Quantitative data set up: Rupee may strengthen further, 10,500 key for strong upside in Nifty

Shivangi Sarda

Greed and Fear Indicator: VIX indicates positive stance ahead (VIX CMP – 25.76)

India VIX fell by 10.34 percent, from 28.74 to 25.76 levels. Volatility is gradually declining from the last three consecutive weeks. It is at the lowest levels of the last four months suggesting overall bullish stance.

CBOE VIX

CBOE VIX slipped to 27.68 suggesting bullish tone in the US market. It was down by 20.3 percent and continued its decline for the third week in a row.

Volatility lower than 30 levels indicates strength going forward in the US market.

Fund Flow: FIIs break their selling streak

In the cash segment, FIIs remained net buyers for most part of the week but broke their selling streak on Friday. They were net sellers to the tune of Rs 5,333 crore in the week. DIIs on the other hand had an offsetting position and were net buyers worth Rs 5,041 crore this week. On the derivatives front, there was short covering in index futures and a blend of long and short built up in stock futures.

Safe Haven: Yellow metal closes at lower levels as the risk appetite of investors increases (Gold, MCX CMP – Rs 48,336)

Gold traded flat in the week and was marginally down by 0.05 percent. It reached its lifetime high levels recently, but could not sustain it as it met with profit booking at higher levels. Negative divergence on the charts suggests profit booking or some consolidation going forward. A climb in the US jobs data revived investor confidence in the economy. Although ongoing trade tensions and surge in the number of coronavirus cases will limit the losses in the precious metal.

Among other precious metals, silver was up by 1.5 percent on a week-on-week basis.

Option Data: Nifty range 10,400 to 10,800 (Nifty CMP – 10,607)

Nifty closed the week with gains and continued the formation of higher lows on a weekly scale while supports are gradually shifting higher which suggests an overall bullish stance in the market. On option front, maximum Put open interest is at 10,000 followed by 9,000 strike, while maximum Call open interest is at 11,500 followed by 11,000 strike. We have seen Call writing in 10,800 then 11,200 strike while Put writing seen at 10,400 then 10,200 strike. Option data suggests a trading range in between 10,400 to 10,800 zone.

Indian Rupee: Rupee likely to strengthen further (USD/INR CMP – 74.63)

The USD/INR chart broke down from its trading band and reached its three-month low levels at 74.89 per US dollar levels and the Rupee is likely to strengthen further against the Dollar. It was down by 0.78 percent on a week-on-week basis adding on to the signs of bullishness. Current-account surplus with foreign inflows along with slowing purchase of dollar by the central government have brightened rupee sentiment. This will have a positive impact on IT counters and the oil market.

Crude Oil: Oil continues to move in a range (Crude Oil WTI, MCX CMP – Rs 3,054)

Oil remained steady and consolidated in a range. It continued to move in a rising channel on its daily frame with a possibility of a more upside. Prices have been showing steady strength and was up by around 4 percent on a week-on-week basis. This weekly gain is backed by lower supply and falling inventories from OPEC.

Dow Jones: Look out for key levels (DJIA CMP – 25,827)

Dow Jones was up by 3.25 percent on a weekly basis and closed around 25,827 levels. 26,300 can act as the immediate resistance and should move higher after crossing this hurdle. The index performance continues to drive other global markets with buy on decline strategy.

Increase in risk appetite of investors has led to the strength in the domestic as well as global market. Moving forward, Nifty has to continue to hold above 10,500 zone to extend its move towards 10,800 zone while on the downside support is seen at 10,450 then 10,333 levels. Bank Nifty needs to hold above 21,500 zone to witness an upmove towards recent swing high of 22,300 and 22,500 zone while on the downside supports are seen at 21,250 then 21,000 levels.

The author is Research Analyst - Derivatives & Technical Research at Motilal Oswal.

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