Strong resistance for Nifty at 11,800

NSE Nifty made a new high as it was closed near life-time high of 11,856 points. The option band is moving higher side towards 11,900 zone. The Open Interest (OI) in Nifty futures is still quite low, which should limit downsides in the market. Short positions are still stuck at lower levels.

Closure of these positions would limit downsides. Indicating a breakout above the consolidation of previous two weeks, Nifty's recovery in the last week left the recent correction that took place in the previous seven weeks behind it.

The last truncated week ended April 18, 2019, recorded highest winding up of Put OI was recorded at 11,500 strike, while highest OI addition at 11,700 makes it major support base for the Nifty. The bourses were closed on Tuesday and Friday on account of Mahavir Jayanti and Good Friday.

"In the week gone by, Nifty closed in red after making all time high due to profit booking. Only energy index managed to close in green.

On the derivative front, Call writers were aggressively writing ATM and OTM options, whereas Put writing on lower strike was observed," observes Dhirender Singh Bisht, senior analyst (derivatives) at SMC Global Securities Ltd.

Volatility has remained higher near 21 per cent, which is mainly the hedging against the long portfolios, according to ICICI Direct.com. Volatility can increase further as it in 2014 elections had moved towards 35 per cent.

Higher VIX is because of ongoing general elections across the country and the market volatility may continue till the election results scheduled on May 23.

"The Implied Volatility of Calls closed at 13.42 per cent, while Put options closed at 13.87 per cent. The Nifty VIX for the week closed at 21.69 per cent and is expected to remain sideways.

The current Put-Call ratio closed at 1.46, which indicates more OTM Put writing and is a bullish sign," forecasts Bisht. Highest Call OI of over 28 lakh contracts was at 11,800 strike followed by 11,850 and 11,900 strikes.

On Put side, highest OI (23,33 lakh contracts) was at 11,700 strike followed by 11,600 and 11,750 strikes. The highest Put base is placed at 11,500. The same is increasing at 11,700 strike, thus forming a good support at 11,650-11,700 for April expiry.

"The maximum Call Open Interest buildup of more than 31 lakh shares at 12,000 strikes has been observed, which should act as strong resistance zone in this series.

However, on downside Nifty has multiple strong supports at lower levels, which are placed at 11,700-11,650 spot levels. Among Nifty Put options, the 11,500-strike call has the highest Open Interest of more than 28 lakh shares."

Buying momentum is coming up in non-banking and non-IT heavyweights also, which should keep support intact for the Nifty.

For the week ended April 18, 2019, NSE Nifty closed at 11,752.80 points, a gain of 109.35 points or 0.93 per cent, from previous week's close of 11,643.45 points.

BSE Sensex closed at 39,140.28 points, a net gain of 373.17 points or 0.96 per cent from 38,767.11 points of previous weekend level.

"On the technical front, 12,000-11,950 spot levels is resistance zone and support is at 11,500-11,600 levels. Nifty is expected to trade in this range and is likely to consolidate at higher levels," maintained Bisht.

Nifty on technical charts making higher-higher and higher-lows and this hold further under current bullish momentum in the market.

Bank Nifty

Recording weekly gain of 284.85 points or 0.95 per cent, Bank Nifty ended at 30,223.40 points from previous week's closing of 29,938.55 points. Bank Nifty continued to move higher amid high volatility.

The OI additions were seen in a few private banks whereas Call blocks in Axis Bank and HDFC Bank kept the overall index move in check, according to data from ICICI Direct.com.

Indicating year-high, the implied volatility (IV) rose significantly last week as the Bank Nifty corrected and consolidated near 30,000, while long traders closed their positions.

This was also reflected by a sharp decline in future premiums. As the index moved higher after taking support at 30,000, Put OI blocks were seen in 30,000 and 30,200 strikes. On the Call side, same OI trend was seen in 30,500 and 31,000 strikes.

Looking at the options OI set-up, derivative analysts feel upside is likely to continue unless Bank Nifty holds 30,000 level. It is likely to approach its highest Call base of 31,000.