The Nifty may trade in a range before making a directional move but volatility can be high in this range. At such time, one can consider forming a short strangle strategy by way of selling OTM (out-of-the-money) options of 22,600 Call and 21,200 Put, Ashish Kyal, CMT, founder and CEO of Waves Strategy Advisors, says in an interview to Moneycontrol.
One should trade Nifty50 with strict stop-loss and exit in case of any reversal beyond 22,330 or below 21,770 levels, he advised.
Kyal, who has spent more than two decades in the capital market, said one can continue to accumulate Infosys on dips if the time horizon is two years or more. "From a long-term perspective, the stock is moving in wave 2, as per the Elliott wave pattern, and we can start seeing wave 3 higher after few weeks or months of consolidation."
Here's an excerpt from the interaction with the market chartist.
Do you think the market is done with the correction and ready for another leg of up-move considering the double bottom and bullish piercing line pattern formations?
The Nifty traded with high volatility in the previous week on the back of geopolitical developments. However, prices closed below the prior week's low with lower high and lower low formation after 23 consecutive weeks. This has turned the weekly bias negative.
On the daily time frame, we can see bullish piercing line pattern, which indicates that buyers are active at lower levels. However, for confirmation of positive move, we need to see a breakout above resistance near the 22,330 level. On the downside, support is seen near the 21,770 level.
After a sharp correction seen from 22,775 to the lows of 21,777, we now see retracement of the fall. So, over a short term, we can see consolidation in the 21,770 – 22,330 range and break of these levels will confirm the trend in that direction. Any breach back below 21,770 will be bearish which will open the downside target for 21,300 levels. On the upside, a break above 22,330 is a must for a bullish trend to resume.
What should be the trading strategy for the Nifty in the coming monthly expiry?
The Nifty may trade within a range before finding a directional move but volatility can be high in this range. At such time, one can consider forming a short strangle strategy by way of selling OTM (out-of-the-money) options of 22,600 Calls and 21,200 Puts. Due to ongoing event premiums on the Put side is high and one should trade with strict stop-loss and exit in case of any reversal beyond 22,330 or below 21,770 levels.
The Short Strangle, the neutral strategy, includes selling an out-of-the-money Put as well as Call at the same time, with same expiry date.
Two stocks where the strong return can be possible in a couple of weeks...
Force Motors formed a bullish candle on daily time frame and made a fresh record high of Rs 9,488. Prices broke above the last four days of highs in single candle, indicating strong buying pressure. Additionally, prices are also trading above its short-term exponential moving averages 12EMA-26EMA which shows the overall tone is positive. In short, the trend for Force Motors looks bullish. One can buy this stock on dips towards Rs 8,950 for the target of Rs 10,000 or higher as long as Rs 8,500 holds on the downside.
Raymond closed on a positive note of 5.33 percent on previous day. On the daily chart, prices gave breakout of its resistance zone with a strong bullish candle with more than four times of its average volume, indicating bullish trend. RSI (relative strength index) is trading well above its median at 67 levels, which shows the strength in the stock. In a nutshell, the trend for Raymond is positive. One can buy this stock on dips towards Rs 1,970 for the target of Rs 2,080. While the downside support is at Rs 1,920.
Is the worst over for Nifty IT?
The Nifty IT corrected sharply from the highs of 38,500 to the current levels of 33,368. It has retraced nearly 61.8 percent of the prior swing. Short term support is likely at 32,500. It is too soon to conclude that the down move is complete unless we see break above the immediate resistance which is at 34,000 levels.
A move above this will be the first positive sign of reversal. We think the down move can be in matured stages but positive price action is awaited.
Is it the right time to pick Infosys?
Infosys is one of the major stock that is dragging IT index also lower. From long term perspective the stock is moving in wave 2 as per Elliott wave pattern and we can start seeing wave 3 higher after few weeks or months of consolidation.
From that perspective, one can continue to accumulate this stock on dips if time horizon is 2 years or more. Over short term, support for Infosys is near Rs 1,320 and move above Gap area at Rs 1,450 is must for any positivity. We can expect consolidation within this range.
Do you think the Nifty Bank bottomed out considering likely continuation of higher highs higher lows formation since January?
Bank Nifty is moving violently in either direction. The rally has been getting smaller even if it is forming higher highs and higher lows formation. Important support for the index is near previous week’s low at 46,550 and upside hurdle is at 48,250 which is the Gap area. We can expect consolidation over next few days in this index between the given range before any directional move.
Follow Ashish Kyal on Twitter - @kyalashish
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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