Nifty View October 2020.

Nifty View October 2020.

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The last time we analyzed Nifty, our Analysis is on point. My view was that there would be a small correction in Nifty from 11,500-11,700 to about 11,000. And this blog is like the next part of it. Let’s analyse Nifty.

Disclaimer– This is purely for educational purposes. This is not a Buy/Sell recommendation. Our analysis could be wrong too. This analysis is Valid only till the next week i.e 16th October 2020. I don’t know when you’ll be reading this blog.

his analysis is based on two main factors

  1. Price Action.It includes charts, support and resistance, divergence, Fibonacci points, Candlestick patterns, etc.
  2. Data Analysis. It includes Option chain, FII activity, Futures data, Open Interest (OI), advance to decline ratio, India VIX, etc.

Price Action.

Our last analysis said that there was a Marubozu Candle and the data points were bearish. The market did fall as per our expectations. It retraced all the way down to 10,800 which was 23.6% level. And now the market is back up.

You can see that there’s a resistance zone near the current price, but the market is opening gap up each day.

The market is above the 20 EMA which is a good sign. There was a doji yesterday, but the market did not reverse and closed above the Marubozu candle.

But one thing that concerns me is the daily gap up opening. You might know that there’s a strong chance that gaps are filled. Since there was a good rally, and gap up opening daily, I am concerned that once profit booking starts, the market will correct more than it is expected to.

CPR.

When I draw CPR on the chart you can see that each CPR level is rising, that’s a good sign, it is a sign of a healthy trend.

Divergence.

There’s no divergence on the chart as of today. It is another relief, divergence on a higher time frame chart is usually a powerful thing to look for.

Reliance.

Reliance industries is worth 14% in Nifty, when a single stock has that kind of weightage in the index, it’s important to track that stock as well.

Reliance was in a good uptrend, but then it faced resistance and consolidated in a range for a while. Then it finally gave a breakout. But there are many subsequent red candles.

But if you look closely, the breakout was clearly volume supported which is a good sign. Another thing to notice is that all the red candles have low volume, lower than the 20 MA drawn on the volume while the second last green candle is again volume supported.

That’s actually a good sign.

The top 5-7 companies in Nifty hold about 50% weightage, but I wont analyse them individually as it’ll only complicate things.

Bank Nifty.

Bank Nifty and Nifty often move in the same direction (but if you observe properly, Nifty and Bank Nifty tend to move in the opposite direction in the second half).

BNF was trading in a channel and it finally came out (down) of the channel. There is a long term resistance that can bee seen. If Bank Nifty closes above the resistsance, an almost certain up move in Nifty can be expected.

Data Points.

A lot of times price action is misleading and is used to trap retail traders. But data points are more reliable certain times. Data analysis is a whole different thing, when used with price action, the probability of our analysis increases a lot.

Option Chain.

I love analysing option chain, I use the old NSE website for it. This is the Option chain for 15th Oct 2020 and let’s analyse it.

12,500 , 12,300 and 12,000 are OI with the highest open interest. These are the short-medium term resistance zones. 11,500 , 11,700 and 11,800 are the support zones of Nifty currently.

The previous resistance zones (11,500-11,700) are now acting as the support. It’s a good sign.

There’s a long build up in the Calls Side of the Option chain. The OI is increasing and the calls side as well as the premium. To support our analysis there is a short build up on the Puts side of the Option chain.

Both the sides indicate that an up move is expected. The Put/Call ratio aka PCR is currently 1.25 which is bullish imo. PCR can be used in contrarian way also.

FII Activity.

FIIs drive the market and when we’re in the same direction as the FIIs, we make profit. That’s the basic theory.

FIIs have bought heavily in Index futures and Index options. They sold a big chunk in stock futures and remain inactive in the stock options.

This data is supposed to be looked at daily. You can just conclude something from Day 1. So, try analysing this data everyday and it’ll make more sense. The advance to decline ratio is about 0.8 which is not terrible, but I think that FIIs are bullish/buying only certain stocks.

More Positions of FIIs.

  1. Futures index long.
  2. Futures index short.
  3. Stock futures long.
  4. Stock futures short.
  5. Index options call long.
  6. Index options puts long.
  7. Index options calls short.
  8. Index options puts short.
  9. Stock options call.

Final Thoughts.

I’ve presented all the relevant data points as well as price action related stuff and I’ve also mentioned how to analyze it. The conclusion must be pretty clear right now.

But, I do have a few concerns.

  1. Profit Booking. If profit booking starts near the resistance, a downfall can be expected.
  2. Resistance in Nifty and Bank Nifty. There is clearly a resistance in both Nifty and BNF, and if candles aren’t closed above this resistance due to profit booking, a retracement can be expected.
  3. Gap Filling. This daily gap ups made by Nifty can be a downside over the medium term view.

-Vikrant C.

 

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