How will Bank Nifty perform this week?

The past week was a disappointing one for the index, as it fell nearly 800 points or about 2%.

With this, huge selling pressure has been observed at higher levels of 38000 and above. Moreover, in all the last five trading sessions, Bank Nifty ended in red, which confirms extreme bearish sentiment. With the trend of the index now known, let us analyze how the index shapes up for next week.

On the technical chart, the index has formed a Doji candle on Friday, which brings indecisiveness among the market participants. Moreover, the index took support of its 20-DMA on Friday before recovering. Any strong green candle on the chart can mean a reversal from here on. Thus, Monday’s session becomes an important one to analyze the further trend of the week. The short-term trend being bearish, the key support levels are found to be 37200, which is a prior swing low and 20-DMA level. It is followed by 37000, and 36854 which is its 50-DMA. On the upside, we see that a prior swing high of 37581 will hold a crucial resistance. Next in line will be 37891 and 38000 levels. Considering the current scenario, the initial hour on Monday will be closely watched, as further fall in the index shall be met with more shorting opportunities.

Analyzing option data, the PCR for January expiry stands at 0.74, which hints towards bearish sentiment. 38000 happens to have maximum open interest, followed by 38500. Thus, 38500 shall act as the upper limit for the week. On the put side, 37000, followed by 37500 has highest contracts outstanding. Moreover, 37500 straddle has been created in higher quantities, which suggests market participants are expecting Bank Nifty to trade near to 37500. The straddle price is around Rs 750, and thus a range of 36750-38250 is widely expected. However, this is subject to change as global cues and Fed meeting shall dictate the trend for next week. Volatility is already on a rise and thus, we can expect the index to make volaille moves as the week progresses.