Traders can go with a hedging strategy by buying 9,000 Put or 9,200-8,800 Bear Put Spread to hedge till 8,800 levels.
Chandan Taparia
Nifty index negated its sequence of higher lows of last five weeks and corrected by 6.17 percent on weekly basis with the formation of a bearish candle.
Market breadth is negative and index is also sustaining below the trend line breakdown level on daily chart, which doesn't bode well for the bulls.
Looking at overall chart structure, we maintain our negative to rangebound stance till it holds below 9,400 zone and expect the Nifty to fall towards 9,000 then 8,800 zone in coming days. On the upside, immediate resistance is placed at 9,400 and then 9,550-9,600 zone.
India VIX moved up by 13 percent from 34 to 38.40 levels on weekly basis. VIX has negated the formation of lower highs - lower lows of last five weeks and again rebounding to higher zones which is giving pressure to market at bounce.
On monthly options front, maximum Call open interest is at 10,000 then 9,500 strike while maximum Put open interest is at 9,000 then 8,000 strike. We have not seen any noticeable built up on Put side while Call writing is seen at 10,000 then 9,500 strike. Option data indicates an immediate trading range in between 9,000 to 9,500 zone. Rise in India VIX with decline in Put Call ratio with negative basis suggests bearish market stance.
Bank Nifty has been finding multiple hurdle near to 19,800-20,000 levels from last three consecutive sessions and negated the formation of higher high - higher lows of last four weeks. It formed bearish candle on both daily and weekly scale and sustaining well below a rising trend line breakdown on daily chart.
Momentum oscillator RSI also turned southward on both daily and weekly scale and indicating further weakness in coming days. Going forward, immediate support is placed at 19,000 and below that selling pressure may accelerate toward 18,700 then 18,000 zone, while resistance is now placed at 19,800 then 20,200-20,500 zone.
Overall chart and data structure is still weak and we are witnessing selling pressure at ever bounce. Nifty remained higher on May 8 while market breath turned in the favour of declining stocks. Both the indices Nifty and Bank Nifty moved in discount and many stocks are also trading at discount to its spot price indicating emergence of selling pressure.
Thus, traders can go with hedging strategy by buying 9,000 Put or 9,200-8,800 Bear Put Spread to hedge till 8,800 levels. Caution is advised for longs till Nifty does surpass 9,450-9,500 zone while Bank Nifty above 20,000 levels decisively.
Concern over coronavirus, hope of stimulus and lifting of lockdown, global market sentiment and Earnings from Indian companies are likely to decide stock specific trigger and move in the overall market.
While stock-wise positive move is seen in HDFC Life, Nestle India, Colgate Palmolive, Hindustan Unilever and Reliance Industries (RIL), among others, weakness is seen in SBI, Canara Bank, Bank of Baroda, Metals, L&T, Siemens, etc.
(The author is Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.)
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.Special Offer: Subscribe to Moneycontrol PRO’s annual plan for ₹1/- per day for the first year and claim exclusive benefits worth ₹20,000. Coupon code: PRO365
