How to trade Nifty in August series with VIX near record lows? Anand James shares some tips

NEW DELHI: Following four consecutive months of uptrend, Nifty bulls are showing signs of exhaustion as we enter the August derivative expiry series. “The August series has been good for markets in the last two years, but this is the first time in the last three years that we are entering the August series with VIX near record lows,” says Anand James, Chief Market Strategist at Geojit Financial Services.Edited excerpts from a chat:

As the 20,000 mark remains elusive, how big is the resistance at 19,800-mark for Nifty?
Despite penetrating the 19620 region which had so far thwarted several downside attempts, the swing higher towards close on Friday is very encouraging, having bounced off 20d SMA. This set up is also supported by a positive divergence as well as a dragonfly formation, suggesting that Monday should be open to the prospects of reclaiming 19700, followed by an attempt to penetrate the 19770-840 region which has been key region to surmount, after turning lower from the 20000 vicinity early this month.

What should be the trading strategy in the new August series given FIIs have decreased their longs in the July series?
Four consecutive months of uptrend, does ring in concerns of exhaustion. FIIs have fewer longs now when compared to the 30 day average, but this metric is quickly becoming less and less significant towards directional indication as activity is much higher along index options. The August series has been good for markets in the last two years, but this is the first time in the last three years that we are entering the August series with VIX near record lows. It is instructive to note that despite being volatile through the month and despite Friday showing several indications of a collapse, VIX barely rose much from the near record levels, encouraging traders to be risk on. It is this set up that should augur well for the August series to re attempt the 20000 mark again. The earning season has surely prompted a rebalancing, and prompts us to take a stock specific approach rather than index specific one.

After the 5% drop seen in shares of ITC this week, what is the technical outlook ahead? Do you see chances of a bounce back?
Chances of a bounce back are clouded by the fact that we do not see the record peak being reclaimed in a hurry. We will go in next week with upside expectations limited to 487, but with higher likelihood of falls, should 451 be broken.

Nifty Pharma rallied over 4% last week amid Q1 earnings. How do you read this upside and which stocks look strong on the charts?Gains in Nifty pharma were led by Cipla and Dr. Reddy’s which together contribute around 17% to the index. Both the companies came out with strong Q1 numbers this week which drove the index. Cipla shares gained the most as the company gave better visibility about their launches in North America and their overseas revenue remained highest. In the case of Dr. Reddy’s, an 18% increase in PAT supported by overall performance in US and Russian generics boosted the stock’s price.

Sunpharma has seen a wedge breakout and a MACD signal break in monthly time frame painting a strong medium term outlook for the stock with a potential to move towards 1229-1300 levels. Among others, Sunpharma, Divislab, Drreddy, CIpla, Alkem lab and Ipcalab are looking strong on charts.

Give us your top 3-4 ideas for this week
1) FDC (CMP: 345)

View: Buy

Entry range: 346 – 340

Target: 355 – 364

Stoploss: 332

The pullback from March lows has been strong and after a minor dip seen in early July, the stock is back at the horizontal resistance level of 345. With MACD breaking above the signal line in daily time frame, we expect the stock to breakout soon and move towards 355 and 364 levels in the next few weeks. All longs may be protected with stoploss placed below 332.

2) JKTYRE (CMP: 263)

View: Buy

Entry range: 263 – 258

Target: 270 – 280

Stoploss: 252

The stock has been moving within a wedge pattern on daily charts and has broken out of the pattern recently. Also, MACD forest has seen exhaustion at lower levels indicating a pull back. We expect the stock to move towards 270 and 280 in the next couple of weeks. Longs may be protected with stoploss placed below 252.