Nifty in consolidation mode, bulls have to wait

BENCHMARK indices inched up higher for the third straight session. Another day of gap up opening and filled the gap during the day. It closed below the opening level. Finally, it settled with 76.40 points gain and closed at 15,174. Barring public sector indices, all other sectoral indices registered a positive close. The recent laggards, IT, Pharma and Metal indices were up over 1. 5 per cent each and led the market to close in positive territory. The Bank Nifty and the FinNifty closed to flat positive. India VIX was further down by 7.77 per cent. The market breadth is a little positive as 1,096 stocks advanced and 807 declined.

Another day of gap up opening, and the gap filled during the day. As weekly expiry advanced by a day, the Option writers were busy to grab the theta value. The Nifty formed a bearish hanging man kind of candle near the resistance area. It was still within the broader range. The +DMI moved above the -DMI, and rising is a positive sign. But, the ADX is still declining shows that the strength is yet to pick up. Interestingly, on the weekly chart, the positive movement indicator +DMI is at the lowest level since budget day.

The Daily RSI is forming an inverted head and shoulders. Watch for 60 levels closely, and a move above this level will lead to a resumption of an uptrend after a decent consolidation. The Bollinger bands are still moving at a parallel distance. As the Nifty is above the 20DMA, be with a positive bias as long as it trades above it. The MACD histogram shows that the bearish momentum declined significantly. The five-day exponential moving average (15,072) or Today's low 15,100 will act as support on Friday. A move above 15,273 will give a big boost to the bulls to resume the uptrend. The major indicators are showing different pictures on daily and weekly charts. Even the MACD histogram is declining and is about to move below the zero lines. There are several contradicting signs and have not given clues about the near future. As the Nifty has not formed a lower low, we cannot be bearish until it breaks down.

Derivative Analysis

The Nifty future was up by 96.75 points since the last weekly expiry. One day of a gap down and three days of gap up openings with long wicks have not been easy to execute the short-term trading during this expiry. For the last two days, though the index is moving higher, the open interest is declining. The decelerating open interest does not show any conviction on the trend.

The Nifty future volume is the lowest since 15th February. Today, most of the Options premiums melted like ice. Theta erosion because of four sessions of weekly expiry. The PCR is still near the higher levels at 1.54. For the next weekly expiry, the PCR is at 0.87. The rollovers were seen at 11.53 per cent. The Bank nifty rollovers stood at 27.08 per cent, which is above the average. The open interest for the next weekly options is a little lower than the average level. The ATM (15,200) Call option has just 21,013, and the Put option has 9,041 OI. After this, the Out of the Money option strikes of 15,500 Call option have the highest open interest of 17,246, and 15,000 strike Put option have 14,795 open interest. The remaining strikes do not have much open interest. For the next 15,500 and 15,000 levels will act as resistance and supports. Even Next week, the market may try to consume more time to consolidate before getting triggers to take a decisive trending move.

(The author is a financial journalist, technical analyst, family fund manager)