Range-bound Nifty to support bullish scenario

Technical analysts said Nifty must sustain above 15,700-15,800 levels this week for it to head to 16,000 levels. The index has been moving in a range of 15,450 to 15,950 for the last 42 trading sessions. Nifty ended down 15.4 points, or 0.1%, at 15,763.05. Analysts are bullish on metals and mid-cap IT stocks in the short term.



Where is the Nifty headed?
For the last five weeks, Nifty is stuck in an extremely narrow range and we see this pause in momentum continuing for sometime as all recent good news are already priced in. Also, the oneyear forward price-to earnings ratio (22.74) for the Nifty is now nearly two standard deviations above the 10-year mean and is also one of the highest among major Asian equity markets.

What should investors do?
This week the index could trade in a broad range of 15,550 (support zone) to 15,980 (resistance zone) with sectoral level rotation. Traders can initiate short strangle option strategy in Nifty index by selling 15,550 put and 16,000 call as well for August 5 weekly expiry. For the next 3-4 weeks, we are bullish on metals, Tata Elxsi, Indus Tower, and Tata Consumer. We expect underperformance in the cement sector, ITC and Info Edge


Where is the index headed?
Nifty defended 15,600 on a closing basis; the resilience of Nifty was seen during the week as it outperformed MSCI Emerging Markets index and Asian peers. However, we feel markets are on the cusp of making fresh highs over its impending resistance zone of 16,000 in the current series. Hence, investors/traders should use dips to enter at around 15,750.

What should investors do?
In Nifty strategy, one can initiate a bull ratio call spread (1:2) with expiry on August 26. One can buy Nifty strike 15,800 call option and sell strike of 16,100 call with a total spread of 50 points outflow. The maximum downside below 15,800 is 50 points and upside breakeven would be at 16,400. The maximum profit would be at 16,100 levels. One can buy Jindal Steel shares near the range of Rs 430-Rs 435 for a target of Rs 500 with stop-loss at Rs 405. One can buy Mindtree at Rs 2,850-Rs 2,870 for a possible target of Rs 3,200 with a stop-loss placed at Rs 2,700.


Where is the Nifty headed?
Nifty has been moving in a range of 15,450 to 15,950 for the last 42 trading sessions. It has formed a small bodied bearish candle on daily scale and a bearish hammer sort of candle on the weekly frame which indicate meaningful declines are being bought. Follow-up buying is missing at higher levels which is keeping the index in the broader trading range. Now, it has to hold above 15,750-15,800 zones to witness an up-move towards its life-time high of 15,962 and then 16,200 levels. On the downside, support exists at 15,600 and 15,500 levels.

What should investors do?
Stock specific activity is being seen in many sectors even after a range-bound bias in the key indices which is supporting the overall bullish scenario of the market. Traders can go with bull call spread in weekly expiry by buying 15,800 call and selling the 15,950 call with the view of positive to range-bound bias. Investors can continue to stay invested and use small decline as a buying opportunity for the next leg of the rally. We may see a positive momentum in the chemical, fertilisers, sugar, realty and selective pharma stocks which have potential to outperform the broader market.

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