PostMortem on BankNifty Today & Analysis of 22 MAY 2023First time in many weeks, banknifty underperformed nifty50. Ideally this move should have come last week when nifty50 had 2 more resistances to break and banknifty was near ATH. Better late than never.
Nifty50 shooting pass banknifty is actually good for the entire stock markets in India. Only when all the components have caught up - a bullish trend is synchronized. This will pave the way for further breakouts.
Friday we went home with the news that Rs2000 denominated currency notes are getting removed from circulation w.e.f Sep 30 2023.
Theoretically this should be good news for the banks - approx. 2-3 lakh crore stashed cash is going to return to the banking sector. Majority of this will flow into fixed deposits, debt mutual funds, equity mutual funds & stocks. From a formal economic perspective - this may be the best decision ever made. Ideally Rs500 currency also should be withdrawn in the next 3 to 5 year (according to me) so that the digital migration will gain more momentum.
Having said that, I assume the economists & advisors has taken into consideration what will happen to the informal economy which is the silent backbone of real economic activity in India. Nobody has any clue how much of turnover is happening there - but its still huge!
Kirana shops, road side vendors, dalals, brokers, drivers, maids, caretakers, chaiwalas etc are all from the informal sector. I am not really sure how many of them even have a bank account, leave alone financial investment opportunities.
My grandfather used to carry cash with him, keep some in almari & some in the cash-pot near pooja room. Usually when the number of notes goes up - he exchanged it for the highest denomination available & stored it. He did not use a bank account then! I assume there would be lot of people in India who does the same even today (hope they get saved).
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Coming back to our analysis, as per the options data there was lot of fresh shorts taken at CE side. Mostly in the afternoon session. This contradicts with the nifty50 view which has got some new hope as the H&S pattern was negated today.
The encircled traded region which just nullified a bearish chart pattern would have caused lot of momentum shift. Again as per options data shorts were created on the PE side.
As I see it, market participants are long on nifty and short on banknifty. A real tough scenario to play out as banknifty has 38% weightage. Possible options are niftyIT to outperform (12% weightage) along with Reliance (10%) & LT + ITC (8%).
This should be a mega fishing week for the option sellers as a strong breakout could only emerge if there is short-covering on banknifty. Nifty by itself may not be able to pull all the weight. Tomorrow's Finnifty expiry may lead the way when few positions in HDFC & Bajaj twins gets unwound.
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15mts is in a range based trade as of now which kind of makes it a good reward:risk for non-directional option strategies ultra short term.
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1hr shows the trading range getting narrowed, the lows are getting shifted higher and the highs are getting lower. What follows is usually a range expansion. Chart may say the break would be on the upside, but the reality could be dependent on even macro/news events.
