Nifty positively biased, witnessing short covering bounce, traders should buy on dips; Bank Nifty sees selling pressure

Nifty positively biased, witnessing short covering bounce, traders should buy on dips; Bank Nifty sees selling pressure

By Manojh Vayalar

This April series Nifty futures started with a premium of 70-80 points for the current month. Nifty futures along with FII maintained 83% short positions in-line with last month’s series, which is now down to 78% shorts. The index is currently witnessing a short covering bounce till now at around 17,700 levels. We believe that a dip in the index could be an opportunity to enter into longs and hence the Buy on Dips is the trade sentiment in Nifty.

The Bank Nifty has been witnessing some selling pressure as well off lately and we expect 40,200-40,500 to be the support now. We have currently been witnessing a short covering in the index till 41,000 and expect the index to now consolidate in a range. FIIs started this series with around 81% vs 62% index shorts last month, currently at around 78% as of yesterday. For the Nifty, the IVs for the options stayed at around 11 levels in yesterday’s trade implying possible buying in call options, majorly 17,600. For the Bank Nifty 27th April, 43000 strike call option has highest open interest implying resistance near these levels. Bank Nifty has strong support near 40,800 levels now. For the Nifty, the VWAP (Volume weighted average price) of Nifty April Futures is around 17,300 implying that to be the support. Above this, Nifty is to be positively biased for the short term.

With FIIs heavily short in the index gradually decreasing this month, we expect Nifty to perform better and maintain a buy on dips. The ratio between Bank Nifty and Nifty is currently at 2.32, this ratio has a support at 2.26 and resistance near 2.35. We do not expect outperformance by the Bank Nifty in the short-term and suggest maintaining sell on rise. We expect Nifty to perform better and maintain a buy on dips. Sector-wise, IT & Auto look positive. NTPC, with a base at around 175 levels, can rally till 182-185 in the April series.

(Manojh Vayalar, VP – Derivatives, Religare Broking. Views expressed are author’s own. Please consult your financial advisor before investing.)