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Nifty: Crucial support at 17800 for positive bias to continue

* The Nifty continued its positive momentum and gained 2% last week despite high volatility where it closed the week near 17900 after making lows near 17610. Domestic indices have significantly outperformed rest of the global peers. Even broader markets have remained buoyant as midcap and small cap indices gained another 3.5% each last week

* By looking at recent Put and Call writing activity, Nifty consolidation between 17500-18000 is very much likely before crossing a mark of 18000. Thus, long positons can be formed only if the Nifty sustains above 18000 or move near the support levels of 17400-17500. A move below 17800 may keep the ongoing range bound movement intact and Short Strangle writers are likely to make money.

* Sectorally, the recent market move was primarily driven by select heavyweights. However, going ahead, we expect technology to remain in limelight as technology stocks quarterly numbers are lined up. Since most banking heavyweights are hovering near their highest Call bases, thus a move above their Call bases will be crucial for banking to perform. We believe 38200 should be a critical level and sustainability above this may open doors for fresh upsides

* The volatility index did subside but it is still above 15.5 levels. This suggest market participants are cautious at higher levels. We believe stocks from PSU banking, auto ancillary and Chemical space may see some resilience

Bank Nifty: Consolidation expected before fresh upsides

* Since mid-September, the Bank Nifty has been finding difficult to sustain above 38200 as OTM Call writing continued. Before the monetary policy, option premiums remained elevated due to which Strangle strategies were deployed in the market in expectation that the index would remain in a range

* PSU banks relatively outperformed last week post the RBI policy whereas during the week supportive action in HDFC Bank along with others from midcap banking universe kept the momentum intact. We feel stocks with lower OI base like IndusInd Bank and Kotak Bank are likely to do well whereas closure in Call writing positions in Axis Bank is suggesting more upside

* Sectoral rotation was clearly visible in the Nifty rally of almost 800 points. Ahead of key results, we feel similar action would happen. If any profit booking triggers come in from technology space, banking should provide a cushion

* For the current weekly expiry, major Put writing was observed in 37000 strike, which remains the key support area for upsides to continue. Current month Bank Nifty future witnessed 10% closure in two instances and now the OI in the future is almost at a three-months low. This should be considered positive as leverage positions have come down and fresh accumulation is expected to form above its sizeable Call base of 38200 levels

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