F&O Watch: Better to adopt cautious approach in May series

Nifty failed to cross psychological barrier of 8000 zones after it surrendered most of the gains of this week and closed negative by around 132 points on expiry of April derivative contracts.

"April series made an attempt to test 8000 zones but last day was in bear grip in line with the negative global cues and profit booking was seen by traders on rollover position," Chandan Taparia, derivative analyst at Anand Rathi said.

April Nifty series closed with the gains of 1.41% and index closed 50 points higher from its monthly volume weighted average.

Nifty futures has seen rollover of around 73% with roll cost of 0.64% on provisional basis. Rollover is slightly higher than the past three month average of 69.50% which indicates that longs are intact even after the strong rally of 1167 points from the recent swing low of 6882 zones.

As per the option concentration data, maximum Put OI is at 7700 followed by 7000 strike while maximum Call OI is at 8200 followed by 8100 strike. Option data is also hinting a pause in momentum.

"India VIX was flattish for most part of the series and close at 16.60 with no major change on expiry to expiry basis now if VIX turns higher from the recent lower levels then that may attract a profit booking decline in the market," Taparia said.

Bank Nifty outperformed the Nifty index in the April series as it closed with the gain of 3.56% V/S Nifty gains of 1.41%. It has made a “Bearish Haramai Cross” on daily chart near to psychological 17000 zones. It has rallied well from 13400 to 17000 zones and now if it sustains below 16500 then immediate trend may take a pause and profit booking decline may be seen towards 16000 zones. On the upside if it manages to hold above 17000 mark then only a fresh leg of rally may be seen towards next hurdle of 17450-17500 zones.

Bank Nifty has seen Rollover of around 73% with roll cost of 0.28% which is better than its 3 month average of 69.50%, roll cost is lower in the Bank Nifty.

Sector wise better roll seen in Fertilizers, FMCG, Pharma, Capital Goods and Auto sector stocks while less rollover seen in Metals and Technology stocks.

Outlook

If the Nifty manages to hold above 7979-8000 zones then only can this rally can extend to higher levels to move towards 8150-8200 zones. If it holds below 7820 then it may form a double top with the negative divergence of mechanical indicators and in that scenario a probability of testing 7720 and 7550 zones cannot be ruled out as global market started to take a pause near their crucial resistance levels.

"Index has already seen a strong rally of around 1200 points in last two months without facing any meaningful correction and finding pressure at higher levels so better to go for a hedging strategy. Follow up buying is missing, FIIs flow are lesser and global markets are under pressure so better to take a cautious view in the next series," he added.