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#39;Major weakness in Nifty unlikely, buy every small decline to drive next leg of rally#39;

January 20
01:29 2020

Chandan Taparia

Nifty index remained consolidative in last five trading sessions as it traded in between 12,278 to 12,389 levels.

It made a new life time high of 12,389 while every small decline is being bought as major trend is still intact to positive.

On weekly scale, it formed a small bodied bullish candle while on daily it made an inside par which indicates indecisiveness and requires a follow up action to drive the next leg of rally.

Nifty is currently hovering near to its strong hurdle of rising trendline on weekly scale which also coincides with the 100 percent extension level of previous upmove.

Though index is trading near its resistance level, we are not seeing any noticeable weakness in prices. So now, till it holds above 12,280 levels, it can extend it move towards 12,450-12,500 levels while major support exists at 12,150.

India VIX remained flattish as it marginally moved up from 14.08 to 14.13 levels on weekly basis. VIX levels provided comfort to the bulls but overall volatile swings likely to continue in near term ahead of Budget 2020.

On the options front, maximum Put open interest is at 12,000 followed by 12,200 strike, while maximum Call open interest is at 12,500 followed by 12,400 strike. We have seen marginal Call Unwinding at immediate strike while some Put writing was seen at 12,300 strike. Option data indicates a wider trading range in between 12,000 to 12,500 levels.

Bank Nifty has been underperforming the Nifty index and making lower highs on daily scale from last five trading sessions. It formed a bearish candle on weekly scale while Doji on daily scale which indicates some weakness but supports are intact as it is respecting to its bullish gap of 31,451-31,667 levels.

Now it has to continue to hold above 31,500 to witness an upmove towards 32,000 then 32,350 levels while below 31,500 it has major medium term support at 30,900-30,800.

On the stocks specific front, we have noticed good momentum in many mid and small cap counters led by breakout. Stock wise positive move is seen in Avenue Supermarts, Bharat Electronics, MCX, Escorts, Dabur, Siemens, CESC, Reliance Industries (RIL), NIIT Technologies, Maruti, Bajaj Finserv, IRCTC, etc.

Manor setup of the index is positive while every small decline could be bought to drive the next leg of rally. Weakness in Bank Nifty has taken a small pause while movement in many IT and FMCG stocks has taken the Nifty to near to new high territory.

(The author is Vice President | Analyst-Derivatives at Motilal Oswal Financial Services Limited.)

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