Most analysts see a feeble possibility of Nifty50 breaching and sustaining the psychologically important level of 18,000 in the February Futures and Options (F&O) series owing to the prevailing concerns over inflation, rate hikes and economic growth.
The February F&O series is going to end on February 23.
Nifty registered its new all-time high of 18,887.60 in trade on December 1, 2022, but has been unable to move further since then. In fact, it witnessed a gradual erosion of strength and slipped to the level of 17,353 in intraday trade on February 1, 2023.
It seems that the level of 18,000 will remain a tough level for the Nifty. Even though the index breaches that level, analysts believe the market will remain rangebound in the short term.
What experts say
Rahul Ghose, Founder & CEO of Hedged, an algorithm-powered advisory platform observed Nifty is in a sideways trend with the lower end of the range at 17,710.
Ghose believes this level of 17,710 will act as a support for Nifty.
He pointed out that there is a demand zone as well at the bottom of this range from 17,710 level to 17,830.
"When Nifty falls, this area will try to propel Nifty back up, and only a bearish closing below this level will start the fresh round of downside," said Ghose.
Ghose believes on the upper side, the resistance range is 18,080 to 18,220 where there is a congestion zone and a tested supply level. A bullish closing above 18,220 on the upside will decide the next course of the trend on the upside.
On the front of open interest (OI), Ghose observed that the highest OI of Call writers is at 18,000 and 18,100 strikes for the February monthly expiry which indicates that this resistance area will not be easy to breach.
However, Ghose believes a silver lining push can happen to the upside if there is a gap up opening above the 18,100 mark, trapping all the Call writers and propelling Nifty towards the upside. Until that happens, we can see this same rangebound movement continue in the Index.
Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities underscored in February so far, Nifty and Bank Nifty traded within the high-low range marked on the Budget day.
The high and low for Nifty on Budget day were 17,972 and 17,353 while the high and low for Bank Nifty were 42,015 and 39,490.
Sheth pointed out that the Nifty managed to break out of the Budget day high but the volume and open interest were missing. Bank Nifty also didn’t break out of the Budget day high. This indicated a divergence that the breakout may not have more legs to it.
"Nifty slipped below 18,000 after giving a false breakout and currently, the 18,000 strike has maximum Call and Put open interest build up which suggests that this level may difficult to cross at least till the February monthly expiry," said Sheth.
Sheth underscored that the Nifty, on the weekly chart, is trading above its 21 and 50-week exponential moving averages and a long-leg "Doji" formation is seen on the chart due to an increase in volatility.
Last week, Nifty attempted to close above its Budget-day high but due to profit booking towards the last day of the week, the index closed below its psychological 18,000 mark.
"There has been a significant rise in open interest build-up at 18,000 by both Call and Put sellers. It looks like a tug-of-war between them. Technically, the structure is still bullish and Nifty stands at the strong polarity support, failing which the index is likely to see a further correction towards the 17,650 – 17,500 zones. Only a sustained close above the 18,200- 18,250 zone is likely to trigger bullish momentum toward 18,450 – 18,500 levels," said Sheth.
On the other hand, Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities believes the Nifty will cross the level of 18,000 and move higher in the coming days.
Vakil pointed out that there has been a long build-up in the Nifty futures in the February series so far.
"Open interest has risen by 10 percent since the beginning of the series. In the options segment, we have seen Put writing at 17,700-17,800 levels which in turn Indicates Nifty may find strong support in that vicinity. Nifty is trading above its downward-sloping trendline resistance adjoining the highs of December 1, 2022, and January 24, 2023," said Vakil.
Vakil also underscored that foreign portfolio investors (FPIs) have started covering their short positions and bought back Index futures last week worth ₹2,147 crore.
"FPIs' net long-to-short ratio in the index futures is still at an oversold level of 0.30 which suggests a higher probability of more short covering by them during the coming days," said Vakil.
"Considering the technical and derivative evidence discussed above, we believe that the Nifty is likely to remain well bid and eventually cross the hurdle of 18,000 and move up further higher in the coming days. On the higher side, immediate resistance is placed at 18,200 while 17,771 will act as support for the near term," said Vakil.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.