Nifty Analysis for the Budget Week

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The ‘Nifty 50’ has broken the support of 17800-17771 on Friday, 28 January 2023, with a daily volume of twice of the daily volumes of the last one month. Few market participants are calling it a ‘blood-bath’ while a few called it a healthy correction and therefore considering it a buying opportunity. They all might be correct, and we were also correct when predicted this fall last week and a week before that. The ‘net credit spread’ created last week resulted in profit by means of the expiry of both options near Zero. The stop loss was placed at 18200 which was hit because price went up to 18200.75 for about a minute on 24 January 2023 at 09:37 AM. Therefore, if we would have taken a naked option or Nifty future trade, we would have placed a stop-loss order which would have been executed, but because I was holding a spread (hedged position), I was supposed to exit it manually if price would have held above 18200 for some time. Though, if I would have had a naked position and my stop-loss order would have been executed, I would have re-entered when price reached 18090 which was our entry zone (see the conclusion of the last week’s research) for the bearish trade.

Let’s now go through the technical charts to build a trade set up for the coming week.

NIFTY 50 Technical Analysis

The weekly chart shows that the bullish cross (09EMA above 21EMA) is intact but price closed below both moving averages albeit it is still above the 50 week’s exponential moving average which might act as a support level for Nifty. As this support lies at 17400, we have a room for a further fall of up to 200 points and if it breaks that level too, we may then witness additional decline.

If we look at the daily chart, it has retested the bearish cross (09EMA below 21EMA) and fell down till 17493 which lies below the 200 day’s exponential moving average albeit the 200DEMA was regained same day. This level should act as a support zone but because the Friday-fall came with the volume of 4763.46 lakh which is more than double of the daily volumes of last few weeks. Therefore, the benchmark indices might break the 200DEMA also, however, we shall wait for either this break down or the retest of the bearish cross. It means we shall enter a bearish trade only if Nifty-index falls below the 200DEMA with similar volumes or if it makes a bearish candle near 17937-18020 zones.

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Now let’s look at the hourly chart, bearish cross (09EMA below 21EMA) is intact there also. It is also evident that index is striving to retest the bearish cross setup as the last candle of the Friday, 27 January 2023, was a Marubozu kind of candle. Therefore, we should enter a bearish trade once a retest of the bearish cross (09EMA below 21EMA) along with 50EMA happens.

After studying the charts of three timeframes, it seems that the index will decline further but after retesting the 17900-18000 zone. So, the technical analysis of Nifty indicates us to enter a bearish trade near 17900 with a stop loss above 18101. In case, index breaks above 18200 with good volumes, we may think of taking a bullish trade but that is very less likely to happen next week.  

NIFTY 50 Options’ Open Interest and FII-DII Data

The Options’ open interest data chart shows that the ‘Call options’ with the strike prices of 18000, 18100, 17900, and 17800 are holding maximum open interest while the ‘Put options’ at all the strikes are holding much lower open interest than aforementioned ‘Call options’. The OI change chart shows that there has been good open interest addition on the Call-options of all the strikes on Friday, 27 January 2023.

Looking at the FII-DII data, it shows that foreign institutional investors have sold ₹9253.18 crores in the week passed while the domestic institutional investors have bought worth ₹7210.53 crores. It means there has been a net selling of ₹2141.65 crores last week which is a bearish sign for the markets.

Conclusion

All the elements of our above-mentioned analysis are communicating bearishness along with the Hindenburg report on the Adani Group. Therefore, we’ll take a sell-trade if price retested 17900-18000 zone, with a stop-loss above 18101, for the first target of 17550 and second target of 17100-16960. All in all, our nifty prediction is bearish for the budget week of CY2023.

Note: I have just shared what I studied. I am not sure if I’ll trade next week or not. Also, the Data, used for analysis, has been taken from different sources on internet and I am not a SEBI authorized analyst, therefore verify the data and seek experts’ opinion before taking any trade.