By Rajesh Palviya
The week’s opening saw Nifty in a downtrend, navigating through a notable and fluctuating volatility week. Nifty closed at 19,266 on 25th August with a loss of 44 points on a weekly basis.
The weekly chart depicts a small bearish candle with an upper shadow, signifying selling pressure near the upper boundary of a descending channel originating from the all-time high. The chart pattern suggests that if Nifty crosses and sustains above 19,400 level, it would witness buying, which would lead the index towards 19,500 – 19,600 levels. However, if the index breaks below the 19,200 level, it would witness selling, taking the index towards 19,000 – 18,900. We expect Nifty to trade in the range of 19,600 – 18,900 for the week with mixed bias. The weekly chart’s RSI and Stochastic momentum indicators have flattened out, reflecting a discernible absence of strong directional impetus.
Bank Nifty Outlook
Bank Nifty commenced the week positively but experienced significant volatility, swinging in both directions over the week. Bank Nifty closed at 44,231 on 25th August with a gain of 380 points on a weekly basis. The weekly chart displays a small bullish candle with an extended upper shadow, suggesting profit booking occurred near the upper boundary of a descending channel originating from the all-time high. The chart pattern suggests that if Bank Nifty crosses and sustains above the 44,350 level, it would witness buying, leading the index towards 44,500-44,700 levels. However, if the index breaks below the 44,000 level, it would witness selling, taking the index towards 43,900 – 43.800. For the week, we expect Bank Nifty to trade in the range of 44,700 – 43,800 with mixed bias. The weekly strength indicator RSI and the momentum indicator Stochastic have turned flat, indicating a lack of strength.
Sectors and Stocks for coming week
We expect sectors like Real Estate, Paper, Midcap IT, Media, Capital Goods and Automobiles likely to behave in a bullish manner. One can focus on stocks like Godrej Property, DLF, Sun TV, Maruti, Schand Publication, Andhra Paper, BSOFT, Mphasi, Siemens, L & T, and SRF for bullish bets.
Strategy for coming week
Traders can initiate a Moderately Bullish strategy with reduced premium outflow & lower breakeven point called BULL CALL SPREAD of 31st August weekly Expiry wherein trader will buy one lot of 19,200, call strike at 125 and simultaneously sell one lot of 19,450 call strike @ 28 so that net outflow or maximum loss will be restricted to up to Rs 4,850. If NIFTY on expiry closes above 19,297, the strategy will start making a profit. However, as the risk is limited, so is the profit also limited. The maximum gains will be restricted to Rs 7,650 because the gains of the long 19,200 strike call will be offset by the sold 19,450 strike call if NIFTY closes above 19,450 on expiry.
(Rajesh Palviya, SVP – Technical & Derivatives Research, Axis Securities. Views expressed are the analyst’s own. Please consult your financial advisor before investing.)