Nifty, Bank Nifty outlook: Nifty likely to trade in 16050-15550 range, Bank Nifty may hit 36,000 this week

By Rajesh Palviya

Last week Nifty ended on a flat note, closing at 15856 with a loss of 67 points on a weekly basis. On the weekly chart the index has formed a Bullish candle with a long lower shadow indicating buying at lower levels. Nifty has formed lower high low formation on weekly chart. On the daily chart Nifty has formed Doji Candle which indicates indecisiveness amongst the participants, the index is consolidating within the range of 15600 – 15900 since last 6-7 weeks indicating sideways trend.

The weekly strength indicator RSI is moving upwards and is quoting above its reference line indicating positive bias. However momentum oscillator Stochastic has turned negative from the overbought zone indicating a possible consolidation or a down move in the near term

Nifty Derivative Outlook

Nifty in the current week has seen Long Unwinding with a price cut of 83 points (-0.52%) and OI shedding of 11.42 lakh shares(-12.08%) decreasing from 94.57 lakh share to 83.15 lakh shares. Nifty traded at a discount of -3 points compared to premium of 13 points, while the sentiment indicator PC Ratio is currently trading at 1.15 which is above the median line but in a comfortable zone indicating positive bias.

In Nifty the high OI on the CALL side in the monthly expiry scheduled on 29th July is at 16,000(61.20 lakh), 15,900(42.01 lakh) & 16,100(33.25 lakh) strike, with 16,000 & 15,900 acting as a strong resistance wherein there has been writing of 17.60 lakh shares & 15.27 lakh shares respectively. The high OI on the PUT side is at 15,800(44.39 lakh), 15,500(36.65 lakh) & 15,700(29.79 lakh) strike, with 15,800 & 15,850 acting as a strong support as there has been of writing of 18.84 lakh shares & 10.14 lakh shares respectively; so important levels to watch for will be 15800; wherein if Nifty sustains below 15800 it can move till 15700 & 15500 while on the other side if sustains above 15900 can test 16000 & 16200 levels. The tentative range for the current week is likely to be between 15,500 to 16,000. India VIX, indicator of market volatility, is currently at 11.76% up by 0.49% on weekly basis but continues to trade near the lowest levels since last 1 year indicating strong conviction and stability in current market trend and further descend from these levels will augment for more of an uptrend in the market.

Bank Nifty Outlook

Bank Nifty started the week on a negative note and remained negative in initial half however Friday’s strong gains pulled index higher to end on flat note. Bank Nifty closed at 35034 with a loss of 716 points on a weekly basis.

On the weekly chart the index has formed a Bearish candle with a long lower shadow indicating buying at lower levels. On the daily chart, the index is consolidating within the range of 34000 – 36000 indicating a sideways trend. The chart pattern suggests that if Bank Nifty crosses and sustains above 35400 level it would witness buying which would lead the index towards 35800-36200 levels. However if index breaks below 34400 level it would witness selling which would take the index towards 34000-33700. Bank Nifty is now well placed above its 20 SMA indicating positive bias in the short 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 34300-36000 with mixed bias.

The weekly strength indicator RSI is moving upwards and is quoting above its reference line indicating positive bias. However momentum oscillator Stochastic has turned negative from the overbought zone indicating a possible consolidation or a down move in the near term

Bank Nifty Derivative Outlook

Bank Nifty in current week has seen Long Unwinding with a price cut of -816 points (-2.27%) and OI shedding of 5.71 lakh shares (-27.65%) decreasing from 20.66 lakh share to 14.95 lakh shares and traded at premium of 7 points compared to 105 points. In Bank Nifty the high OI on the CALL side in the monthly expiry scheduled on 29th July is at 36,000 (12.53 lakh), 36,500 (9.85 lakh) & 35,500(10.94 lakh) strike, with 36,000 & 35,700 acting as a strong resistance wherein there has been writing of 2.39 lakh shares & 1.71 lakh shares respectively. The high OI concentration on the PUT side is at 34,500 (10.41 lakh), 34,000 (10.47 lakh) & 33,500 (6.89 lakh) strike, with 34,800 & 34,500 acting as a strong support as there has been of writing of 4.40 lakh shares & 4.07 lakh shares respectively; while the important level to watch for will be 35000 as both call & put have highest OI concentration of 13.80 lakh & 11.29 lakh shares respectively. There has been addition of 3.36 lakh shares in 35000 Put & in 35100 Call there has been addition of 2.39 lakh shares clearly indicating that 35000 – 35100 are likely to act as a decisive level for next week and any sustain move above the same can help Bank Nifty reach 35500 to 36000 levels & on the contrary if banknifty fails to prop up this levels it might test 34500 to 34000. The tentative range for the next week is likely to be between 34,000 to 36,000.

Nifty Strategy for this week

Traders can initiate a Moderately Bullish strategy with reduced premium outflow & lower breakeven point called BULL CALL SPREAD of 29th July Expiry wherein trader will buy one lot of 15,850 call strike at 81 and simultaneously sell one lot of 16,000 call strike at 23, so that net outflow or maximum loss will be restricted to upto Rs 2,900 (58 points).Nifty on expiry if closes above 15,908 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 4,600 (92 points) only because the gains of long 15,850 strike call will be offset by the sold 16,000 strike call if Nifty closes above 16,000 on expiry.

Sectors and stocks to watch this week:

We expect the IT, Pharma, Metal, Realty and Cement sectors to do well in the near term. Stocks like Infosys, Tech Mahindra, Wipro, Lupin, Aarti Drugs, Jindal Stainless, Tata Steel, DLF, Prestige Estates Projects, Laxmi Organics, ACC and Ambuja Cements can do well in the near term.

(Rajesh Palviya is 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.)