Analysis of Pre-Open Nifty 50 OI Data (May 29)

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Market Summary: May 28, 2024

The Nifty 50 continued its downward trajectory for the third consecutive session, losing ground in the last hour of trading on May 28 amid consistent volatility. The index failed to surpass the crucial 23,000 mark, closing just below at 22,888, down by 44 points. The day's trading formed a bearish candlestick pattern on the daily charts, characterized by a lower high-lower low formation. Profit booking was evident as market participants preferred caution, driven by rising volatility which reached a fresh two-year high.

Key Insights:

1. Volatility and Market Sentiment: The India VIX, a measure of market volatility, surged by 4.32% to 24.20, the highest since May 25, 2022. The Nifty Put-Call Ratio (PCR) dropped to 0.94 from 1.02 in the previous session, signaling a shift towards a bearish sentiment as selling in Calls increased.
2. Resistance and Support Levels: Resistance: The 23,000 level is identified as a crucial hurdle. A strong close above this level is required to push towards the 23,100-23,200 range. Support: Immediate support is pegged at 22,800, followed by a more substantial support level at 22,600.
3. Technical Indicators: Chart formations indicate exhaustion of bullish momentum, suggesting a potential price correction post the recent rally. Bearish candlestick patterns were observed in both the Nifty 50 and Bank Nifty indices, with the latter declining by 140 points to 49,142.
4. Market Dynamics: The bearish sentiment was compounded by profit booking and cautious trading ahead of key political events, namely the exit polls and Lok Sabha election results. Despite the day's decline, experts believe the overall trend for Bank Nifty remains bullish, with recent profit-taking seen as a natural correction after the rally.

Expert Opinions:

Experts suggest that the market may continue to consolidate until the Nifty 50 decisively closes above 23,000. The elevated volatility, influenced by the upcoming election results, is likely to persist, necessitating cautious trading strategies. Investors are advised to monitor support levels closely and be prepared for potential corrections.

Conclusion:

The market's inability to break past the 23,000 resistance, coupled with rising volatility, underscores the cautious sentiment prevailing among traders. Immediate support levels provide a buffer against further declines, but the overall outlook remains contingent on broader political and economic developments.

Analysis of Pre-Open Market Data (May 29)

Call Open Interest (OI) Analysis:

1. Highest Call OI: 24000 Strike: 4,86,189 contracts This is the highest call OI, indicating a strong resistance level as many traders have written calls at this strike. 23500 Strike: 4,07,439 contracts Significant call writing at this level also marks it as a strong resistance point.
2. Maximum Call OI Writing: 23200 Strike: 1,08,038 contracts High number of new call contracts written, indicating traders are actively expecting the price to stay below this level.
3. Maximum Call Unwinding: 23900 Strike: -29,304 contracts Significant reduction in call OI, indicating some bullish sentiment as traders close their call positions expecting the price to potentially move above this level. 23650 Strike: -9,948 contracts Another level of call unwinding, suggesting reduced bearish pressure at this strike.

Put Open Interest (OI) Analysis:

1. Highest Put OI: 23000 Strike: 3,64,228 contracts This level holds the highest put OI, indicating strong support as traders expect the price to stay above this level. 22500 Strike: 74,056 contracts Significant put writing at this level also marks it as a support point.
2. Maximum Put OI Writing: 22400 Strike: 20,508 contracts High number of new put contracts written, indicating traders expect the price to stay above this level, reinforcing it as support.
3. Maximum Put Unwinding: 21500 Strike: -39,498 contracts Significant reduction in put OI, indicating traders are less bearish at this level, potentially seeing it as a floor. 21600 Strike: -26,470 contracts Another level of put unwinding, further suggesting reduced bearish pressure at this level.

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?The analysis of changes in strike prices with respect to different levels of open interest (OI) for call options. Here's a breakdown of the key points, followed by the interpretation of market resistance, support levels, and possible movements:

Key Points from the Table

1. Highest OI Levels: Strike prices remained unchanged from May 28 to May 29 for the highest OI levels.
2. Maximum OI Writing: A mix of increases and decreases in strike prices. Some strikes showed a price increase (e.g., 23100 to 23500, 22100 to 22450) indicating potential accumulation of new positions. Some strikes showed a price decrease (e.g., 23500 to 23100, 22000 to 22400) indicating unwinding or profit booking.
3. Maximum Call Unwinding: Significant changes in strike prices. For example, the strike price changed from 22800 to 23900 and 22700 to 23650 indicating strong unwinding and possible short covering. Conversely, some decreases such as 21900 to 21500 and 21700 to 21000 indicate bearish sentiment.

Interpretation

Resistance Levels

Resistance levels are generally identified where there is high call OI because these levels can act as barriers for the underlying asset price. In this context:

• 24000, 23500, and 23000 (unchanged) indicate strong resistance as these are levels with high OI and no change suggests that traders expect the price to remain below these levels.
• The level 23650 after a significant increase from 22700 also indicates a potential new resistance level.

Support Levels

Support levels can be identified where there is high put OI or significant call unwinding, suggesting that prices are likely to remain above these levels. From the table:

• 22400 and 22000 (Maximum OI Writing) where we see an increase in OI, indicating potential support as traders might expect the price to stay above these levels.
• 21500 (decreased from 21900) shows strong support because of the significant unwinding activity, indicating traders may not expect prices to fall below this level.

Market Possible Move

The total difference in strike prices:

• 2050 points (green side) indicates a potential bullish sentiment, with significant call unwinding at higher strike prices (implying short covering).
• 250 points (red side) indicates a mixed sentiment, with some levels showing resistance (potential profit booking).

Given the overall changes, it seems there is more upward movement potential (bullish bias), especially considering the larger total change in strike prices on the call unwinding side. This could suggest that the market participants are preparing for a move higher, with key support levels around 21500 and 22000 and resistance levels around 23500 and 24000.

Conclusion

• Resistance Levels: 24000, 23650, 23500, 23000
• Support Levels: 22000, 22400, 21500
• Market Possible Move: The market shows potential bullish momentum with significant call unwinding indicating potential upward movement. Key support levels should hold, and breaking resistance levels could lead to further bullish trends.

Disclaimer:

This report is for informational purposes only and does not constitute investment advice. The analysis is based on market conditions as of May 28, 2024, and may not reflect future market conditions. Readers are encouraged to perform their own research and consult with a qualified financial advisor before making any investment decisions. The author and the publisher of this report are not responsible for any losses or damages arising from the use of this information.