifty kept flirting around the equilibrium point. Eventually in the absence of any momentum, Nifty ended the session tad above the 18100 mark. As the week progressed, markets started becoming a bit nervous and hence, we could see it grinding lower gradually by breaking minor supports on the way through. The selling aggravated on Thursday and in the process we first breached 17800 and then went on to even slide below the crucial support of 17700. Due to the modest recovery in the latter half, the bulls managed to defend this level on a closing basis.

During the week, Nifty did correct by nearly a couple of percent; which certainly cannot be considered as a major damage. Also it did close above the key support on a weekly basis but the way overall things are positioned, we will not be surprised to see it surrendering (17700) in the first half of the forthcoming week itself. Since the last few days, we have been mentioning the ‘Head and Shoulder’ pattern on the daily chart of Nifty which was in process. After Thursday’s close, the final (right) shoulder of this pattern is completed and prices are placed exactly at the ‘Neckline’ point of the same. A sustainable move below 17700 (which seems likely) would activate the pattern and as a result of this, we could see a fresh leg of correction in coming days. After this, next levels to watch out for would be 17450 and 17200, where one needs to reassess the situation. On the flipside, if Nifty manages to hold 17700 and move higher first, then 18000 – 18200 are to be considered as strong hurdles, which as of now we do not expect to get surpassed in the near future.

Nifty Outlook

The major culprit in this week’s correction was the continuous weakness in banking and metal counters. Although banking index is nearing its strong support zone, we do not expect any major bounce back in this space. Apart from this, the broader market looked a bit tentative on Thursday and the way it’s closed; things do not augur well for the bulls. To summarize, we advise traders to remain light which we have been advocating of late and even if one wants to accumulate stocks with a broader perspective, one needs to be a bit patient as we expect some reasonable prices to come in next few days.

In F&O space, we saw open interest addition in both the indices with clearly suggests fresh shorts where formed during the week (wherein banking index added massive shorts as outstanding contracts surged more than 20%). Stronger hands too preferred adding bearish bets in index futures, resulting Long Short Ratio declining from 57% to 54%. For the coming monthly expiry, we noticed massive writing in 17800-18000 call strikes which may now act as a sturdy wall now. The above data hints further pain going ahead; hence, would advocate traders avoiding any kind of bottom fishing for now and in fact aggressive traders should buy ATM or slightly OTM puts in case of any recoveries.

(Sameet Chavan is Chief Analyst – Technical and Derivatives, Angel One Limited. Views expressed are the author’s own.)

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