ABHILASH PAGARIA
HEAD ALTERNATIVE AND QUANTITATIVE RESEARCH, EDELWEISS
Where is the Nifty headed this week?
On the charts, the bias continues to be on negative side as in the previous week Nifty traded on a weak note all through and it broke below the intermediate support levels of 17,600. As per our in-house quant models and charts readings, the chances are high for the Nifty to touch 17,300 and 17,170 — the next two significant near-term support levels. Medium-term strong resistance is placed at around 17,800 levels. Any bounce back should be used as an opportunity to trim longs and add shorts with 18,050 as stop loss.
What should investors do?
We continue to recommend Nifty Bank as a positional short with stop loss at 38,550. As per our quant screeners, the IT names could continue to underperform while ONGC and HPCL could outperform other heavyweights. Within metals, we prefer Jindal Steel and Power for 5-8% gains on the long side.
CHANDAN TAPARIA
DERIVATIVES ANALYST, MOTILAL OSWAL
Where is the Nifty headed?
Nifty has been making lower top – lower bottom on daily scale and resistances are gradually shifting lower which indicates a tough ride ahead for the bulls. Nifty has rallied around 2,500 points in just one month from 15,671 to 18,114 and is now facing selling pressure along with absence of follow-up buying activities. India VIX seems to now taking pause in its fall after making lower highs – lower lows of last seven weeks – which is an early sign of change in market stance. However, the major trend of the market is positive, but short to medium term trend is taking a pause, so retracement of recent rally could be seen in the index for time being towards 17,200 and 17,000. Now, till Nifty holds below 17,650, weakness may persist for the short-term for a decline towards 17,200 and 17,000 marks; while a decisive hold above 17,650 and 17,777 is required for any kind of strength and bullish momentum to the current market structure.
What should investors do?
Investor can wait for more dips to add good quality stocks while traders are suggested to go for hedging or work on position sizing to deal with the changing market stance. Hedging is also suggested with the view of some profit booking decline or capped upside in the broader market. One can go with Bear Put Spread by buying 17,400 Put and selling 17,000 Put to hedge the downside move towards 17,000 zones. Stock specific positive stance is in FMCG, cement and energy sectors; while weakness could be seen in auto, auto ancillaries, real estate and selective financial stocks.
RAJESH PALVIYA
HEAD-TECHNICALS AND DERIVATIVES, AXIS SECURITIES
Where is the Nifty headed this week?
On weekly chart, Nifty has formed a long bearish candle forming lower high-low compared to the previous week, indicating weakness at current levels. On weekly chart, Nifty is now trading below previous week’s Doji candle low which indicates it may witness more weakness ahead. The chart pattern suggests that if the Nifty breaks below 17,400 level, it would witness selling which would take the index towards 17,100-17,000. However, if Nifty crosses and sustains above 17,700 level, it would witness buying which would lead the index towards 17,900- 18,100 levels. Nifty Put options open interest distribution shows that 17,500 has highest concentration followed by 17,000 and 17,300 – which may act as support for the current expiry. The daily strength indicator RSI is moving downward and is quoting below its reference line indicating negative bias. For the week, we expect Nifty to trade in the range of 17,800-17,200 with mixed bias. We expect sectors like sugar, fertilisers, cement and chemicals to show strength; while IT, banking, auto may show weakness.
What should investors do?
The strategy which we are suggesting for the weekly expiry scheduled on April 21 is the bearish Put Ladder strategy which involves buying of one lot of Nifty 17,500 Put at Rs 137 and selling of one lot each of 17,300 Put at Rs 66 and one lot of 17,100 Put at Rs 32. Put ladder is a limited profit and unlimited risk strategy; which is an extension to the Put spread and to further bring down the cost of the strategy (net premium) one more extra leg of out of the money is sold. Any move below the sold leg can incur unlimited loss. The maximum profit of Rs 8,050 will be attained at 17,300 levels, while the strategy will start making a loss below 16,900. The cost of the strategy involves outflow of Rs 1,950 which is the maximum loss if Nifty closes and remains above 17,461 levels on expiry. However, any sharper movement on lower side could result in losses and, as an extra Put has been sold, it’s advisable to exit the strategy in total to avoid unlimited losses below 16,900. Breakeven points of the strategy are 17,461 on the upside and 16,861 on the lower side.
