Negative bias, Nifty could go to 16,200 or below

Negative bias, Nifty could go to 16,200 or below – Mail Bonus

Technical and derivatives analysts expect weaknesses in Indian equities to persist in the coming days after a 4% drop last week behind the hawkish actions of central banks as well as the outlook. Nifty is expected to drop to 16,200 in the next few days. The index fell by 4% last week and supported most peers. Outside the energy sector, most sectors declined this week. Analysts said traders should avoid medium and small companies in weak market conditions.


Where is Nifty headed?
Nifty and Bank Nifty have closed at an eight-week low under strong selling pressure and the trend has been down with the formation of lower peaks-lower lows on weekly charts where Nifty corrects over 800 points for the week. Nifty is below all its major moving averages, indicating short-term negative bias as well as weaknesses in global markets and faster FPI sales. The graph pattern suggests that failure to cross the 16,800 zone could lead to the index weakening to the 16,000-16,050 zone this week before we witness any technical rebound as oscillators approach the submerged zone. Option data suggest trading between 16,000 and 16,800 with a negative bias. The India VIX Instability Index has also seen an 11% increase in line with the increase in CBOE VIX (US) and has started trading above the 21 level, indicating that an increase in instability could lead to more weakness in Nifty.

What should investors do?

This is a global correction due to rising crude oil prices, rising bond yields and the dollar index to 103 points due to rising interest rates. Traders should not be in a hurry to go bottom fishing. Investors should now focus on improving the quality of large companies in stages while avoiding medium and small companies. One should stick to quality and not indulge in committed mid-term highs, as in interest rate hikes, the cost of capital for the debt-heavy companies can rise and affect their profit prospects. Although many stocks are witnessing a breakdown in graphs, positive trades are visible in selected stocks within FMCG, energy and fertilizer sectors such as Tata Chemicals, Coromandel, Power Grid, NTPC and ITC and we expect them to continue better in the coming week. Option traders can start the Bear Put spread by buying 16,300 Put and selling 16,100 Put with a 55-point overhead and a potential 145-point profit to play the 16,100-16,050 disadvantage.


Where is Nifty headed?

Nifty has been moving its base to a lower area, where resistance is gradually lowering due to persistent selling pressure with each significant jump. Now, until Nifty falls below 16,666 zones, weakness could persist for a short time before declining towards 16,200 and 16,000 zones while obstacles on the side are moving to 16,888 and 17,000 zones.

What should investors do?

Investors can wait for further reductions to add to the quality of equities while traders are asked to go into hedging or work on size to deal with this volatile market position. Hedging is also suggested with a view to a contraction in profit recognition or a restriction on increases in a wider market. One can go with the Bear Put Spread by buying 16,400 Put and selling 16,100 Put to ward off disadvantages towards 16,100-16,000 areas. Positive stock in Hero MotoCorp, ITC, Petronet, Power Grid, Tech Mahindra, ONGC and NTPC while weakness could be seen in most metal, pharmaceutical, real estate and financial services sectors including Bajaj Finance, Cholamandalam Finance, DLF and so on.


Where is Nifty headed?

Nifty formed a large bearish candle on weekly charts but managed to list Doji candles on Friday after a large opening down. FPI’s cash and derivatives trading combined with bearish global indicators ensured that Nifty and Bank Nifty broke off nearly three weeks of whipsaw compression. Retail positions in futures indices remain at a 12-month high while FPIs have been adding short in the future part of the index. On a daily basis, Nifty is expected to give a rebound of 16,650-16,700 points, while a weekly time scale indicates that any rebound within a week can be used as a short-term opportunity with a stop loss set at 16,830 which is a 200-day exponential moving average. The results are set at 16,200 and 15,800.

What should investors do?

Investors are advised to spread their purchases over the next two to four weeks as Nifty could fall. One can look at the short Nifty futures contracts of 16,700 with a stop loss set at 16,950 and the result 16,200. Proportional performance in PSUs and oil and gas stocks can be expected, while most industry indices are candidates for “rising sales”.

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