On the weekly chart, the Nifty 50 index formed a bearish candle last week and remained restricted within previous week’s High-Low range indicating lack of strength on either side. 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 17800 levels it would witness buying which would lead the index towards 18000-18300 levels. However, if the index breaks below 17300 level it would witness selling which would take the index towards 17100-16800.
On the daily chart, Nifty has closed below its 20 day SMAs indicating negative bias in the short term. 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 18000-17300 with mixed bias.
Nifty Derivative Outlook
Nifty concluded September expiry on a lower note at 75% compared to 84% in August, shedding around 9 lakh shares in OI indicating some profit booking at higher levels. In Bank Nifty September rolls were marginally higher at 81% vis-a-vis 79% of August expiry adding 6.40 lakh shares in OI. India Vix, indicator of market volatility, has moved up from its recent lower levels of 11-13 to currently at 17.21 suggesting a sense of apprehension as Nifty faced profit booking at higher levels; however as ease off from current levels will augment for an up move in Nifty. Nifty on Friday in October series closed with a cut of 93 points (-0.53%) & OI addition of 3.66 lakh (3.14%) shares in OI indicating Short Build up, while Bank Nifty witnessed Long Unwinding with price cut of 263 points(-0.70) with OI shedding of 0.70 lakh (-3.36%) shares.
Option Data shows Nifty in weekly expiry scheduled on 7th October has highest OI on the CALL side at 18,000(42.11L) & 17,700(36.34L) strikes respectively wherein writing of 18.40 lakh shares & 12.86 lakh shares was witnessed at 18,000 & 17,600 strikes respectively, indicating strong resistance zone at 17,700 – 18,000, while on the PUT side highest OI is at 17,400(29.16L) & 17,000(26.44L) strikes; wherein writing of 19.96 lakh & 11.78 lakh shares were seen indicating a strong support zone. Nifty 17,500 is likely to act as a crucial pivotal as both Call & Put have seen addition of 18.25 & 10.89 Lakh shares in OI.
Bank Nifty Outlook
On the weekly chart the index has formed a bearish candle carrying either side shadows representing extreme volatility on either side. The index is moving in a Higher Top and Higher Bottom formation on the weekly chart indicating sustained up trend on long term charts. The chart pattern suggests that if Bank Nifty crosses and sustains above 38000 levels it would witness buying which would lead the index towards 38300-38600 levels. However if the index breaks below 36800 level it would witness selling which would take the index towards 36200-36000. Bank Nifty is trading above 20, 50, and 100 day SMAs which are important short term moving averages, indicating positive 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 38300-36500 with a 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
In Bank Nifty the highest OI on the CALL side in the weekly expiry on 7th October is at 38,000(15.16L), 37,500 ( 10.85L) & 38,500(9.70L) strike; while on the PUT side highest OI is at 37,000(10.97L) & 36,000(7.80) strike, with 37,000 acting as a pivotal level for the expiry as there has been addition of 4.84 lakh shares on CALL side & 6 lakh addition on PUT side suggesting that any sustain move on either side of this level will decide the trend in Bank Nifty. While on the writing front 38,000 Call has seen writing of 4.83 lakh shares followed by 38,500 Call writing 4.37 lakh shares indicating a strong resistance zone, while strong support will be seen at 36400 & 36000 as Put writers have been active at this strike.
Nifty 50 strategy for this week
Traders can initiate a Moderately Bullish strategy with reduced premium outflow & lower breakeven point called BULL CALL SPREAD for 7th October Expiry wherein trader will buy one lot of 17,600 call strike @ 91 and simultaneously sell one lot of 17,850 call strike @ 26, so that net outflow or maximum loss will be restricted to upto Rs 3,250. On expiry day, if Nifty closes above 17,665 the strategy will start making profit, however as the risk is limited so is the profit also limited. The maximum gains will be restricted up to Rs 9,250 only because the gains of a long 17,600 strike call will be offset by the sold 17,850 strike call if Nifty closes above 17,850 on expiry.
Sectors, stocks to watch this week
We expect power, telecom, cement, banking, financial and automobiles to do well in the near term. Stocks such as United Spirits, Sun Pharmaceuticals, NTPC, Reliance Industries Ltd, Bharti Airtel, Canara Bank, LIC Housing, Tata Motors, Finpipe, Ambuja Cement can do well .
(Rajesh Palviya, VP– Research (Head Technical & Derivatives), Axis Securities. Views expressed are the author’s own.)
