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By Rajesh Palviya
Nifty opened (on Friday) with a downward gap and witnessed extreme volatility on either side however last hour selling pressure dragged the index lower to close on a negative note. The daily price action has formed a small bullish candle carrying shadows on either side which also resembles the “Long-Legged Doji” candlestick pattern indicating indecision of bulls and bears.
Since the past 6-8 trading sessions, the index continues to consolidate within 14,700-14,200 levels representing range bound movement. Hence any either side breakout of the mentioned range may signal further direction. On the daily chart, the index continues to trend lower forming a lower Top and lower Bottom formation indicating short term downtrend. Nifty failed to cross 100 DMA during the week and witnessed selling pressure from higher levels.
The chart pattern suggests that if Nifty crosses and sustains above 14,500 may cause pullback towards 14,600-14,700, one should be used as an exit opportunity for short term traders. On the downside, any violation of an intraday support zone of 14,250 levels may signal weakness towards 14,100-14,000 levels.
The daily RSI is in bearish mode and quoting below the 50 mark which signals weakness at current levels. 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 Nifty to trade in the range of 14600-14000 with mixed bias.
On the derivative front there has been rise in open interest by 26% with price correction indicating Short Build Up. On the option front, We have seen aggressive addition in 14,600, 14,800 & 15,000 call Strike (nearly 10K lots in each strike) which clearly indicates that upside looks capped for currently expiry.
While on the Put front, 14,000 has seen an addition of nearly 9k lots while nearest strike have seen a nominal addition which indicates if 14200 not holds then Nifty could probably test 13950-14000 zone. Current PCR is 1.08 which is suggesting a sign of mild bullishness or pullback action can be witnessed.
On the weekly chart the index has formed a small Bullish candle with shadows on either side indicating indecisiveness amongst participants regarding the direction. The index is moving in a Lower Top and Lower Bottom formation on the daily chart indicating negative bias. The chart pattern suggests that if Bank Nifty crosses and sustains above 32200 level it would witness buying which would lead the index towards 33000-33300 levels. However, if the index breaks below 30700 level it would witness selling which would take the index towards 30200-29500. Bank Nifty is trading below 20, 50, and 100 day SMA’s which are important short term moving averages, indicating negative bias in the short to medium 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 32800-30000 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,
On the Derivative front Banknifty has seen a fall in price by 4.81% along with unwinding in open interest by 34% indicating Long Unwinding.
On Option Front, We have seen addition in various strikes which are scattered 32000(10K), 33000(20K) & 33500(10K) call Strike (nearly 10K lots in each strike) which clearly indicates if 32000 CE unwinding takes place we can see huge short covering on upside upto 32500- 33000. While on the PE Front, 31000 has seen an addition of nearly 11k lots while nearest strike which implies immediate support is nearby & any major unwinding in 31000 PE only would led BankNifty to fall further towards 30500-30000 levels.
Stocks to watch
We expect Pharma, IT, FMCG, Metal, Insurance and Chemical Sector to do well in near term . One can look at stocks like CadilaHC, Zyduswell, DBL, Deepak Nitrite, Icici Prudential, Powergrid and TCS for 4-6% gain in the near term.
(Rajesh Palviya is the Deputy 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.)