F&O Outlook: Range-bound to weak

Technical analysts expect triangular movement next week as the markets hit the gap at island reversal area. Island reversal is an occurence where a stock price will gap up/down, trade higher than this price, and then gap down/up below the initial price.

The triangular movement with gap at island area could translate into false bullish and bearish signals.

The option traders have a neutral view on the markets for this month and therefore wrote out of the money Calls and Puts. Call option writers have continued with their short sell in February expiry Call at 5,200-5,500 strikes (44.76 per cent of the total Call options OI), indicating that they do not see a further upside. The Put writers expect the Nifty to settle around 5,000-5,200 levels ahead of expiry.

The trading in March contracts suggests a range-bound month. The total rollover stood at 23 per cent, whereas Nifty rollover stood at 25 per cent. Nifty February futures settled at discount of 17 points as against 25 points last week.

The rollover discount for Nifty March futures has increased from 19 points to 22 points, indicating that short positions were carried forward.

The option writers are bearish on the markets for the next few months, with resistance at 5,300 and support at 5,000 levels. Put writing in next month contracts was seen at 4,700 and 5,000 levels, whereas deep OTM Call writing took place at 5,500 and 6,000 strikes.

Technically, the Nifty breached its immediate support levels of 5,175 and 5,135 last week and settled near the psychological mark of 5,100.

A breach on the downside would see Nifty testing its 200 days simple moving average at 5,025. Volumes have been on the lower side, signifying lack of participation.