Strong support for Nifty seen at 17,850; Buy the dips, suggests chart

The options data indicates that the Nifty may look to hold on the 18,000-mark till expiry, given the high OI at the 18,000 Put.

The NSE Nifty 50 dipped below the 18,000-mark after more than a month, as persistent weakness in global markets coupled with concerns over the rising Covid-19 cases in neighbouring countries took its toll.

The NSE benchmark had registered a new summit at 18,887.60 on December 1, 2022. The index has declined nearly 5 per cent from its peak value in the following 16 trading sessions, with the selling more profound in the last three trading sessions.

During the course of the month, the NSE Nifty 50 dipped below its 20-DMA (Daily Moving Average) and the 50-DMA placed at 18,500 and 18,185, respectively. The 50-share index now seems on course to test the 100-DMA, placed at 17,840 level.

The 100-DMA also coincides with the 20-WMA (Weekly Moving Average) which stands at 17,850. The index has managed to sustain above the 20-WMA since late July 2022 after the crossover. Given the coincidence of 100-DMA and 20-WMA around the 17,850, technically this level is likely to act as a strong support for the Nifty 50.

However, in case, the 17,850 support gets violated, the NSE Nifty may slide towards the 200-DMA placed at 17,185 level. The weekly chart indicates a downside target of 17,300 - 17,220 on the index.

Independent technical analyst, Ravi Nathani says today is a 'make or break' day for the Nifty 50. In case, the Nifty index fails to hold the 18,000-mark, it can test 17,800 on the downside, with a final likely target of 17,500. 

Fresh buying in Nifty should be considered only above 18,100, recommends Nathani.

F&O Data suggests...

The Nifty December futures saw aggressive addition of shorts in trades on Thursday, with the contract ending at a discount of 15 points as against a premium of 24 points in the preceding trading session, as the Nifty 50 fell 72 points. The monthly contract saw addition of more than 7,300 contracts in OI in trades yesterday.

However, so far, this morning the premium on Nifty December futures has returned, with the contract trading at 18,017 level at 10:00 AM, while the spot Nifty stood at 17,950.

Further, the options data too paint at a slightly hopeful picture. The 18,000 Put for the December expiry holds the highest open interest (OI) 1.66 lakh contracts shows the NSE data, with the next highest at 17,500 and 17,800 Puts with an OI of 1.02 lakh and 92,000 contracts, respectively.

If 18,000-mark fails to hold till expiry, Put writers will be forced to cover their position, which could lead into a sharp slide. However, stronger hands on the writing side tend to indicate support at the particular level with higher OI.

On the Call side, among near-range Calls, the Nifty 18,200 Call has the highest OI with 2.42 lakh contracts, indicating strong resistance. The next two near active Calls are 18,100 and 18,300 with an OI of around 1.41 lakh each. 

Interestingly, the 18,000 Call has seen aggressive build-up of position in trades on Friday so far. The total OI has rose to 141 lakh contracts, with nearly 1.15 lakh contracts added today.