Broader markets have been nervous since the start of 2014. Where Nifty has fallen little over 3 percent, Bank Nifty has fallen by over 5 percent. As Bank Nifty has breached the key support of 11000, the downsides in this Index are open till 10500. On Nifty however, key support is placed around 6100 levels, which was the previous consolidation base and currently holds one of the highest Put base.
In the Futures segment, there has been clear distinction between the OI pattern where Nifty OI has reduced by over 8 percent from the start of the series, suggesting long liquidation. Bank Nifty has seen shorting of over 20 percent and the OI has swelled from 57305 contracts to 68936 contracts, clearly suggesting shorting in the Banking Index.
In the options segment, aggressive call writing is seen in both the indices, suggesting upsides may be capped in near term. However on the Put side, while Nifty is seeing near the money put writing in at 6100 Put strike, in Bank Nifty the addition is seen in 10500 & 10000 put strike, suggesting vulnerability to more shaper downsides.
With the components of these indices, Nifty is seeing support action from IT & Pharma on the back of long build up, however in Bank Nifty short addition is seen in Private & Public Sector heavyweights. The Nifty, on the other hand, still seems to be consolidating in the broad range.
A look at moving averages brings out the weakness in Banking segment wherein the index has come below its key 200 DMA of 11150. Nifty on the other hand has its key moving averages placed at 6000 levels.
The price ratio of Bank Nifty/Nifty has breached below the upward trendline it has been following since August 2013. We expect it to further come down to 1.64 in the days to come.
Strategy: Sell Bank Nifty January Future at Rs 11000-11020 and Buy Nifty January future at Rs 6185-6190
Parameters:
Current Price Ratio (Bank Nifty/Nifty): 1.78
Target: 1.64
Stop loss: 1.86
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