By Rajesh Palviya
Nifty started last week on a flat note however selling pressure throughout the week led the index to end on a weak note. Nifty closed at 17476 with a loss of 309 points on a weekly basis. On the weekly chart the index has formed a long bearish candle forming lower High-Low compared to the previous week indicating weakness at current levels. The chart pattern suggests that if Nifty crosses and sustains above the 17700 level it would witness buying which would lead the index towards 17900-18100 levels. However, if the index breaks below the 17400 level it would witness selling which would take the index towards 17100-17000. For the week, we expect Nifty to trade in the range of 17800-17200 with mixed bias. The weekly strength indicator RSI is moving upwards and is quoting above its reference line indicating positive bias.
Nifty futures closed at 17519 on a negative note with a 3.46% increase in the open interest indicating Short Build-Up. Nifty Futures closed at a premium of 44 points compared to the previous day premium of 46 points. India VIX index is at 17.78 v/s 18.16. Nifty ATM call option IV is currently 12.49 whereas Nifty ATM Put option IV is quoting at 14.82. Index options PCR is at 0.72 v/s 0.75 and F&O Total PCR is at 0.82. Nifty Put options OI distribution shows that 17300 has highest OI concentration followed by 17700 & 17500 which may act as support for current expiry. Nifty Call strike 18000 followed by 17900 witnessed significant OI concentration and may act as resistance for current expiry.
Bank Nifty outlook
Bank Nifty started the week on a flat note and remained in a narrow range (38000-37200) throughout the week, indicating lack of strength on either side. Bank Nifty closed at 37463 with a loss of 289 points on a weekly basis . On the weekly chart the index has formed a “Doji” candlestick formation indicating indecisiveness amongst market participants regarding the direction. The chart pattern suggests that if Bank Nifty crosses and sustains above 38000 level it would witness buying which would lead the index towards 38500-39200 levels. However if the index breaks below 37100 level it would witness selling which would take the index towards 37000-36400 . Bank Nifty is trading above 20, 50, and 100 day SMA’s which indicates positive bias in the short to medium term .For the week, we expect Bank Nifty to trade in the range of 38500-36500 with mixed bias.
Derivative Outlook :
BankNifty closed at 37576 on negative note with 8.17% increase in open interest indicating Short Build Up. BankNifty Futures closed at a premium of 113 points compared to the previous day discount of 7 points. BankNifty Put options OI distribution shows that 37500 has highest OI concentration followed by 37000 & 36500 which may act as support for current expiry. BankNifty Call strike 38000 followed by 37500 witnessed significant OI concentration and may act as resistance for current expiry.
Sectors and Stocks for this week :
We expect Sugar, Fertilisers, Chemical, Cement and FMCG sectors may show some buying interest in the coming weeks while IT, Banking and Automobiles may witness some selling pressure.
Strategy for Coming Week :
After a Long holiday weekend, the markets are likely to make a strong move in either of the directions and to take advantage of the same we are suggesting a market-neutral strategy called Long Straddle for weekly expiry at 21st April 2022. This strategy involves buying of (ATM) CALL & PUT one lot each of 17,500 strike having premium of 139 & 137 respectively garnering in total premium outflow of Rs 13,800.As it’s a debit spread, from profit perspective this strategy can generate theoretically unlimited profit while the loss is restricted to total premium paid if Nifty closes exactly at the Long strikes i.e 17,500 on expiry; however once Nifty breaches the upper breakeven level of 17,776 or the lower breakeven level of 17,224 and sustains on either side then the profit can be unlimited. It’s advisable to maintain a combine premium (i.e add premium of call + put together) stop loss of 100-120 points so that if Nifty doesn’t make a strong move then losses can be curtailed by following the above mentioned stop loss or else as per risk appetite can even hold till expiry. The strategy will generate profits once Nifty breaches the range of 17,776 on upside or 17,224 on lower side on the expiry and also closes above or below the break even points.
(Rajesh Palviya, VP – Research (Head Technical & Derivatives), Axis Securities. Views expressed are the author’s own.)