The Nifty 50 index has entered an extended profit booking phase after hitting record highs, with significant foreign fund outflows weighing on sentiment. According to Religare Broking analyst Ravi Singh, the index’s put-call ratio reaching oversold levels indicates a potential bounce back may be on the cards.
The put-call ratio measures put option open interest versus call option open interest. A ratio below 1 suggests a higher call bias among traders and a potential uptrend, while a ratio above 1 signals a higher put bias and pending downside.
Singh notes Nifty’s put-call ratio has dropped to 0.69, showing puts are not attracting much interest from traders currently after the recent sell-off. This oversold reading as per historical benchmarks signals the downside may be limited in the near future.
From a trading perspective, he recommends avoiding fresh short positions for now. Existing shorts can be held with a tight stoploss of 25,100. Only a move above 25,500 would invalidate the short term negative outlook as per Singh.
Bank Nifty is finding support in the 50,000-49,800 zone as per the analyst. Fresh shorts are not advisable here as well, instead wait for a pullback towards 51,300-51,800 to consider shorting opportunities.
The pharma and IT sectors seem to be providing some stability compared to other volatile sectors currently. Overall, traders should tread cautiously and follow strict stoplosses as per Ravi Singh of Religare Broking.
