The last weekly expiry was surely in the favor of bears. As long as the 17,400 was holding its ground, the was bouncing in a range giving both the bulls and bears opportunities to place their bets. However, the break of 17,400 turned out to be a catalyst for the fall and a one-sided move eventually wiped out the bulls.
Now the 16,800 level is turning out to be strong support for the benchmark index. Although there have been quite a few intraday penetrations below this level, the Nifty 50 has not been able to close below it till now, which is a good sign. One factor that is increasing the importance of this zone is that it is the same level that acted as a resistance in June 2022 and eventually became the peak of that month, turning the Nifty 50 back to the year’s low of 15,183.4. So, this resistance-turned-support has already proven its reliability time and again.
Despite our market taking support from the lower levels, global cues are extremely weak. Our local strength is not letting us fall further but the global weakness is not letting us rise either. For the last 4 sessions, there has been a tug of war going on between the bulls and the bears. A new cloud of worry emerged on the weekend, pertaining to the concern over the financial stability of Credit Suisse (SIX:) and Deutsche Bank (ETR:). It is rumored that these banks are in a deep financial mess and a failure of either of them could lead to a 2008 global financial crisis-like catastrophic situation.
Now, what should traders do? First of all, soared over 7% in today’s session to 21.37, therefore, the expectation of high volatility should be a no-brainer. Low quantity and distant stop losses are ideal ways to trade this kind of volatility.
Coming to the levels, as long as 16,800 is intact, there isn’t much to worry. But looking at the weak global cues, if this level is taken out then the next support is present at 16,600. It is unlikely that the Nifty 50 would expire below 16,600 by Thursday. Also, there is a holiday on Wednesday therefore, traders have effectively only two sessions left. Despite this, traders should remain cautious on the downside as today’s fall has led to put unwinding to as far as 16,500 PE. This means, traders as far as ~400 points away from the CMP (on the downside) are trimming their risk.
On the upside, the resistance of around 17,200 is crystal clear. It is a very strong supply zone and has been tested 3 times in the last 6 sessions. Even Friday’s massive rally couldn’t surpass this level. This level is around 300 points away from the CMP but looking at the options data, ‘highly’ bearish positions are being made with the strike as close as 17,000 CE written quite aggressively. Nifty 17,000 CE, 17,100 CE and 17,200 CE are holding an OI of 1.59 lakh, 1.4 lakh and 1.14 lakh contracts respectively.
Disclaimer: I have Nifty options in my portfolio.