Trade setup for 23 January: Bearish Engulfing on weekly charts, What's next for NIFTY50 and BANK NIFTY?

Asian markets update 8 am

The GIFT Nifty is trading higher by 170 points, suggesting a positive start for the NIFTY50 today. Meanwhile, Japan’s Nikkei 225 and Hong Kong’s Hang Seng index are up 1% and 2.8% respectively.

US market update

US equities continued to rally, with both the S&P 500 and the Dow Jones Industrial Average hitting new record highs. The S&P 500 rose 0.2% and the Dow Jones 0.4%, breaking through the 38,000 mark for the first time.

Economic optimism and expectations of strong earnings from artificial intelligence companies boosted sentiment. Meanwhile, earnings from Netflix and Tesla later this week will be closely watched for further directional clues.

NIFTY50

January Futures: 21,604 (▼0.2 %) Open Interest: 2,26,762 (▲1.4%)

The NIFTY50 ended the week lower by 1.5%, dragged down by a sharp sell-off in HDFC Bank and profit booking in IT heavyweights. The index formed a bearish engulfing candle on both the weekly and daily charts, suggesting weakness ahead. Despite a gap-up start on Saturday, the index pared all gains to close near the day's low.

As mentioned in our previous blogs, the index is facing strong resistance near its 20-day moving average and is consolidating between 21,500 and 21,700. Since January, the bulls have protected the 21,450-21,500 area four times. However, a daily close below this area could trigger a move towards the 50-day moving average, which is near 21,000.

On the options front, the maximum open interest for call options is placed at 22,000 and 21,700 strikes. On the other hand, highest open interest for put options lies at 21,000 and 21,500 strikes for 25 January expiry. As per the options data, the trading range for NIFTY50 could be confined between 21,900 and 21,200.

BANK NIFTY

January Futures: 46,136 (▲0.8%) Open Interest: 1,29,365 (▼10.7 %)

The BANK NIFTY had a brutal week, plunging 3.5% under the weight of heavy selling in HDFC Bank. The banking giant's disappointing Q3 results dashed optimism and triggered a bearish engulfing pattern on the weekly chart, erasing the gains of the previous five weeks.

Adding to the uncertainty were ICICI Bank's Q3 results, released after market hours on Saturday. While they were in line with Street expectations, their impact on the banking index remains to be seen. Currently, the BANK NIFTY is stuck in a consolidation zone between its 50-day and 100-day moving averages. Experts caution that a break above or below either level will determine the immediate direction of the index.

On the options front, the BANK NIFTY call options have the maximum open interest at the 48,000 and 47,000 strikes. Conversely, the highest open interest for the January 25 put options is at the 46,000 and 45,000 strikes. Based on the options data, the trading range for BANK NIFTY could be confined between 47,000 and 45,000.

FII-DII activity

In the cash market, both Foreign Institutional Investors(DIIs) and Domestic Insitutional Investors(DIIs) turned net sellers on Saturday. The FIIs sold shares worth ₹545 crore, while DIIs offloaded shares worth ₹719 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: Balkrishna Industries, Coal India, IRCTC and REC Ltd.

Short build-up: Hindustan Unilever, Can Fin Homes, Laurus Labs, Tata Chemicals and Abott India.

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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