In an interview to CNBC-TV18 Hemant Thukral, national head-derivative desk, Aditya Birla Money shared his reading on the futures and options market. He sees 5650 as a key resistance for the Nifty.
"Unless the market sees huge FII inflows flows, it will find it very difficulty to cross the 200- day moving average," he added.
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Below is the edited transcript of Thukral’s interview to CNBC-TV18.
Q: Do you think a pullback is coming?
A: The market right now is playing as per the writers positions because we have seen the range shifted downside. I do not see this market crossing the 200-day moving average, 5650 in a hurry, and we have spent around now seven days below that 200 DMA. So, I don't think we will cross that in any hurry. Simultaneously, I don't see 5450 going off just like that unless and until there is a big gap down opening again.
One of the reason is because Put writers are still holding 5500-5400. Volatility is refusing to go above 17.5, so that is another factor which we have to see. Thirdly, in the last three days, the moment the volatility reached 17 percent, I did not see the same momentum of FIIs buying index Options.
Infact, on Friday they sold index Options which is not such a bad signal. Though they continue to sell index Futures, but if they start selling index Options, that will give a signal that volatility will recede back from these higher levels. Let’s not forget that among all global volatility indices we are at the highest levels currently.
So, if the volatility comes down we will atleast consolidate between the range of 5450-5650. If I was a trader and I get a chance at 5500, I will try to play for a pullback with a stop loss of 5450 and a target of 5600-5650 on the upside. However, 5650 still remains a big resistance level for me and unless and until I really see some very big flows from the FIIs I don't see us crossing 200-DMA atleast for one week from here on.
Q: The banks did pretty well last week, it is probably the reason we didn’t fall that much. How would you approach the banks now?
A: Banking large caps have started seeing fresh long being built up. It started with HDFC Bank, because it is a defensive bank. It was then passed on to ICICI Bank and on Friday, State Bank of India (SBI) also saw long built up taking place. There are still no signs of short covering. There are huge shorts and I understand from the short front because the stocks have not moved to any level where a person is forced to cover their shorts. So, if the short covering comes, Bank Nifty will be the one which can race. Bank Nifty is approaching 200-DMA which is at Rs 440 levels. So, once it crosses that level, the Bank Nifty will be the one to participate.
On Friday, we saw SBI adding long open interest. SBI can be the next trigger point. So, if one gets a chance today, because market may open down around Rs 2050, one should buy SBI and keep a stop loss of Rs 2025 on it.
It has the potential to retest back Rs 2125-2150. So, Bank Nifty is the main trigger point. If Bank Nifty crosses 200 DMA, atleast Nifty will retest 200 DMA. Hence, I am very bullish on Bank Nifty currently.
A: Everybody can guess the way the shorts in Infosys have been added up. About 123 percent week-on-week and 78 percent shorts on single day were seen. Importantly, 2200 Put writers have gone very active and 2400 Call writers were actually putting on their position. So, on Friday, both these strike prices have added more than 5 lakh open interest. I have a feeling that around Rs 2180-2200, Infosys may bottom-out, it may not go below that, though technically support starts from Rs 2250 itself.
On the higher side, I seriously feel that Infosys will struggle to cross any level beyond Rs 2450 now. So, atleast for this series or even May series because May also 2500 Call writers has gone very active, Infosys may struggle to cross 2450-2500 on the upside. Rs 2170-2200 is a strong bottom for it now.
JP Associates has seen buying but that has been across the cement sector. I can see buying in ACC and Ambuja Cement also and I think JP is trying to form a bottom around the Rs 65-66 mark. So, if it holds, I have a feeling that JP will go and retest Rs 75. I am slightly more positive on JP than Infosys.
Q: You have a trading strategy on Bajaj Auto as well. How are you playing that one?
A: That is a counter where I feel that rebound should play out. The reason is that only two auto counters started seeing some fresh long built-up. One was Tata Motors and the other is Bajaj Auto. Bajaj Auto, like Tata Motors has been completely beaten down. It is trying to form a bottom at big weekly support levels around Rs 1675-1680. Now, till the time it holds, I feel Bajaj Auto should retest higher levels of Rs 1775. The way on Friday 7 percent open interest was added on the long side, one should play on the long. We have to keep a stop loss that has to be maintained at Rs 1675.