PostMortem on BankNifty 09 NOV 2022 + Comparison with SPX
Bank nifty might have closed in the green today, but i am of the opinion that the price action formed today is negative. I would like to short bank nifty from here especially because its weekly expiry tomorrow.
BN opened gap up at 41914 made a strong red candle - keep in mind this is the all time high. Although the first candle was red - its not the base reason why i am short. In fact the price action till 14.25 was bullish. Only the last 1 hour price action made me bearish for this short term.
From a fundamental perspective, bank nifty is at ATH, nifty50 is not - thats because the niftyIT index has some catch up to day. Globally none of the major indices are at their ATHs - most of them are down 10 to 25% from the FY22 highs.
The first level of support is at 41459 which is quite far from the current levels. So any trigger of bad news or absence of good one can push BN to these support levels.
There was a good momentum rally from 12.15 to 14.15 - this even took out the day's high. Most of the investors seem bullish - maybe they are right in the long term. But my job is to make trades looking at the price action.
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Of the major bank nifty components
HDFCBk and ICICIBk closed in negative, the fall in ICICIBank was brutal esp the last 1 hour
SBI & Kotak closed flattish - but the price action made in the last 1 hour was interesting
IndusInd bank closed in positive but this was after a gradual fall from 10.30 peak.
Axis bank closed in negative due to the selling in the last 1 hr. The last 5mts candle hit the intraday low
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The reason i am bearish for tomorrow is because of the volumes of call option written in the last 1 hour. If you check the volume chart for almost all the liquid contracts you can understand that clearly.
Having said that shorting far OTM CE options would not have worked that well today, thats because the premiums were very low even while the index hit the all time highs. There was a spike in CE premiums at 13.50 5mts candle - from this point onwards the option writers have taken the short bet. I could be immensely wrong also - as any uptick will result in short covering and the index will scale back up.
But as i always use to say, our job mandates that we should have a view and we make money if the view is correct. If our view is wrong, we should be able to exit with minimal loss.
Ratio spread of PE option would have worked out after 14.30 ie sell 1 lot of 41500 PE and buy 2 lots of 41400 PE (unlimited gain, limited loss strategy)
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SPX500 and Bank nifty have a spread of 22.8% as of today. Lets watch the S&P500 closely today as the mid term elections would create volatility in the market.
My support level is at 3737 and the nearest resistance is at 3813 for the 15mts chart
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15mts chart looks bullish as the ATH is hit. Reiterating my bearish view is only for the immediate short term.
1hr chart also shows bullishness
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Bank nifty support & resistance levels
s1: 41459, s2: 41314
r1: no resistance as near ATH
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PS: Read the standard disclaimer at: bit. ly/3Nm3RER
