The bulls have made a smart comeback in the truncated week, where market recoup all the losses after Monday's sell-off. Due to the recovery from the lower levels, the Nifty index formed a long lower shadow which resembles a Dragon Fly Doji candlestick pattern on the weekly time frame. Generally, this pattern is considered as a bullish reversal if formed at the bottom. Since it is formed at the top, shows indecisiveness amongst participants.
Earlier, we highlighted a Tweezer top candlestick pattern in the Nifty index and it failed to surpass the same. Hence, for any fresh momentum, the Nifty index has to take out the high of 13,773 levels and above that, we can expect further upside towards 13,900 and 13,950 levels. On the other hand, the immediate support is placed at 13,600 followed by 13,500.
The momentum indicators and oscillators for the Nifty index have reached the overbought territory on the daily as well as weekly time frame. Thus, one needs to adopt a cautious approach and focus on stocks and sector-specific actions.
The volatility index 'IndiaVIX' ended a tad below 20 levels on Thursday and the overall cooling off in the volatility is giving comfort to the bulls and a further drop will pull the index higher.
In the coming week, we have F&O expiry for the December series and a fresh Put writing was seen at 13,500, 13,600, and 13,700 strikes. The highest open interest is still placed at 13,000 strike followed by 13,500 strike. However, some liquidation of positions was seen in 13,000 Put strike which hints that the base is getting shifted higher. Also, 13,700 strike witnessed huge addition on Thursday, which is likely to act as immediate support followed by 13,600 for the coming week.
On the Call side, a fresh addition was seen at 13,900 and 14,000 strikes, and the maximum open interest is placed at 14,000 strikes of nearly 40 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 for the second consecutive week. Although, some late recovery helped the BankNifty index to surpass its immediate hurdle of 30,000.
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 followed by 29,440 levels. Overall, we can expect Banknifty to trade with a positive bias in the coming week.
On the derivative front, the highest open interest is placed at 31,000 Call strike followed by 30,500 strike and a fresh Put writing was seen at 29,500 and 30,000 strike.
Based on the data of the BankNifty index, we are expecting a short-covering rally in the coming week. Hence, we are advising to initiate a Bull Call Spread where one can buy 1 lot of 30,500 Call strike at 308, simultaneously sell 1 lot of 31,000 Call strike at 132. So, the total outflow from this strategy is 176 points as per the closing price on Friday.
The maximum profit of 324 points could be gained if BankNifty expires at or above 31,000. The breakeven level comes at 30,676. Since the strategy is initiated with an outflow of 176 points, the downside risk is limited to 176 points if BankNifty expires at or below 30,500 levels.
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