Trade setup for Aug 31: Will NIFTY50 defend the long-term trendline support on Monday?

GIFT NIFTY futures fell 73 points on Monday morning, suggesting a weak opening for NIFTY50. A spike in crude oil prices and elevated US Treasury yields would remain key sentiment drivers for Indian markets on Monday.

Crude oil prices advanced on Monday morning after the US launched attacks on Iran’s rocket launchers, preparing to deploy mines in the Strait of Hormuz. Brent crude oil prices reclaimed $90 per barrel mark, rising 2.8%.

The US stock market futures opened in the red after closing the previous week in the green. Investor sentiment turned cautious after Federal Reserve chairman Kevin Warsh provided no clues about interest rates, but remains concerned about sticky inflation, reviving the fears of a rate hike in September.

Taking cues from the negative US market closing on Friday, Asian markets too opened in the red, losing as much as 2% on Monday morning. The KOSPI index plunged the most at 2.2%, followed by Japanese Nikkei at 1.7%, and Hang Seng at 1%.

NIFTY chart summary

NIFTY50 extended the losing streak for the third consecutive week, losing 0.3% from the previous week. Amid the weakness, the index defended the long-term trendline support on Friday on the daily charts. However, the index closed below the crucial 50-EMA medium-term average, keeping bearish sentiment alive for the index.

NIFTY50 open interest summary

The open interest data for tomorrow’s weekly expiry indicates skewness towards the call side, with 24,300 calls holding the highest open interest, indicating near-term resistance. However, on the downside, the smart recovery from the lower levels on Friday witnessed strong open interest addition for 24,000, 24,100, and 24,200 put strikes, indicating renewed support on the downside.

FII turn net-sellers for August

As highlighted in the previous day’s trade setup, FIIs reclaimed their net buying position in Indian equities in August. However, Friday’s net selling in the index reversed the majority of the net buying position in the index. Foreign investors sold ₹5,039 crore worth of Indian equities on Friday, while DIIs continued to remain net buyers in Indian equities, adding ₹5,183 crore worth of equities on Friday.