Nifty to witness buying above 17200, Bank Nifty may trade positive; use Short Straddle for 4 Aug F&O expiry

For the week, we expect Bank Nifty to trade in the range of 38800-36200 with a positive bias.

Nifty to witness buying above 17200, Bank Nifty may trade positive; use Short Straddle for 4 Aug F&O expiry
For the week, we expect Nifty to trade in the range of 17700-16600 with a positive bias.

By Rajesh Palviya

On the weekly chart, NSE Nifty 50 index has formed a long bullish candle forming higher High-low compared to previous to previous week. The chart pattern suggests that if Nifty crosses and sustains above 17200 level it would witness buying which would lead the index towards 17400-17700 levels. However if index breaks below 17000 level it would witness selling which would take the index towards 16800-16600. For the week, we expect Nifty to trade in the range of 17700-16600 with a positive bias. The daily and weekly strength indicator RSI is moving upwards and is quoting above its reference line indicating positive bias

Bank Nifty Outlook

Bank Nifty started the week on a flat note and observed profit booking in the initial half, however, buying support at lower levels pulled the index higher to close on a strong note. Bank Nifty closed at 37491 with a gain of 752 points on a weekly basis. On the weekly chart the index has formed a sizable bullish candle and closed above previous week’s high indicating positive bias.

The chart pattern suggests that if Bank Nifty crosses and sustains above 37800 level it would witness buying which would lead the index towards 38000-38800 levels. However if the index breaks below 37000 level it would witness selling which would take the index towards 36500-36000 levels. For the week, we expect Bank Nifty to trade in the range of 38800-36200 with a positive bias. The daily and weekly strength indicator RSI is moving upwards and is quoting above its reference line indicating positive bias.

Sectors and stocks to watch this week
We expect sectors like Capital Goods, Automobiles, Banking and Financials, FMCG, Agri chemical and Cement may show bullish momentum. Stocks like Cummins India, Siemens, Eicher Motors, Maruti Suzuki India, Indusind Bank, HDFC Bank, Dabur India, Hindustan Unilever Ltd (HUL), GNFC, Chambal and Ultratech Cement may show bullish momentum in coming days.

NSE Nifty 50 trading strategy for this week

The strategy we are suggesting is Short Straddle for weekly expiry scheduled at 4th August 2022 amid expectation of some consolidation in Nifty after strong up move in last week. This strategy involves selling of 17,200 CALL & 17,200 PUT one lot each having premium of 110 & 136 respectively making a total premium inflow of Rs 12,300 (246 points). As it’s a credit spread, from profit perspective this strategy can generate max profit to the extent of premium received if Nifty trades and conclude the expiry in the range of BEPs; while the loss can be unlimited if Nifty breaches the upper breakeven level of 17,446 or the lower breakeven level of 16,954 and sustains on either side on expiry day. It’s advisable to maintain a combined premium (i.e add premium of call option + put option together) stop loss of 380-400 points to avoid unlimited losses if Nifty makes a strong move in either of the directions or else Traders as per there risk appetite can even hold till expiry.

(Rajesh Palviya, Vice President – Research ( Head Technical & Derivatives), Axis Securities. Views expressed are the author’s own.)

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