Bank Nifty forms Inside day & NR4 pattern

The banking benchmark index, Bank Nifty, has opened the session on a positive note, and thereafter, it traded in a capped range of 22,337-22,062 with low volatility. A renewed buying interest was seen towards the end of the session that helped the index to close above the 22,400 level. The price action formed a bullish candle, carrying a lower high and higher low as compared to the previous bar and this formation is known as an inside bar since the price remained within the high to low range of the prior.

Further, the daily range of Bank Nifty from high to low was about 452 points and this was the narrowest range out of the last four bars. Hence, it was an inside day and NR4 (ID/NR4) pattern. This pattern indicates a day with low volatility and a small range. And according to Toby Crabel, the low level of volatility is often followed by a sudden increase in the volatility and a directional move. 

Talking about the indicators, the fast stochastic is trading above its slow stochastic line on the daily timeframe. The daily RSI has taken support near the 42-40 mark. Furthermore, the RSI on 30-minute timeframe turned upside exactly from the 40 level, which suggests a bullish momentum as per the RSI range shift rules.

Going ahead, the gap, which was formed on August 21 (22,190-21,999) would act as key short-term support for the index. On the upside, the level of 22,640-22,760 is likely to act as a strong resistance area. A break on either side would open doors for a directional move.

The derivative data suggest that among Bank Nifty Calls, the 22,500 strike price is the most active call for September 17, 2020 weekly expiry. Among Bank Nifty puts, 22,000 strike price is the most active put for September 17, 2020 weekly expiry. For September 17, 2020 weekly expiry, open interest wise put-call ratio (PCR) is at 0.82 and for September monthly series, PCR is at 0.87.

For September 17, 2020 weekly expiry, the highest call open interest is at 22,500 strike with 11,53,875 OI. On the put side, 21,000 strike has 8,68,600 open interest, which is the highest. For September 17, 2020 weekly expiry, the total call open interest is 1,00,15,250 and the put open interest is 82,06,250. For September monthly series, the highest call open interest is at 23,000 strikes with 5,79,950 OI. On the put side, the highest put open interest is at 22,000 strikes with 3,81,900 OI. The current derivative data suggest that the Max Pain is at 22,500 for the monthly expiry.