Trade setup for 31 May: NIFTY50 eyes weekly close above 22,500

Asian markets update 7 am

Indian equities are set for a positive start today with the GIFT NIFTY up 0.8%. This comes despite a negative handover from Wall Street, where major indices closed lower. Other Asian markets are also trading in the green, with Japan's Nikkei 225 up 0.1% and Hong Kong's Hang Seng Index up over 1%.

U.S. market update

U.S. stocks closed lower on Thursday, dragged down by a tech sell-off. Salesforce's disappointing earnings report sent software stocks tumbling, while chipmakers like Nvidia fell on news of export restriction on AI chips. The S&P 500 lost 0.6%, the Dow 0.8% and the Nasdaq 1%. In a separate development, Donald Trump was found guilty on all counts in his New York hush money trial.

NIFTY50

• June Futures: 22,627 (▼0.8%)
• Open Interest: 5,50,758 (▲47.7%)

The NIFTY50 index started Thursday’s session on a negative note and ended the fourth consecutive session in red. The index formed a negative candle on the daily chart with large upper and lower wicks, indicating sharp bouts of volatility.

Our yesterday’s analysis pointed out that the index may slip towards its previous all-time high zone of 22,500-22,550, which is its next support. The index ended the May expiry below this crucial support. Moreover, the index also slipped below its 20-day moving average (DMA) but protected it on a closing basis.

It is important to note that despite a sharp dip, the index is still trading above its 20 as well as 50 DMA. We believe that a decisive close below these levels will indicate further weakness. However, if the index protects both the DMAs on a closing basis, then it may consolidate in a range with resistance at 22,800.

Initial open interest for the 6 June expiry, which will come after the result of the general election, is scattered. Traders are advised to monitor today's weekly close and the change in OI to understand the positioning.

BANK NIFTY

• June Futures: 49,037(▲0.2%)
• Open Interest: 1,63,157 (▲12.0%)

The BANK NIFTY snapped its losing streak and ended Thursday’s session in the green. The index outperformed versus the NIFTY50 and witnessed buying interest after a gap-down start. However, BANK NIFTY then traded in a narrow range with sharp bouts of volatility.

In our yesterday’s blog we highlighted that index has strong support between 48,200 and 48,000 zone and the weakness will only emerge if the index closes below these levels. Yesterday, the index protected this level on a closing basis and staged a reversal from here. Going forward, if the index slips below the above support zone on a closing basis, then it may slip towards 47,500. On the flip side, the immediate resistance for the index is between 48,500 and 49,600 zones.

The open interest build-up for the 5 June expiry remains concentrated on 48,500 and 49,000 call and put strikes. This indicates that the index may trade in a range with sharp bouts of volatility.

FII-DII activity

Stock scanner

Long build-up: Page Industries and Samvardhana Motherson

Short build-up: Piramal Enterprises, Deepak Nitrite, Tech Mahindra, Bajaj Finance and Coforge

Out of F&O ban: Aditya Birla Fashion and Retail (ABFRL), GMR Infra, Hindustan Copper and Idea

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.

Disclaimer: Derivatives trading must be done only by traders who fully understand the risks associated with them and strictly apply risk mechanisms like stop-losses. The information is only for consumption by the client and such material should not be redistributed. We do not recommend any particular stock, securities and strategies for trading. The securities quoted are exemplary and are not recommendatory. The stock names mentioned in this article are purely for showing how to do analysis. Take your own decision before investing.