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The Indian stock market witnessed a significant downturn on February 28th, creating what experts are calling a “bear trap.” The Nifty 50, after a period of consolidation, opened with a gap down and subsequently fell nearly 2 percent, closing at a 9-month low. This disappointing start to the March series has led analysts to adopt a cautious stance, suggesting a “sell-on-rally” approach, given that moving average lines are trending downwards. Despite this bearish sentiment, the market is considered oversold, which could lead to a rebound in the upcoming session. The immediate resistance level for the Nifty 50 is projected at 22,300, and its sustainability at this level will be crucial. On the downside, the 22,000 mark, which aligns with the 100-week EMA (Exponential Moving Average), is expected to provide immediate support, with further support found at the 21,800 level, establishing a critical support zone. Understanding these key levels is vital for traders navigating the market's volatility and making informed decisions. The article presents 15 data points designed to assist traders in identifying potentially profitable opportunities amidst market fluctuations. These data points encompass various aspects of market analysis, including key levels for the Nifty 50 and Bank Nifty based on pivot points and Fibonacci retracements, options data analysis for both indices, fund flow information, Put-Call ratios, India VIX readings, and identification of stocks exhibiting long build-up, long unwinding, short build-up, and short-covering patterns. Additionally, the article highlights stocks with high delivery trades and lists securities under the F&O (Futures and Options) ban. By considering these diverse data points, traders can gain a more comprehensive understanding of market dynamics and make more strategic trading decisions.
Analyzing the technical formations of both the Nifty 50 and Bank Nifty provides further insights into market sentiment. The Nifty 50's formation of a long bearish candle on the daily charts, accompanied by significantly above-average volumes (the highest since November 25, 2024), signals considerable weakness. Moreover, the momentum indicators, such as the RSI (Relative Strength Index) reaching the oversold zone at 22.40 and the MACD (Moving Average Convergence Divergence) remaining below the zero line with a negative crossover, reinforce the bearish outlook for the Nifty 50. Conversely, the Bank Nifty exhibited a bullish candle formation with minor upper and long lower shadows, indicating some pressure at higher levels but also demonstrating buying interest at lower levels. The index found support at the upward-sloping support trendline and staged a recovery before closing with a 399-point loss. Despite this recovery, the overall sentiment for the Bank Nifty remains bearish, as the index is trading near the lower end of the Bollinger Bands, and momentum indicators exhibit a negative bias. Examining options data for the Nifty 50 reveals that the maximum Call open interest is concentrated at the 22,500 strike (with 1.18 crore contracts), suggesting that this level may act as a significant resistance point in the short term. The 23,000 and 22,300 strikes follow with 1.07 crore and 67.21 lakh contracts, respectively. Maximum Call writing was observed at the 22,500 strike, with an addition of 85.53 lakh contracts, followed by the 22,300 and 23,000 strikes, which added 65.63 lakh and 55.71 lakh contracts, respectively. Notably, there was minimal Call unwinding across the 21,300-23,250 strike band, indicating a prevailing bearish sentiment among Call option writers.
On the Put side for the Nifty 50, the 21,800 strike holds the maximum Put open interest (with 72.69 lakh contracts), suggesting that this level may serve as a crucial support level. The 21,500 and 22,000 strikes follow with 59.29 lakh and 48.45 lakh contracts, respectively. Maximum Put writing occurred at the 21,800 strike, with an addition of 50.35 lakh contracts, followed by the 21,300 and 21,500 strikes, which added 24.16 lakh and 22.62 lakh contracts, respectively. Conversely, the maximum Put unwinding was seen at the 22,500 strike, which shed 20.77 lakh contracts, followed by the 22,600 and 22,800 strikes, which shed 14.17 lakh and 7.02 lakh contracts, respectively, potentially indicating a reduction in bearish expectations at these higher strike prices. Analyzing the Bank Nifty's options data reveals that the 49,000 strike holds the maximum Call open interest (with 10.08 lakh contracts), suggesting that this level may act as a key resistance level in the short term. The 50,000 and 50,500 strikes follow with 9.16 lakh and 5.36 lakh contracts, respectively. Maximum Call writing was visible at the 48,500 strike (with the addition of 2.48 lakh contracts), followed by the 50,000 strike (2.47 lakh contracts) and the 50,500 strike (1.79 lakh contracts). The maximum Call unwinding was seen at the 49,200 strike, which shed 9,540 contracts. On the Put side for the Bank Nifty, the maximum Put open interest is concentrated at the 48,000 strike (with 8.29 lakh contracts), suggesting that this level may serve as a key support level. The 49,000 and 47,000 strikes follow with 7.72 lakh and 7.06 lakh contracts, respectively. Maximum Put writing was observed at the 48,000 strike (which added 1.92 lakh contracts), followed by the 48,500 strike (1.57 lakh contracts) and the 47,000 strike (1.41 lakh contracts). The maximum Put unwinding was seen at the 49,000 strike, which shed 94,020 contracts, followed by the 48,800 and 49,200 strikes which shed 57,120 and 24,960 contracts, respectively.
The Put-Call ratio (PCR) for the Nifty dropped to 0.78 on February 28th from 0.98 in the previous session. A declining PCR indicates a shift towards a bearish sentiment in the market, as traders are selling more Call options than Put options. Typically, a PCR above 0.7 or surpassing 1 suggests a bullish sentiment, while a ratio below 0.7 or moving towards 0.5 reflects a bearish mood. The India VIX, which measures market volatility, increased by 4.53 percent to 13.91, though it remains within a comfortable range for bulls. Analyzing market participation, a long build-up was observed in 6 stocks, indicating an increase in both open interest (OI) and price, which suggests the build-up of long positions. Conversely, 70 stocks saw long unwinding, characterized by a decline in OI along with a fall in price. Short build-up was observed in 130 stocks, indicating an increase in OI along with a fall in price, signifying the build-up of short positions. Finally, 9 stocks saw short-covering, meaning a decrease in OI along with a price increase. Understanding these trends in market participation can help traders identify potential opportunities and manage risk effectively. In summary, the article provides a comprehensive overview of the Indian stock market's current state, highlighting key levels, technical formations, options data, PCR, India VIX, and market participation trends. By carefully analyzing these data points, traders can gain valuable insights into market dynamics and make more informed trading decisions. However, it is crucial to remember that the views and investment tips expressed by experts are their own and should not be taken as financial advice. Always consult with certified experts before making any investment decisions.
Source: Trade setup for March 3: Top 15 things to know before the opening bell