F&O Manual | Bearish momentum persists; Nifty encounters strong resistance at the 19700 strike

Indian indices continue their bearish momentum amid volatility. Among sectors, pharma, IT and realty indices were up 0.5 percent each. BSE Midcap and Smallcap indices up were 0.4 percent each.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, “The triple whammy of rising dollar, spiking US bond yields and high Brent crude continues to impact Indian equity markets. The cues from the mother market US also are negative. It appears that the market is pricing in a ‘higher for longer’ rate regime in the US, which is not favourable to equity markets in the near term. Since the dollar index is now above 106 and the US 10-year yield is strong around 4.55 percent, FIIs are likely to continue selling, rendering the market weak.”

“Large banking stocks are likely to remain weak on FII selling. Long-term investors can use this weakness to buy high-quality private banks and the leading PSU banks since the banking sector will continue to do well, going forward. Importantly, valuations in the banking segment are fair” added Vijaykumar.

At 12 pm, the Sensex was down 108.51 points or 0.16 percent at 65,836.96, while the Nifty was down 23.70 points or 0.12 percent at 19,641. Around 1,500 shares advanced, 1,481 shares declined and 132 shares remained unchanged.

Bars reflect changes in open interest (OI) during the day. The red bars show call option OI and the green put option OI

The options data suggests a struggle between option put and call writers at the 19,600 strike. Going ahead, heavy call option writing is seen at the 19,700 strike acting as key resistance. While support is seen at 19,400 and 19,300 levels.

As per Anand James, Chief Market Strategist at Geojit Financial Services, “We will now need a show of strength by an outright push above 19,678 to continue playing upswings, with initial target at 19,880. A breach of 19,600 will lend momentum to the bearish bias that was seen bubbling yesterday, but an outright collapse is less expected, with near-term supports seen at 19,540 and 19,420.”

As per analysts, the ‘buy on dips’ texture of the market, which took the Nifty beyond 20,000 has now changed to ‘sell on rallies’. The bulk of the selling has been coming from FIIs, who have cumulatively sold in the cash market for Rs 21,287 crores in September, so far.

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Among individual stocks, Vedanta, Tata Steel and ICICI Bank saw a bearing build-up, while Adani Ports, RIL and REC Ltd saw a bullish set-up.

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