Bias negative, Nifty could head to 16,200 Or below

Technical and derivative analysts expect weakness in Indian equities to persist in the coming days after last week’s 4% decline on the back of hawkish central bank actions as well as outlook. The Nifty is expected to fall to 16,200 in the coming days. The index fell 4% last week and underperformed most peers. Other than the power sector, most sectors fell during the week. Analysts said traders should avoid mid-caps and small-caps in a weak market scenario.


Where is the Nifty headed?
Nifty and Bank Nifty have closed at their eight-week lows under intense selling pressure and the trend has been down with the formation of lower tops-lower bottoms on weekly charts with the Nifty correcting over 800 points for the week. The Nifty is trading below all its major key moving averages indicating negative bias in the short-to-medium term in tandem with weakness in global markets and accelerated FPI selling. The chart pattern suggests that failure to cross the 16,800 zones could lead to the index weakening up to the 16,000-16,050 zone this week before we witness any technical rebound with oscillators approaching the oversold zone. Options data suggest a trading range of 16,000 to 16,800 with a negative bias. Volatility Index India VIX also has witnessed an 11% rise in line with the spike in CBOE VIX (US) and has started trading above the 21 levels, indicating the rise in volatility may lead to more weakness in the Nifty.

What should investors do?

This is a global correction on account of rising crude prices, rising bond yields and the dollar index inching up to 103 levels on account of an uptick in interest rates. Traders should not be in a hurry to do bottom fishing. Investor focus should now be on adding quality large-caps in a staggered manner while mid-caps and small-caps should be avoided. One should stick to quality and not dabble into debt-ridden mid-caps as in a rising interest rate scenario, Finance costs for the debt-heavy companies may go up, impacting their earnings outlook. Despite many stocks witnessing a breakdown on charts, a positive trade set-up is visible in select stocks within FMCG, power and fertiliser sectors such as Tata Chemicals, Coromandel, Power Grid, NTPC and ITC and we expect them to continue their outperformance in the coming week. Options traders can initiate a Bear Put Spread by buying 16,300 Put and selling 16,100 Put with a premium cost of 55 points and potential profit of 145 points to play the downside move up to 16,100-16,050.


Where is the Nifty headed?

Nifty has been shifting its base to lower zones as resistances are gradually shifting lower due to sustained selling pressure at every meaningful bounce. Now, until the Nifty holds below 16,666 zones, weakness may persist for the short-term time frame for a decline towards 16,200 and 16,000 zones while on the upside hurdles are shifting at 16,888 and 17,000 zones.

What should investors do?

Investors can wait for more dips to add good quality stocks while traders are suggested to go for hedging or work on position sizing to deal with this volatile market stance. Hedging is also suggested with the view of some profit booking decline or capped upside in the broader market. One can go with Bear Put Spread by buying 16,400 Put and selling 16,100 Put to hedge the downside move towards 16,100-16,000 zones. Stock specific positive stance in Hero MotoCorp, ITC, Petronet, Power Grid, Tech Mahindra, ONGC and NTPC while weakness could be seen in most of the metal, pharma, realty and financial services sectors including Bajaj Finance, Cholamandalam Finance, DLF etc.


Where is the Nifty headed?

Nifty formed a large bearish candle on weekly charts but managed to register a Doji candle on Friday’s session after a big gap down opening. FPI selling in cash and derivatives along with bearish global cues ensured that Nifty and Bank Nifty broke down from almost three weeks of whipsaw consolidation. Retail positions in index futures continue to be at 12-month highs while FPIs have been adding shorts in the Index futures segment. On the daily scale, the Nifty is expected to give a bounceback up to 16,650-16,700 levels while the weekly time scale is suggesting that any intra-week bounceback can be used as shorting opportunity with a stop loss placed at 16,830 which is the 200-day exponential moving average. Downside supports are placed at 16,200 and 15,800.

What should investors do?

Investors are advised to stagger their purchases over the next two to four weeks as the Nifty may grind lower. One can look to short Nifty futures around 16,700 with a stop loss placed at 16,950 and a downside target of 16,200. Relative outperformance can be expected in PSUs and oil & gas stocks while most of the sectoral indices are ‘sell on rise’ candidates.

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