By Rajesh Palviya
Nifty started the week on a flat note but continued its previous week’s negative momentum to end the week on a weak note. Nifty closed at 17807 with a loss of 462 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 the index breaks below 17600 level it would witness selling which would take the index towards 17300-17100. However, if Nifty crosses and sustains above 18000 level, it would witness buying which would lead the index towards 18200-18500 levels. For the week, we expect Nifty to trade in the range of 18300-17300 with negative bias. The weekly strength indicator RSI and momentum oscillator Stochastic have both turned negative and are below their respective reference lines indicating negative bias in a short term.
Bank Nifty Outlook
The chart pattern suggests that if the index breaks below 41500 level it would witness selling which would take the index towards 41300-41000. However, if Bank Nifty crosses and sustains above 41900 level it would witness buying which would lead the index towards 42200-42500 levels.. For the week, we expect Bank Nifty to For the week, we expect Bank Nifty to trade in the range of 42500-41000 with negative bias. The weekly strength indicator RSI is in negative terrain and is below their respective reference lines indicating negative bias in the short term.
The strategy we are suggesting is a market-neutral strategy called Long Straddle for weekly expiry at 29 December 2022. This strategy involves buying of 17,850 CALL & 17,850 PUT one lot each having premiums of 135 & 125 respectively making a total premium outflow of Rs 13,000 (260 points). As it’s a debit spread, from a profit perspective, this strategy can generate theoretically unlimited profit while the loss is restricted to the total premium paid if Nifty closes at 17,850 on expiry.
However, if NSE Nifty on expiry closes above the upper breakeven level of 18,110 or the lower breakeven level of 17,590 and sustains on either side, then the profit can be unlimited. It’s advisable to maintain a combined premium (i.e add premium of call + put together) stop loss of 100-80 points so that if Nifty doesn’t make a strong move then losses can be curtailed by following the above-mentioned stop loss.
(Rajesh Palviya, Vice President – Research (Head Technical & Derivatives), Axis Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)