NIFTY OUTLOOK & OPTION CALL PUT TIPS FOR 31 MAY 2024

Overview:

On May 30, Indian benchmark indices experienced their fifth consecutive session of decline. The Nifty ended below the crucial 22,500 mark, settling at 22,488, down 216 points, Similarly, the Sensex dropped 617 points, closing at 73,885. Market sentiment remained predominantly bearish with significant volatility throughout the session.

Bulls' Perspective:

1. Bank Nifty Resilience:

   • Despite the broader market weakness, Bank Nifty found support near its 21-day EMA and closed with a bullish candlestick, gaining approximately 181 points. This recovery was bolstered by strength in large-cap private bank stocks like ICICI Bank, Axis Bank, HDFC Bank, SBI, and Kotak Mahindra Bank.
   • The critical support for Bank Nifty stands at 48,300, with strong resistance at 49,000. A breakout above 49,000 could sustain positive momentum, potentially targeting the 49,400 - 49,500 range.

2. Oversold Indicators:

   • On the hourly charts, the Nifty shows signs of being in an oversold territory, indicating a high probability of a reversal. Immediate support is at 22,390, while 22,700 is a significant resistance level to watch for potential bullish movements.

3. Support Cluster:

   • The Nifty has approached a support cluster between 22,460 and 22,500, coinciding with the 20-day moving average and the 50% Fibonacci retracement level. This zone is expected to hold and potentially catalyze a recovery.

Bears' Perspective:

1. Critical Breaches:

   • The Nifty's dip below the 21-day Exponential Moving Average (21EMA) is a bearish signal. Failure to reclaim and sustain above 22,500 could trigger fresh selling pressure, pushing the index towards lower support levels at 22,300 and 22,100.

2. Sectoral Weakness:

   • Barring Media and BankNifty, all other sectors closed in the red. Metal and IT sectors experienced the most significant corrections. The broader market saw substantial declines, with Mid and Smallcap indices each shedding 1.2%.

3. Global Cues:

   • The market sentiment was influenced by rising US treasury yields and persistent global inflation, delaying potential interest rate cuts by central banks. This macroeconomic backdrop contributed to the bearish trend.

4. Profit Booking and Expiry Pressures:

   • The broader market weakness was exacerbated by profit booking and lack of interest in holding short-term positions due to the impending monthly expiry and upcoming exit polls over the weekend.

Key Losers:

• Stocks: Tata Steel, Tech Mahindra, Power Grid Corporation, Wipro, Titan Company.
• Sectors: Auto, FMCG, Metal, IT, Healthcare sectors saw declines ranging from 1-2%.

Market Sentiment:

The sentiment remains weak as indicated by the significant call writing at the 22,500 level, suggesting strong resistance. To witness a meaningful recovery, Nifty needs to decisively move above 22,500. Failure to do so could invite further selling pressure, leading to lower support levels.

Conclusion:

While the bears have held the upper hand with the Nifty slipping below critical support levels, there are signs of potential bullish reversals, particularly in the Bank Nifty and certain oversold indicators. The coming sessions will be crucial to determine if the Nifty can hold its support cluster and initiate a recovery or if the bearish trend will continue to dominate. Investors should watch for key levels, especially 22,500 for Nifty and 49,000 for Bank Nifty, to gauge market direction.