Nifty closes at a 43-session low: Is it time to go short on every rise?

NIfty Strategy for Next Week

• Recovery in Nifty possible only on sustained move above 25,750
• Follow-through selling below 25,600 next week might open doors for 200-day EMA
• Sell Nifty Futures on rise around 25,970 with stop-loss above 26,100, targeting 25,700

Did our AI summary help?

The Nifty 50 has seen the lowest close in the last 43 trading sessions, falling 2.45 percent for the week to 25,683 with all 5 trading sessions of the week closing in red.

As far as the trend analysis is concerned, index registered lower lows by breaking swing lows of 25,878 and 25,690 due to the continuous selling in the last couple of trading sessions. This price action broke the uptrend which has been forming on daily and weekly charts. An emergence of bearish engulfing pattern at the top along with the formation of outside bar is a negative sign.

On daily charts, prices closing below 20-day and 50-day exponential moving averages is definitely a negative in the near term, however, prices also almost tested the support from 100-day EMA near 25,618, making an intraday low of 25,623. A follow-through selling below 25,600 in the next week might open the doors for the prices to test 200-day EMA which is currently reading closer to 25,133.

On hourly charts, 14-period RSI reading of close to 21 displays an oversold market and some cool-off might appear for the next few trading hours at least. Any meaningful recovery is only possible on sustained move above 25,750 (being the resistance from falling trendline) above which prices might try to test the resistance zone of 25,880-25,900. On any failure to sustain above 25,750, a renewed selling could take charge and index might get ready to test next supports of 25,600 and 25,445.

Considering the fact that the trend remains down along with the weak market breadth where percentage of stocks above 20-day, 50-day and 200-day EMA is declining day by day; number of stocks making fresh 52-week lows are more than number of stocks making fresh 52-week highs, it makes sense to go short on every rise.

Strategy: Sell Nifty Futures on rise around 25,970 with a stop-loss above 26,100, targeting 25,700.

Two stocks to watch out for the next week:

Bandhan Bank | CMP: Rs 144

The price charts of Bandhan Bank have a clear cut bearish picture. It has been in constant formation of lower highs and lower lows across all major time frames, confirming a downtrend. Moreover, the stock is consistently trading below all it’s major exponential moving averages viz. 20-day, 50-day, 10-day and 200-day. Each and every rally in the stock gets sold off and never got any concrete buying interest from investors, suggesting strongly bearish price action.

Now, that the prices have formed a fresh supply zone of Rs 148 to Rs 152 and prices making lower highs and lower lows on shorter time frames, it makes sense to take a short trade in the stock. The reading of 14-period RSI around 42 gives sellers a comfort as it’s still above oversold zone. As we have earnings announcement for the stock on January 16, a swift move towards the direction of short term and longer term downtrend is expected to happen. At the same time, risk needs to be managed, so, instead of short selling futures, traders are advised to take buy positions in Put options of Bandhan Bank.

Strategy: Buy Bandhan Bank 150 PE (January 27 expiry) on dips around Rs 5.5 with the stop-loss of Rs 3, targeting Rs 11 and Rs 15 levels in the coming 6-7 trading sessions.

Suzlon Energy | CMP: Rs 49.2

Suzlon has entered into a correction phase since the formation of top around Rs 86 levels on September 12, 2024. The stock is consistently trading below all it’s major exponential moving averages viz. 20-day, 50-day, 10-day and 200-day and we have an imminent downtrend established with the formation of lower highs and lower lows. Also, the stock has closed at its lowest since June 20, 2024.

Now that the prices have exhibited bearish flag pattern on daily charts with the breakdown happening with rising volumes, it makes sense to take a short selling position in the stock futures. The 14-period RSI still reads above oversold zone and there’s still room for bears to take the prices further lower. Any bounce towards previous supports of Rs 50.60 levels will be a selling opportunity as previous supports turn into resistances.

Strategy: Sell Suzlon Futures (January 27 Expiry) on rise around Rs 50.6 with the stop-loss of Rs 52.60, targeting Rs 46 and Rs 43.5 levels in the coming 3 weeks.