Nifty: Nifty to find support at 16,000 amid high volatility


Technical and derivative analysts expect the Nifty to find support at 16,000-16,100 levels. The Nifty fell 2.3% last week to close at 16,201.80, underperforming most Asian peers. The Nifty may face a hurdle around 16,400 on the higher side, said analysts.



Where is the Nifty headed?

Technically, the Nifty has closed forming a bearish candlestick pattern, trading in a lower top lower bottom chart structure on the weekly time frame with support seen at 16,120-16,140. A breakdown below this zone could attract further selling pressure towards 15,900-15,950 zones. Resistance on the upside is seen at 16,380-16,450 zone. Above 16,450, the Nifty can revisit 16,680-16,700 levels. Based on the option chain data, Nifty is expected to trade in a broad range of 15,850-16,450.

What should investors do?

One should prefer quality largecaps and high-quality mid-caps while staying away from smallcaps. Stocks from the defence space such as

, L&T and along with frontline auto stocks like and are displaying bullish set-ups, while those from the banking and NBFC spaces are witnessing short build-up. The most crucial event is the US Fed meeting on June 15 ahead of which global markets are expected to witness heightened volatility. Traders are advised to take hedged bets with appropriate position sizing keeping leverage in check. For options traders, we expect consolidation with a negative bias, hence we recommend a bear put spread which involves buying 16,200 PE and selling 16,050 PE with a premium cost of 55-60 and a potential reward of 90. Keep a stop loss of 30 points of the premium.



Where is the Nifty headed?

The global equity sell-off has led the Nifty to settle below all three key moving averages on the daily time frame and also black-bodied candle has appeared on the charts. The overall chart setup hints toward a bearish directional consensus of the participant. On an immediate basis, Nifty can head to 16,000 and find some support at 15,750 levels. Any rebound till 16,480 should be used to build fresh shorts with 16,620 as a stop loss.

What should investors do?

As per our in-house quant models, we see strength in the FMCG and auto sectors while banking and metals will continue to be laggards. Any rally should be used to lighten up existing positions or build fresh shorts. As per our index rebalance opportunity, we continue to like

as a long and as a short bet. and Ambuja can be entered at 5% lower levels from Friday’s closing. The target for all the opportunities is 10-13%.


Where is the Nifty headed?

On the weekly chart, the Nifty has formed a long bearish candle forming a lower high-low compared to the previous week indicating weakness at current levels. Nifty slipped below its 10- and 20-day simple moving averages, which indicates the near-term trend is weak. The chart pattern suggests that if the index breaks below 16,000, it would witness selling, which would take it towards 15,800-15,600. However, if the Nifty crosses and sustains above 16,400 it would witness buying which would lead it towards 16,500-16,700. For the week, we expect Nifty to trade in the range of 15,700-16,500 with a negative bias. The weekly relative strength index (RSI) is moving downwards and is quoting below its reference line indicating negative bias.

What should investors do?

The strategy we are suggesting for the weekly expiry on June 16 is a bearish strategy called put ladder, which involves buying one lot of Nifty 16,200 put at Rs 145 and selling one lot each of 16,000 put at Rs 72 and one lot of 15,800 put at Rs 33. The maximum profit of Rs 8,000 will be attained at 16,000 levels, while the strategy will start making a loss below 15,600. The cost involves an outflow of Rs 2,000 — the maximum loss if Nifty closes and remains above 16,150 levels on expiry. However, any sharper movement on the 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 15,600. Break-even points are 16,160 on the upside and 15,560 on the lower side.



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