Keep Focusing on Bank Nifty
Will what looked like a profit-booking move end up as a corrective move? That’s the fear derivative traders are nursing now. Intraday charts and market breadth details show selling pressure at higher levels in both Nifty and mid-cap stocks. When the Nifty turns southward with bad market breadth, it rules out the probability of any sharp recovery in the market. At best, the market could stay range-bound for some more time.
The Nifty is placed just above its short-term support levels, which means that either a bounce-back will happen from the current level or the index would see a short-term break down in the light of the June series contracts’ expiry this week. So, this could be a technical breakdown rather than an actual breakdown and hence we would still stay with the neutral strategies, not bearish ones. This being the expiry week, some volatility is bound to happen, though a part of that has played out on Thursday and Friday. Still, the rollover could trigger more volatility. It is always better for traders not to take any fresh positions in the week of expiry. So, wait until Thursday and take fresh positions from the July series.
Traders may look for covered call this week. Adopting a neutral strategy, they can look at selling multiple straddles along with wider stop losses and wait for the decline in the time value of options. But this strategy is for traders who spent their day in front of trading screens.
After forming a new high last week, the Bank Nifty seems to have entered a short, corrective move again. It may slip further, but as it comes close to its 20-day moving average (DMA), it might once again start moving within ranges. So, any trading with a bullish-to-neutral strategy should be done only when a short range gets formed.
Going by Friday’s trend, the Bank Nifty might slip more this week from rollover of June positions to the next month.
Interestingly, a large number of PSU bank stocks have come close to their 200 DMA. In the last two years, whenever they came close to this average, most of these stocks had shown a tendency to stay in a range-bound mode. This time also, macro-formations on most banking charts show that these stocks may stay in a range-bound mode. So, trader may go for the covered call strategy in stocks which are close to their 200 DMA.
Traders should ideally focus on the Bank Nifty and deploy the maximum trading capital on this index.
Rajiv Nagpal