The Nifty50 index started on a flattish note this week considering global cues however there was a massive selloff which took place post Budget Announcement in the first half of this week. The second half of this week belonged to the bulls as they emerged in full strength taking the index back above 24,855 levels on an intra-week basis.
The markets witnessed a spectacular rally once Nifty crossed the crucial resistance level of 24,600 in Friday’s trading session where the bulls were totally in control of the markets, taking the prices higher effortlessly.
Analyst Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities interacted with ET Markets regarding the outlook on Nifty and Bank Nifty along with an index strategy for the upcoming week. Following are the edited excerpts from his chat:
Nifty had been looking for a direction post Budget, which it found on Friday when the index made a new all-time high. However, what are your views or reasons as to why this happened, and could the index make a strong directional move next week after it has now attained a new all-time high level?
Despite the volatility surrounding the Union Budget, the benchmark index Nifty has continued its winning streak for the eighth consecutive week. After the Union Budget, the Nifty has witnessed a minor throwback. The throwback halted near its 20-day EMA level, where the index has formed a Bullish Hammer kind of pattern. Thereafter, the index resumed its northward journey.
It ended the week near an all-time high level and formed a bullish candle with a lower shadow. Most noteworthy, the daily RSI has taken support near the 60 level and witnessed a sharp rebound, which is a classical bullish sign as per RSI range shift theory.
Our view on the market stays bullish considering the current weekly and daily chart structure. At the same time, we would say it would be a stock-pickers market. Hence, don’t go too much by intraday action. Look at the bigger picture. More importantly, follow the concept of Dow Theory, which says that if an index or a stock is marking higher highs and higher lows, stay with it irrespective of any scary news flow. That’s because price action is the best testimony of a trend!
Talking about levels, the zone of 24500-24450 will act as immediate support for the index. As long as the index is trading above 24450, it is likely to test the level of 25200, followed by 25450 in the short term. While, on the downside, if the index slips below the level of 24400, then the next support is placed at 24200-24150 zone.
With Nifty’s monthly expiry out of the way, what does the rollover data suggest for the August series?
In the July series, Nifty futures have traded in a 772-point range so far. During the last 17 trading sessions, the index has either opened with an upside or downside gap in 11 trading sessions, highlighting the market’s significant volatility within this tight range. The rollover for Nifty Index futures was lower at 69.69%, compared to the previous month’s 76.25% and the three-month average of 72.57%.
Do you have any strategies for index traders?
Nifty seems to be more trending of both the indices and with the trend being firmly bullish, we advise deploying a bull call spread by buying 24900 Call at 122 and Sell 25050 Call at 60.
Maximum profitability could be 88 points in case Index closes above 25050 on coming Thursday.
The Outflow (maximum loss), in this case, would be 62 points in case the index closes below 24900 on the Weekly Expiry day.
Bank Nifty has been underperforming for 3 weeks now. The constituting banks’ quarterly results are also not seeming to impress the investors. What is your outlook on the index under these circumstances?
Bank Nifty has marked the all-time high of 53357 in the first week of July, and thereafter, the index has started underperforming the frontline indices. However, on Friday, the index has taken support near 38.2 percent Fibonacci retracement level of its prior upward rally (46077-53357).
We believe, as long as the index is staying above the level of 50400, it is likely to witness a pullback rally. This will help the market to sustain at higher levels.
What does the seasonality trend indicate for the performance of Nifty and Bank Nifty in August?
Over the past 17 years, the August month has often exhibited a mixed trend for Nifty. On 8 occasions, the index has concluded on a positive note with an average gain of 3.73%, while on 9 occasions, it has ended on a negative note with an average loss of 4.45%. Overall, average returns for the August Series have been -0.60% for Nifty. Over the past 17 years, August has consistently shown an average volatility of over 7.66 percent for the Nifty index.
Historically, Bank Nifty has also shown a mixed trend in August over the past 17 years. Out of these, it closed positively 9 times, with an average gain of 3.57%, while ending negatively 8 times, with an average loss of 7%. The average return for Bank Nifty in the August series has been -1.40%. However, Bank Nifty has demonstrated an average volatility of approximately 10.98 percent for the past 17 years.
Technically, do you see Bank nifty’s bounce back from its 50-Dema (where the price is currently standing on a daily chart) as usually it provides for a strong support? Or do you anticipate any further decline?
On Friday, the index has taken support near 38.2% Fibonacci retracement level of its prior upward rally (46077-53357) and witnessed a smart rebound. It has ended near the 51300 mark. Along with this rebound, it has reclaimed its 50-day EMA level. Most noteworthy, the daily RSI has taken support near 40 mark and witnessed a smart rebound, which is a bullish sign as per RSI range shift rules. The daily RSI is quoting above 40 levels since the last 112-trading sessions.
We believe Bank Nifty is likely to witness a pullback rally in the short term. The zone of 50500-50400 will be the crucial support for the index. As long as the index is trading above 50400, it is likely to test the level of 52000, followed by 52500 in the short term.
Which sectors and stocks are on your radar based on the rollovers?
As per rollover data, Nifty Pharma, Nifty Healthcare, Nifty IT, Nifty Auto, Nifty Oil & Gas, Nifty FMCG, and Nifty CPSE are likely to outperform the frontline indices.
Technically, Balkrishna Industries, Apollo Hospitals, Bharti Airtel, Indian Hotel, and Bharat Forge look good.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)