A Day For Consolidation With A Bearish Tone

Today’s Market Setup

Gift Nifty is up 11 points as of 6:30 AM today morning. Dow and Nasdaq have also closed higher by 167 and 190 points respectively. According to Gift Nifty, Nifty50 opening ticks will be at the same levels as yesterday's close, which is below its all moving averages. The 10-DEMA is placed at 23439, and the 20-day DEMA is at 23436. These two moving averages will act as strong resistance levels.

Foreign Institutional Investors have added short futures in Gift Nifty and Bank Nifty, indicating their bearish outlook. FIIs have also added a small quantity of call options and a large quantity of put options on the Index, further reinforcing their bearish stance. Additionally, they have added shorts in stock futures. Overall, FIIs are bearish across every market segment. Every rise in the markets is being seen by FIIs as an opportunity to sell. It has become a "sell on rise" market.

Proprietary desk traders are showing a bullish stance in Index and Stock futures but are bearish on options. This mixed positioning suggests they may be employing complex trading strategies.

Clients, which typically include retail investors and smaller institutional players, are bullish on Index futures, stock options, and Index options. This indicates a more optimistic outlook among this group of market participants.

Domestic Institutional Investors are bearish in stock options and are neutral in Index futures and options. This suggests a cautious approach from domestic institutions.

If Nifty50breaks and closes below yesterday's low, it can head towards the levels of 23200, followed by the level of 23000, which is a psychological level for Nifty50. Any break of the 23000 level will open the lower level of 22785, which is a crucial level for Nifty50. This is the swing low of January 28and is also the level of June 7, 2024, from where Nifty50 started its upward march towards its highest point of 26277.

With the IV rising to 14.45, an increase of 5.55% intraday, the option premiums have risen. Tuesday being the expiry of Sensex Weekly contracts, expect some volatile movements in the second half of the trading session.

Data seems to be suggesting a day for consolidation with a bearish tone. The upside is limited by the 10-day DEMA at 23459 and 20-day DEMA at 23436.

The market is currently experiencing a tussle between FIIs and clients. While FIIs are bearish, clients are bullish, creating a conflict in market sentiment. However, given the significant influence of FIIs on the market, the overall setup appears to be bearish.

At present, Bank Nifty is in a no-trade zone, sandwiched between a rising 10-day and 20-day DEMA at 49797 and 49686 respectively, and the 50-day and 200-day DEMA placed at 50190 and 50210 respectively. These levels can also define the range of Bank Nifty until one of the levels is broken convincingly.

The structure of Bank Nifty has been disrupted, and traders will wait for a definite movement towards one side, breaking any one of these levels before entering a trade in Bank Nifty. The range of Bank Nifty has narrowed, and analysts expect a 500 to 700 point move after a break in either direction.

In line with our setup for Monday, the lows of February 7 were breached, but Bank Nifty was able to close the day above Monday's lows. However, Bank Nifty is still making lower highs and lower lows, which is a bearish signal. Like the broader market, Bank Nifty is a "sell on rise" market in the current scenario.

Yesterday
Nifty50 opened with a gap down of 16 points at 23543, while Bank Nifty opened with a larger gap down of 106 points at 50052. This gap down opening suggests negative sentiment at the start of the trading session.

Nifty50 faced selling pressure from the opening bell and continued trading lower throughout the day. The bears gave the bulls little chance to recover, driving the market lower to hit the intraday low of 23316. This persistent downward pressure indicates strong bearish sentiment in the market.

In this downward journey, Nifty50 has now closed well below two important technical indicators: the 10-day DEMA at 23459; the 20-day DEMA at 23435.

Closing below these key moving averages is often considered a bearish signal by technical analysts.

Towards the last hour of trading, some recovery was witnessed, and Nifty50 closed the day at 23381. This slight recovery suggests there might still be some buying interest at lower levels.

After 10:15 AM, Nifty50 traded within a range of 100 points and closed towards the lower end of the day's trading range. This indicates that selling pressure remained dominant throughout the session.

Only 11 out of Nifty 50 stocks closed the day in green, highlighting the broad-based selling pressure across the index constituents. This low number of advancing stocks further reinforces the bearish sentiment in the market.

Bank Nifty mirrored the broader market's downward trend, trading lower from the opening bell. Despite efforts to push it higher, reaching an intraday high of 50155, selling pressure quickly overwhelmed these attempts, causing the index to slip lower. However, Bank Nifty found support at two critical technical levels: the 10-day DEMA at 49797 and the 20-day DEMA at 49666. These support levels helped the index recover somewhat, ultimately closing the day at 49981. The bearish sentiment in the banking sector was evident, with only 2 out of 12 banking stocks managing to close in positive territory.

The negative sentiment was not limited to the banking sector, as all other sectoral indices closed the day in the red. Notable declines were observed across various segments of the market. The Nifty Next 50 and Nifty Mid Select indices both fell by over 1.8%, indicating weakness in the broader market beyond the top-tier stocks. The Nifty Metal index was the day's biggest loser, plummeting 2.64%, while the Nifty Midcap 100 also saw a significant drop of 2.12%.

Other sectors weren't spared either. Consumer-focused indices like Nifty Auto and Nifty Consumer Durables fell by 1.48% and 2.36% respectively, suggesting weakening consumer sentiment. The Nifty FMCG index, often considered a defensive sector, saw a relatively smaller decline of 0.47%. Meanwhile, Nifty Pharma dropped 1.47%, and indices tracking public sector enterprises - Nifty CPSE and Nifty PSE - both fell by over 2.3%. The Nifty Oil and Gas index also declined by 1.73%. 

Options Chain
Nifty50: Expiry February 13
The option chain dated February 13 is heavily loaded in favor of the call writers, indicating bearish sentiment. Calls have been rolled down to 23500, suggesting a lower price expectation. Aggressive call writing is seen at every level from 23500 onwards till 24000, indicating heavy resistance at each level. This suggests traders expect limited upside potential.

Puts have been rolled down from 23200 to 23100 and 23000, reflecting shifting support levels. Heavy put writing is visible at 22800 also, which shows the growing conviction of put writers at this level. We had said on Monday that 22785 is a crucial level--the market appears to be preparing for this. Put writers are showing some conviction on the 23000 level followed by 22800 level. Overall, this presents a weak option chain for bulls, suggesting bearish market sentiment.

It's evident from the pyramid bar chart of Nifty50 that the height of the call bars is much more than the height of put bars, further confirming bearish sentiment. The IV at the put side is 15.86 and 17.16 on the call side, indicating slightly higher uncertainty for upward movements.

Bank Nifty: (Expiry February 27)
There hasn't been much call writing, suggesting less bearish pressure at higher levels. The conviction of put writers seems to be returning at the 50000 level today, indicating a potential support level. With 1.32 million put writing at 49000, it will be the support for Bank Nifty, while 1.339 million call writing at 51000 establishes it as the resistance level. These levels suggest a trading range for Bank Nifty.

The IV at the put side is 17.21 and 16.00 on the call side, indicating slightly higher uncertainty for downward movements in Bank Nifty, contrary to the Nifty50 trend.

Support and Resistance
 - Nifty 50: Major support at 23000; major resistance at 23600.
 - Bank Nifty: Major support at 49000; major resistance at 51000.
 - Sensex: Major support is at 77000 and major resistance is at 78000. 

Put Call Ratio and at-the-money
 - Nifty: Overall PCR at 0.60; ATM 0.68 (Bearish)
 - Bank Nifty: Overall PCR 0.8; ATM 0.98 (Neutral)