Market Outlook for May 25: Key Developments Ahead of the Opening Bell

Nifty 50 Sees Rebound, But Bears Remain in Control

The Nifty 50 index rebounded on May 22, but its gains were limited, with the index closing 0.3 percent higher. Despite this, the index continued to trade within the previous day's range, indicating a lack of conviction in the market. The index has been struggling to break above the 23,300-23,800 consolidation range, and its failure to do so is a testament to the bearish sentiment that still prevails.

The momentum indicators are now signaling a weakening bearish trend, but the overall trend remains negative. For the bulls to regain control, a convincing move beyond 23,800 (20-day EMA) is necessary. If this happens, the Nifty 50 could potentially move towards 24,000 and 24,300. However, until then, the consolidation may continue, with immediate support placed in the 23,600-23,400 zone.

Key Levels for Nifty 50

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The Nifty 50 formed a small-bodied bullish candle with an upper shadow on the daily charts within the previous day's range, signaling range-bound action along with the continuation of a higher lows formation. The index closed above the 10-day EMA for the first time since May 4, but remained below the 20, 50, 100, and 200-day EMAs. The RSI rose to 47.19 and is on the verge of a positive crossover, while the Stochastic RSI sustained above the signal line. The MACD remained below the reference and zero lines, but the histogram's red bar has consistently shrunk for the seventh consecutive session, indicating weakening bearish momentum.

Bank Nifty Outperforms

The Bank Nifty outperformed the Nifty 50, rising 1.15 percent and forming a bullish candle alongside the previous day's red candle on the daily timeframe. The index closed above the 10-day EMA for the first time since May 7, as well as above the 50 percent Fibonacci retracement level of the April rally, but remained below the 20, 50, 100, and 200-day EMAs. The RSI rose to 45.87 with a bullish crossover, while the MACD sustained below the zero and reference lines. However, the gap between the MACD and signal lines narrowed further for the fifth consecutive session, reflected in the shrinking histogram red bar.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Nifty Call and Put Options Data

According to the monthly options data, the 24,000 strike holds the maximum Call open interest (with 1.27 crore contracts), which can act as a key resistance level for the Nifty in the short term. It was followed by the 23,800 strike (71.22 lakh contracts) and the 24,400 strike (60.24 lakh contracts). Maximum Call writing was observed at the 24,400 strike, which saw an addition of 13.79 lakh contracts, followed by the 23,950 and 24,450 strikes, which added 3.38 lakh and 3.05 lakh contracts, respectively.

On the Put side, the 23,000 strike holds the maximum Put open interest (with 96.71 lakh contracts), which can act as a key support level for the Nifty in the short term. It was followed by the 23,500 strike (87.6 lakh contracts) and the 23,700 strike (61.98 lakh contracts). The maximum Put writing was placed at the 23,750 strike, which saw an addition of 18.45 lakh contracts, followed by the 23,500 and 23,800 strikes, which added 13.79 lakh and 10.13 lakh contracts, respectively.

Bank Nifty Call and Put Options Data

According to the monthly options data, the 55,000 strike holds the maximum Call open interest, with 12.32 lakh contracts. This can act as a key resistance level for the index in the short term. It was followed by the 54,000 strike (11.41 lakh contracts) and the 55,500 strike (8.29 lakh contracts). Maximum Call writing was observed at the 54,400 strike (with the addition of 1.81 lakh contracts), followed by the 54,500 strike (1.29 lakh contracts) and 55,200 strike (79,680 contracts).

On the Put side, the maximum Put open interest was seen at the 54,000 strike (with 12.91 lakh contracts), which can act as a key support level for the index in the short term. This was followed by the 53,000 strike (8.88 lakh contracts) and the 53,500 strike (8.56 lakh contracts).

Funds Flow and Put-Call Ratio

The Nifty Put-Call ratio (PCR) rose to 1.08 on May 22, from 1.00 compared to the previous session. The increasing PCR indicates that traders are selling more Put options than Call options, which generally indicates a firming up of bullish sentiment in the market.

India VIX

India VIX remained unchanged at 17.82 and sustained below its short- and medium-term moving averages, signaling support for bulls. However, it is necessary for the VIX to fall below the 16 zone for bulls to enter a more comfortable position.

Long and Short Build-up

A long build-up was seen in 65 stocks, indicating an increase in open interest (OI) and price. This suggests a build-up of long positions. On the other hand, 39 stocks saw an increase in OI along with a fall in price, indicating a build-up of short positions. 80 stocks saw short-covering, meaning a decrease in OI, along with a price increase.

Stocks Under F&O Ban

Securities banned under the F&O segment include companies where derivative contracts cross 95 percent of the market-wide position limit. The stocks retained in F&O ban include Kaynes Technology India and SAIL.