May sees markets preparing for difficult times ahead, with a significant barrier for bulls projected above 22,500

May sees markets preparing for difficult times ahead, with a significant barrier for bulls projected above 22,500

It seems doubtful that the Nifty would rise until call writers withdraw from the 22,500 strike. This level is probably going to be a significant obstacle for the index.

Long-term uncertainty seems to have engulfed the market as the 2024 General Election's second round came to an end on April 26, which also happened to be the start of the May series. Rollover data that is below normal suggests that market confidence has declined. Going forward, traders can anticipate significant volatility and unpredictability. All market players should be on tenterhooks due to the foreign portfolio investors' (FPIs) activities in the next week beginning on May 29 and the movement of the India VIX.

The prior week saw the Nifty rise due to short covering. On the daily chart, the Nifty appreciated the trendline support and offered a strong surge. The index found good support at the 21,800 mark. Nifty finished at 22,420, 273 points higher at the conclusion of the week. On the daily chart, it created a Dark Cloud Cover candlestick pattern on Friday. Most people classify this pattern as a bearish reversal pattern. It is unlikely for the Nifty to rise higher until call writers, or bears, withdraw from the 22,500 strike, which is the maximum call open interest.

Reduced Rollover suggests reluctance to move holdings into the May series.

The Nifty rollover was 65.12 percent, far less than the 69.77 percent rollover from the previous month and the 71.25 percent and 74.48 percent 3- and 6-month averages, respectively. In the April series, the Nifty increased 1.09 percent, from 22,327 to 22,750. In the April series, there was a pitiful 1.55 percent increase in open interest. On Friday of last week, Nifty started the May series with 1.22 crore shares of open interest.

A high level of uncertainty regarding the outcome of the general election is the reason for the lower rollover with a marginal cost of carry of 0.31%, as well as the increases in open interest (1.55%) and price (1.09%). These factors suggest reluctance to continue holding the current positions in the May series.

There are conflicting indications from the FPI's Long Short Ratio.

On the last day of the April series, the long-short ratio increased significantly to 39% from 31% on Wednesday, April 24, as foreign portfolio investors (FPIs) sold off their short positions in Index futures. This seemed to be the beginning of the FPIs' recovery. On the first day of the May series, they aggressively constructed more short positions than long bets, but on Friday, the ratio dropped down to 35 percent.

The Nifty is probably going to follow a comparable path.

On the daily chart, the Nifty has been trading in a parallel channel, with the 22,800 level likely functioning as resistance and the 21,800 level working as support on the upside. It is probable that Nifty will remain inside the channel for the next week, and any significant move outside of the channel will determine the direction of the Index's subsequent upward leg.

India VIX saw its largest one-day decline in over five years.

On April 23, the fear gauge, or India VIX, had its worst one-day decline in over five years, ending 19.72 percent down at 10.20. Bulls may feel quite uneasy as the election draws near and any increase in the VIX cannot be completely discounted. The fear index decreased 18.82 percent to conclude the week at 10.92.

Up move unlikely until after the 22,500 level is effectively cleared.

The Put writers, or Bulls, effectively overthrew the Call writers, or Bears, from the 22,500 strike in Nifty on the last day of the April series. However, the Call writers returned to work on Friday and put up a fierce fight against the bulls. In the index, there was strong call writing at strikes 22,500 and 22,600. It's doubtful that there will be a clever up move until call writers leave the 22,500 strike. This level is probably going to be a significant obstacle for the index.