Although the Nifty is roaring back to life, a shooting star candle formation might signal short-term weakness

Although the Nifty is roaring back to life, a shooting star candle formation might signal short-term weakness

In the index, there was a lot of put writing at strikes 21,500, 21,600, and 21,800. A strong put in writing indicates a strengthening of support.

For the trading week that concluded on February 2, open positions in futures and options (F&O) suggest that the Nifty may reach a new all-time high the following week. However, as the examination of derivatives data indicators shows, the creation of a shooting star candle in the Nifty daily chart may cause short-term weakness.

Nifty maintained during the course of the first four days of the week at levels between 21,500 and 21,800. However, it eventually broke out of this range and finished at 21,854, up 501 points, or 2.35 percent.

On February 2, 2024, the Nifty hit a new all-time high of 22,127. On Friday, however, Nifty formed a shooting star candle on the daily chart as a result of strong selling in the second part of the day. This is often seen as a negative reversal indicator.

The interim budget, which was unveiled on February 1, proved to be a non-event as Nifty moved in a sideways pattern throughout the session and the day of the budget saw less volatility than anticipated.

The fear gauge, or India VIX, increased from 13.86 on the day of the January end series (January 25) to a peak of 16.58 on January 30. However, after the Budget, the index began to decline and finished at 14.69 on February 2. It took place.

88 percent is the Nifty's Implied Volatility Percentile (IVP). The Nifty's implied volatility (IV) is 14. With an IVP of 88%, it means that 88% of the time over the last year, the Nifty IV traded below 14 and just 12% of the time over the past year, it traded above 14. We can comprehend that the Nifty's present volatility, at 14, is at the upper end of historical volatility, and it is not impossible to rule out the potential of reduced volatility in the next week.

On January 25, the conclusion of the January series, foreign portfolio investors (FPIs) had a long-short ratio of 22%. The 22% result indicates that FPIs own a greater proportion of short than long bets in index futures. The long-short ratio has risen from 22% on February 2 to 32.50% since the beginning of the February series as FPIs aggressively constructed long holdings and liquidated short ones.

Over the previous week, the derivatives data indications have been bullish. According to the daily and weekly charts, Nifty has closed higher. Technically, Nifty gained traction after finding support around the 21,300 levels on the daily chart. In the index, there was a lot of put writing at strikes 21,500, 21,600, and 21,800. A strong put in writing indicates a strengthening of support.

The daily chart's creation of a shooting star candle is the sole cause for concern. When the Shooting Star candle falls below the 21,806 low, the market can once again see short-term weakness.

The Nifty has a maximum call open interest (resistance) of 22,200 strikes. However, Nifty must first break beyond the 22,000 mark, where there is clearly noticeable call writing. The movement of Nifty in the next week will be indicated by options activity at this strike. It's quite likely that Nifty will close above 22,127 and surpass its all-time high if Put writers enter at 22,000 strike and Call writers leave.