By Rajesh Palviya
Nifty closed at 15722 with a loss of 138 points on a weekly basis. On the weekly chart, index has formed a bearish candle and remains within a range of 15900-15400 indicating indecisiveness amongst the market participants. The index is moving in a Higher Top and Higher Bottom formation on the weekly chart indicating positive bias.
The chart pattern suggests that if Nifty crosses and sustains above 15800 level it would witness buying which would lead the index towards 15900-16300 levels. However, if the index breaks below 15600 level it would witness selling which would take the index towards 15400-15300. Nifty is now well placed above its 50 and 100 SMA indicating positive bias in the short term. Nifty is expected to remain in an uptrend to sideways zone until it breaks 15600 on the downside. For the week, we expect Nifty to trade in the range of 16100-15600 with mixed bias.
The weekly strength indicator RSI and momentum oscillator Stochastic have both turned negative and are below their respective reference lines indicating negative bias
Nifty derivative outlook
Nifty in the current week has seen Long Unwinding with a price cut of -146 points (-0.92%) and OI shedding of -3.13 lac shares(-3.26%) decreasing from 96.12Lac share to 92.98Lac shares. Nifty traded at a premium of 19 points compared to 28 points, while the sentiment indicator PC Ratio is currently trading at 1.09 which is above the median line and in a comfortable zone indicating positive bias. In Nifty the high OI on the CALL side in the weekly expiry scheduled 8th July is at 15,800(42.26L), 16,000(31.88L) & 15,700(28.59L) strike, with 16,300 & 15,800 acting as a strong resistance wherein there has been writing of 14.66Lac shares & 11.75Lac shares respectively. The high OI on the PUT side is at 15,700(27.57L), 15,500(27.36L) & 15,600(27.20L) strike, with 15,600 & 15,500 acting as a strong support as there has been of writing of 12.13Lac shares & 6.77Lac shares respectively; while the pivotal level will be 15700 due high OI concentration on both the sides ie Call & Put.
The tentative range for the current week is likely to be between 15,500 to 16,000. India VIX, indicator of market volatility is currently at 12.08% down by 9.56% on weekly basis is almost near the lowest levels since last one year indicating strong confidence and stability in current market trend and further descent from these levels will augment for more of an uptrend in the market.
Bank Nifty Outlook
Bank Nifty closed at 34810 with a loss of 555 points on a weekly basis. On the weekly chart index has formed a bearish candle and remains within a range of 35700-33900 indicating indecisiveness amongst the market participants. Since the past 5-6 weeks, index is consolidating within 35800-33900 levels indicating short term consolidation. Hence any either side breakout will indicate further direction.
The chart pattern suggests that if Bank Nifty crosses and sustains above 35000 levels it would witness buying which would lead the index towards 35500-36300 levels. However if index breaks below 34500 level it would witness selling which would take the index towards 34000-33000. Bank Nifty is trading above 50 and 100 day SMAs which are important short term moving averages, indicating positive bias in the short term. Bank Nifty continues to remain in an uptrend in the medium term, so buying on dips continues to be our preferred strategy. For the week, we expect Bank Nifty to trade in the range of 36000-34000 with mixed bias.
The weekly strength indicator RSI and momentum oscillator Stochastic have both turned negative and are below their respective reference lines indicating negative bias.
Bank Nifty Derivative Outlook
Bank Nifty in current week has seen Short Build Up with a price cut of -537 points (-1.51%) and OI addition of 1.45lac shares (-7.48%) increasing from 19.39Lac share to 20.84Lac shares and traded at premium of 142 points compared to 124 points. In Bank Nifty the high OI on the CALL side in the weekly expiry scheduled 8th July is at 35,000(11.35L), 35,500(11.26L) & 36,000(9.54L) strike, with 35,500 & 36,000 acting as a strong resistance wherein there has been writing of 4.91Lac shares & 3.45Lac shares respectively. The high OI concentration on the PUT side is at 34,500(8.39L), 34,000(8.29L) & 33,500(5.37L) strike, with 34,700 & 34,800 acting as a strong support as there has been of writing of 3.52Lac shares & 3.49Lac shares respectively. The tentative range for the current week is likely to be between 34,000 to 35,500.
Nifty is currently near support zone and as the major trend is positive the strategy which we are suggesting for the week is a moderately bullish strategy wherein traders wanting to take calculated risks could initiate this spread, involving buying & selling of calls having high OI concentration and expiring on 8th july 2021. With India Vix trading at 12.09% at lowest levels since April 2020 and Put writing intact at lower levels offering support, indicating overall tone of market to be bullish.
In this strategy trader will buy one lot of 15700 CALL strike at 88 and simultaneously sell one lot of 15900 CALL strike at 17, so that net outflow or maximum loss will be restricted to up to Rs 5,300 (71 points), while on the other side profit will also be restricted maximum to Rs 9,700 (129 points).One of the disadvantage of the strategy is that gains are capped no matter how high the market breaks out so If Nifty expires at 15,700 or below that the entire premium of 71 points (Rs 5,300) could be lost and if Nifty expires at 15,900 or above on expiry the max gain generated will be 129 points (Rs 9,700) while strategy will start showing profits once Nifty closes above 15,771 levels.
Sectors and stocks in focus this week
We expect the IT, Pharma and Healthcare, Chemical, FMCG, Banking and financial sectors to show bullishness in coming trading sessions. One can focus on stocks like Infosys, Tech Mahindra, Aurobindo Pharma,Dr Reddy’s Laboratories, Glenmark Pharmaceuticals, ICICI Bank, Deepak Nitrite, Laxmi Organic Industries, PI Industries, Dabur India can do well in near term.
(Rajesh Palviya is Vice President– Research (Head Technical & Derivatives) at Axis Securities Limited. The views expressed are the author’s own. Please consult your financial advisor before investing.)