Trade setup for 7 May: Will NIFTY50 find footing at 50-DMA?

Asian markets update 7 am

The GIFT NIFTY is trading flat, suggesting a subdued start for Indian equities today. Meanwhile, other Asian markets are trading in the green. Japan's Nikkei 225 is up 1%, while Hong Kong's Hang Seng Index is up 0.1%.

U.S. market update

The U.S. market extended Friday's gains and edged higher on broad-based buying across sectors. Weaker-than-expected April jobs data renewed hopes for interest rate cut this year. The Fed fund futures market is now pricing in two rate cuts this year, up from one a week ago.

The S&P 500 and Nasdaq Composite gained 1% and ended the day at 5,180 and 16,349 respectively. The Dow Jones Industrial Average rose 0.4% to 38,852.

NIFTY50

May Futures: 22,550 (▼0.05%)

Open Interest: 4,41,892 (▲5.70%)

Despite a positive start, the NIFTY50 index once again failed to sustain gains and ended the range bound session flat. The muted activity was on account of selling pressure in PSU banks and Reliance Industries.

The index formed an inside bar candlestick pattern on the daily chart following the formation of the bearish engulfing on the 3 May. Based on Monday's price action, the NIFTY50 confirmed the bearish engulfing candlestick and closed below its 20-day moving average (DMA), indicating short-term weakness.

However, experts warn that the index may see sharp intraday price swings as the volatility index (India VIX) closes above 16. In today's session, traders can keep an eye on the index's immediate support at the 50 DMA, while resistance remains at 22,800.

Based on the open interest (OI) build-up from the 9 May expiry, significant call OI was placed at 22,800 and 22,700 strikes.On the other hand, PUT OI has been placed at the 22,000 strike. The build-up of this OI indicates that traders expect the NIFTY50 to trade between 22,000 and 22,800.

BANK NIFTY

May Futures: 49,045 (▼0.07%)

Open Interest: 1,49,455 (▲2.39%)

The BANK NIFTY extended its losing streak for the fourth consecutive day and closed flat on Monday. The index faced selling pressure at higher levels after RBI proposed additional provisioning of 5% on project financing. The norms will be applicable to banks and non-banking lenders and will cover existing and new loans.

On the daily chart, the BANK NIFTY has also formed an inside bar candlestick pattern. For further directional clues, traders can look for the breach of the high and low of the inside bar. However, it is important to note that the index is currently trading above its key 20 and 50 DMAs, suggesting that there are several supports for the index at lower levels. On the other hand, resistance remains at 49,500.

The open interest build-up for the 8 May expiry has a significant call and put base at the 49,000 strike, indicating range-bound movement. Based on this build-up, traders expect the BANK NIFTY to trade between 47,500 and 50,500.

FII-DII activity

The Foreign Institutional Investors (FIIs) remained net sellers for the third day in a row and sold shares worth ₹2,168 crore, while the Domestic Institutional Investors (DIIs) remained net buyers and bought shares worth ₹781 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: Britannia, Jubilant FoodWorks, Siemens, Alkem Laboratories and Marico

Short build-up: PFC, Titan, Punjab National Bank, Coal India, State Bank of India and HDFC Life

Under F&O ban: Aditya Birla Fashion and Retail, Balrampur Chini, Biocon, GMR Infra, Idea and Steel Authority of India (SAIL)

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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