Nifty to witness buying above 18000, Bank Nifty may trade range-bound; use this strategy for 19 Jan F&O expiry

Nifty to witness buying above 18000, Bank Nifty may trade range-bound; use this strategy for 19 Jan F&O expiry

By Rajesh Palviya

Nifty started the week on a positive note and remained consolidated within the last week’s range of 18250-17800 levels throughout the week indicating lack of strength on either side. Nifty closed at 17,859 with a loss of 246 points on a weekly basis. On the weekly chart the index has formed a Bearish candle with an upper shadow indicating selling at higher levels.

Bank Nifty Outlook

Bank Nifty started the week on a positive note and remained in the restricted range (42,600-41,600) throughout the week, indicating lack of strength on either side. Bank Nifty closed at 42,189 with a loss of 798 points on a weekly basis. On the weekly chart the index has formed a Bearish candle with a long upper shadow indicating selling at higher levels.

The chart pattern suggests that if Bank Nifty crosses and sustains above 42,400 level it would witness buying which would lead the index towards 42,600-42,800 levels. However if index breaks below 42,000 level it would witness selling which would take the index towards 41,800-41,600. For the week, we expect Bank Nifty to trade in the range of 42,800-41,600 with mixed bias. The weekly strength indicator RSI is moving downwards and is quoting below its reference line indicating negative bias.

Sectors and stocks for coming week:

We expect sectors like Capital Goods, Fertilizers, Insurance and Cement likely to show bullishness in near term. One can focus on stocks like L&T, ABB, Cummins India, Chambal Fertiliser, Coromandel International, GNFC, HDFC Life, GIC RE, UltraTech Cement likely to show bullishness in coming sessions.

Nifty Strategy

The strategy which we are suggesting for this weekly expiry dated 19th January is a Moderately Bullish strategy called ‘CALL LADDER’, which involves Buying of one lot of NIFTY 17,900 Call @ 176 & selling of one lot of 18,100 Call @ 88 & one lot of 18,300 Call @ 38. The cost of the strategy involves outflow of Rs 2,500/- which is the maximum loss if NIFTY trades & closes below 17,950 levels on expiry .On expiry, the maximum profit of Rs 7,500/- will be attained above 18,100 levels, while strategy will start making loss if Nifty crosses 18,450, hence it’s advisable to exit the strategy in total to avoid UNLIMITED losses above 18,450. Break Even points of the strategy are 18,450 on Up side & 17,950 on down side.

(Rajesh Palviya, Vice President – Research (Head Technical & Derivatives), Axis Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)