The market continued to gain momentum for the seventh consecutive week where the Nifty index scaled to fresh highs and formed a bullish candle on the weekly scale.
The Nifty index formed a Tweezer top candlestick pattern on the daily chart which is considered as a bearish reversal pattern. Hence, to negate this formation, the Nifty index has to take out the high of 13,773 levels and above that, we can expect further upside momentum towards 13,900 and 13,950 levels. It is also making higher highs and higher low formation on the weekly scale from the past seven consecutive weeks, which means the previous low of 13,447 will now act as immediate support.
The momentum indicators and oscillators have reached the overbought territory on the daily chart which indicates that some profit booking from the higher levels can't be ruled out. Thus, one should refrain from creating an aggressive long position at higher levels.
The volatility index 'IndiaVIX' is hovering near 19 levels from the past six weeks and it is still very much in the comfort zone. It is likely to remain in the range of 15-24, hence bulls are likely to have the upper hand in the market.
On the derivative front, a fresh Put writing was seen at 13,500, 13,600, and 13,700 strikes, where 13,700 strike held the highest open interest of 23 lakh contracts, which is likely to act as immediate support followed by 13,600 in the coming week.
On the Call side, fresh addition was seen at 13,900 and 14,000 strikes and the maximum open interest is placed at 14,000 strike of approximately 33 lakh contracts. So the overall option data indicates a broader range of 13,500–14,000 for the coming week.
The BankNifty index underperformed compared to the Nifty index and ended the week with a marginal gain of around 0.36 percent. On the weekly scale, it formed a Doji candlestick pattern which indicates indecisiveness amongst participants.
Now, a decisive move beyond 31,000 levels will provide further momentum towards 31,400-31,600 levels. On the other hand, immediate support is placed at 30,000 levels. Overall, we can expect Banknifty to oscillate in a broader range of 30,000-31,400 in the coming week.
Technically, a positive setup was seen in Amara Raja Batteries, Asian Paints, Bajaj Auto, Biocon, Dr Reddy's Labs, ICICI Bank and Infosys.
Based on the data of the Nifty index, we are expecting a moderate upmove in the coming week where the upside seems to be limited to 14,000 levels. So, we are advising to initiate a Bull Call Ladder Spread where one can buy 1 lot of 13,850 strike at 51, simultaneously sell 1 lot of 13,900 strike at 35 and 1 lot of 13,950 strike at 23. So, the total inflow from this strategy is 7 points as per the closing price on Friday.
The maximum loss would be unlimited if Nifty expires above 14,007. The maximum profit of 57 points could be gained if Nifty expires in the range of 13,900-13,950. The lower breakeven level comes at 13,843 whereas a higher breakeven level comes at 14,007. Since the strategy is initiated with an inflow of 7 points, there is no downside risk even if Nifty expires at or below 13,843 levels which is the lower break-even point. The objective of this strategy is to gain from the moderate upside in the underlying and time decay.
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