Trade setup for 6 May: NIFTY50 forms bearish engulfing, 22,800 remains resistance

Asian markets update 7 am

Indian equities are set for a positive start as the GIFT NIFTY climbs 0.4%, surpassing the 22,600 mark. Meanwhile, markets in Japan and South Korea are closed for a public holiday, while Hong Kong's Hang Seng Index is down 0.1%.

U.S. market update

The U.S. stocks closed higher on Friday after the April’s jobs report came in lower then expected. The report showed that 1,75,000 jobs were created in April, below the estiimate of 2,40,000. Based on the April’s-weaker-than-expected jobs data, the Fed fund futures suggest a 50% likelihood of rate cut in September.

The S&P 500 gained 1.2% and closed at 5,127, while the Nasdaq Composite jumped 1.9% to 16,156. The Dow Jones Industrial Average rose 1.1% to 38,675.

NIFTY50

May Futures: 22,575 (▼0.9%)

Open Interest: 4,18,046 (▼5.4%)

After a gap-up start, the NIFTY50 index surrendered all its gains and fell over 400 points from the Friday’s high. The index witnessed a sharp sell-off after hiting a fresh all-time high due to profit booking in index heavyweights.

On the daily charts, the index formed a bearish engulfing pattern, covering the previous three candles. This highlights selling pressure at higher levels. Going forward, the immediate support for the index is at 22,300 and the resistance remains at 22,800.

The open interest data of the 9 May expiry has significant call base at 22,800 and 22,700 strikes, this zone may act as a resistance zone. On the flip side, the put options have base at 22,000 and 22,500. Based on the options data, the traders are expecting NIFTY50 to trade between 22,000 and 22,800.

BANK NIFTY

May Futures: 49,094 (▼0.6%)

Open Interest: 1,32,949 (▼8.6%)

The BANK NIFTY failed to provide the follow-through post the breakout on 29 April and surrendered the crucial 49,000-mark. Despite a positive start, the index faced selling pressure at higher levels and formed a negative candle on the daily chart.

As discussed in our recent Friday morning blog, the index currently has immediate support in the 48,300-48,500 area. This support level coincides with the low of the bullish Marubozu candlestick formed on the 29 April. A break below this level could lead to further selling pressure. Conversely, resistance remains in the 49,500 to 49,600 zone.

Based on the open interest, the significant call option OI was placed at 49,500 and 50,000 strikes. On the contrary, the put options OI are placed at 49,000 and 48,500. As per options data, traders are expecting the BANK NIFTY to trade between 47,500 and 50,500.

FII-DII activity

The Foreign Institutional Investors (FIIs) remained net sellers for two days in a row and sold shares worth ₹2,391 crore, while the Domestic Institutional Investors (DIIs) remained net buyers and bought shares worth ₹690 crore. To track the ratio of long and short open positions of FIIs in the index, log in to https://pro.upstox.com/ ➡️F&O➡️FII-DII Activity➡️FII Derivatives

Stock scanner

Long build-up: Coal India, BHEL, NMDC, Shree Cements and PFC

Short build-up: Coforge, MRF, Larsen & Toubro, SRF and Reliance

Under F&O ban: Aditya Birla Fashion and Retail, Balrampur Chini, Biocon, GMR Infra and Idea

To access a specially curated smartlist of most traded and active stocks, as well as the OI gainers and losers, simply log in: https://pro.upstox.com/ ➡️F&O➡️Options smartlist/Futures smartlist

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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