Trade setup for 10 May: Bearish engulfing on weekly charts of NIFTY50 and BANK NIFTY?

Asian markets update 7 am

After a positive handover from Wall Street, the GIFT NIFTY is trading above the 22,100 mark, indicating a gap-up start for the NIFTY50 today. Asian markets are also trading in the green. The Nikkei 225 is up 0.6% and Hong Kong's Hang Seng Index is up 1.6%.

U.S. market update

The U.S. market ended Friday's session on a higher note as the labour market continued to cool, further reviving hopes of an interest rate cut. Initial jobless claims in the U.S. rose to 2,31,000, beating estimates and marking the highest level since August last year.

The Dow Jones rose 0.8% to 39,387 and extended the winning streak to the seventh day. The S&P 500 gained 0.5% and ended the day at 5,214, while the Nasdaq Composite rose 0.2% to 16,346.

NIFTY50

After a day’s pause, the NIFTY 50 resumed its slide and closed below the key psychological level of 22,000 on the weekly options expiry. The decline was accompanied by broad selling pressure across the sectors, pushing the index below its key 50-day moving average (DMA).

In yesterday's trade setup blog, we advised readers to watch the high and low of the 8 May’s doji candle for directional clues. A break above or below would be significant. As higlighted, the index broke through the low of the doji and fell over 1%. This move formed a bearish candle on the daily chart, suggesting potential short-term weakness in the index. Going forward, immediate support for the NIFTY50 lies between 21,700 and 21,800 zone, while resistance remains at 22,500.

Initial open interest for the 16 May expiry remains scattered, with the maximum call base at the 22,300 and 22,500 strikes. The base of the put options was formed on 22,000 and 21,500 strikes. However, it is important to note that the India VIX, the volatility index, has risen by 24% this week - highlighting the caution that investors should be taking.

BANK NIFTY

The BANK NIFTY extended the downward move to the sixth day in a row and closed below the 47,500-mark. The index formed a bearish candle on the daily chart and closed below the 50-DMA.

From its recent all-time high the BANK NIFY has corrected nearly 5% without any retracement. Going forward, before building fresh strategies traders can monitor the price action near the immediate support zone of the index which lies between 46,300 and 46,500 zone. Meanwhile, the resistance for the index is around 48,600.

The open interest (OI) data for the 15 May expiry has a maximum call base at the 48,000 and 48,500 strikes. On the other hand, put OI is scattered between 47,500 to 46,500 strikes. Traders can align their strategies and keep a close eye on the weekly close of the index, which is showing early signs of bearish engulfing pattern.

FII-DII activity

Stock scanner

Under F&O ban: Aditya Birla Fashion and Retail, Balrampur Chini, Canara Bank, GMR Infra, Idea ,Piramal Enterprises, Punjab National Bank, Steel Authority of India (SAIL) and Zee Entertainment

Out of F&O ban: Biocon

In Futures and Options or F&O, long build-up means an increase in Open Interest (OI) along with an increase in price, and short build-up means an increase in Open Interest(OI) along with a decrease in price.

Source: Upstox and NSE.

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