F&O expiry outlook: Nifty resistance at 17950-18000; charts show bearish formation of Head & Shoulder pattern

By Sameet Chavan

Overall the global cues were a bit favourable on Monday morning and hence after a long break, our markets opened with a decent upside gap to test 18000. However, within a few minutes of trade, all these gains just disappeared and in fact, we went on to slide below 17850. However, the market was not done with its twists and turns as we saw strong buying interest at lower levels to pull the market higher. The positive momentum gained some pace post the mid-session to surpass the morning high. This was followed by two days’ of consolidation in a small range.

On the weekly expiry day, we had a soft opening on the back of some nervousness seen in major global peers. In fact, in the initial hour itself, the weakness extended in some of the heavyweight pockets. This led to a breach of 17900 first and then after a decent consolidation, Nifty went on to even test the 17800 mark. At the stroke of the penultimate hour, the expiry factor started playing out and this time it fortunately favoured the bulls as we witnessed a smart recovery towards the end to trim some portion of losses.

The market was quiet in the last couple of sessions as it was trapped in a slender range. On Thursday, it finally had some action but unfortunately, it was dominated by the bears for the most part of the day. Percentage-wise, it was not even a percent cut on a closing basis; but the more it fails to surpass 18100 – 18200, the harder it becomes for the bulls to maintain their grip on the market. In fact, it would be too early to comment on it; but we can clearly see a bearish formation of ‘Head and Shoulder’ being in process on the daily chart of Nifty. The neckline support is around 17700 – 17600, which if gets broken, we could see difficult days for the market in the short run. With reference to our recent cautious stance on the market, we will not be surprised to see it breaking in the forthcoming week itself.

Taking a glance at the F&O space, we saw some open interest reduction in Nifty; whereas the banking index added a good amount of fresh shorts. FIIs continued their selling streak in equities and also preferred adding shorts in index and stock futures segment. This certainly does not bode well for the bulls and is actually providing resistance at higher levels. As far as Options activity is concerned, the call writers were clearly dominating from the last couple of sessions, which again is a sign of weakness. It would be interesting to see whether we see similar kind of activity as we stepped into a new weekly expiry or stronger hands prefer to shift their stance.

For the coming session, the immediate resistance is placed in the zone of 17950 – 18000. Traders are repeatedly advised not to create aggressive longs and even if one wants to follow stock specific moves, needs to be very selective.

(Sameet Chavan is Chief Analyst – Technical and Derivatives, Angel One Limited. Views expressed are the author’s own.)