Chartist Talks | Jatin Gedia recommends short iron butterfly strategy for Nifty 50, Bank Nifty this week

The Nifty has been broadly trading in an upward sloping channel since mid-January 2024. Despite all the negative triggers arising from the geopolitical situation, the Nifty has managed to hold on to the lower end of that channel placed around 21,950 – 22,000. On the upside, the immediate hurdle is placed in the 22,750 – 22,776 zone and above that 23,000, which is the psychological level.

The overall chart structure suggests that the Nifty could continue to trade within this channel and slowly head towards 23,000 in the run-up to the result announcement of the Lok Sabha elections. So, 23000 appears more probable while 23,500 would be over optimistic.

Do you think the Bank Nifty is ready for making higher highs, higher lows formation on the daily charts in May series?

The Bank Nifty is in an uptrend and has been steadily inching higher. During the recent corrections in March as well as in April, the Bank Nifty has been successful in defending the previous swing low 46,600 and 45,800 and thus keeping the uptrend as well as the higher high higher low formation intact. We expect this to continue in the May series as well.

Further what is your F&O trading strategy for Nifty and Bank Nifty for next week?

During this truncated week, we are expecting rangebound price action in Nifty as well as Bank Nifty. To trade this rangebound outlook we at Sharekhan suggest deploying 22,500 Short Iron Butterfly strategy which involves selling the 22,500 CE and 22,500 PE and buying 22,250 PE and 22,750 CE. The breakeven for this strategy is placed at 22,330 and 22,670. So, if the Nifty expires in this range the strategy shall be profitable. The maximum profit potential is Rs 4,300 while the maximum loss is Rs 1,950 which makes it a risk reward favourable.

Foe the Bank Nifty, we suggest, 48,400 Short Iron Butterfly which involves selling the 48,400 CE and 48,400 PE and buying 47,900 PE and 48,900 CE. The breakeven for this strategy is placed at 48,050 and 48,750. So, if Bank Nifty expires in this range the strategy shall be profitable. The maximum profit potential is Rs 5,400 while maximum loss is Rs 2,050 which makes it a risk reward favourable. The theta decay is likely to be faster as it is a truncated week and the Bank Nifty weekly expiry is on the April 30.

The Short Iron Butterfly strategy involves selling a middle strike Put and Call of the same strike (ATM Put and Call), and buying a lower strike Put (OTM Put) and higher strike Call (OTM Call), with same expiration date. ATM is at-the-money and OTM is out-of-the-money.

Are the charts telling you that Maruti Suzuki will break Rs 12,000 (which coincides with 50-day EMA) mark in coming days?

Maruti has witnessed a 34 percent price appreciation in the last three months. It has formed an Inverted Hammer Pattern on the weekly charts suggesting profit booking at higher levels and points towards a consolidation in the near term. Negative divergence on the daily momentum indicator also indicates loss of momentum on the upside.

On the downside, we expect the stock to correct towards Rs 12,300 – Rs 12,100 where support in the form of the 23.6 percent Fibonacci retracement level and the 40-day moving average is placed.

What is the possibility of HCL Technologies breaking 200-day EMA in the coming week given the formation of Bearish Engulfing pattern on the daily charts?

HCL Technologies was in a counter trend pullback which fizzled out around the Rs 1,530 – 1,515 zone. The formation of a Bearish engulfing pattern further indicates that until, Rs 1,530 is not taken out on the upside there is high probability of the stock slipping further towards Rs 1,415. i,e the 200 EMA.

We believe that the IT sector is in the fag end of the fall and hence as the stocks approach long term supports there is likely to buying interest from a particular section of the market participants which shall restrict a sharp decline going ahead.

Your top two picks for May series?

Laurus Labs appears to have started a fresh leg of upmove. The recent correction halted in the zone of Rs 420 – 415 where support parameters in the form of the 50 percent Fibonacci retracement level and the 40-day moving average was placed. The stock has potential to rise towards Rs 500 – 524 during the May series. A stop-loss of Rs 421 is suggested for the long positions.

UltraTech Cement has been in a correction phase since last four months. The correction appears to have matured as the weekly momentum indicator has reached the equilibrium line and can start a new cycle on the upside. We expect the stock to target levels of Rs 10,250 – 10,300 during the May series. One should keep a stop-loss of Rs 9,450 for the long positions.

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