F&O Talk: Nifty Gains for 6th Week, Bank Nifty Stable – SBI Securities’ Sudeep Shah Recommends Bull Call Spread

The market is strong right now, with Nifty gaining for the sixth week in a row. Even though there was some profit booking for Bank Nifty, the indices remained mostly stable, staying above the 10-day EMA on a weekly timeframe. Nifty closed the week up by 0.8% or 186 points at 24,502, while Bank Nifty closed almost flat with a small gain of 0.02% or 8 points at 52,278.

Market Outlook

Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research at SBI Securities, shared his views with ET Markets about Nifty and Bank Nifty, along with a trading strategy for the next week.

Resistance at All-Time Highs

Nifty IT outperformed other indices, rising nearly 4% and breaking out from a Cup and Handle pattern on a weekly scale. This helped push the market higher. Despite some consolidation, the charts show no signs of weakness, and momentum indicators suggest there could be more upside. About 84% of Nifty constituents are trading above their 20-day EMA, showing strong internal strength.

Upcoming Union Budget

With the Union Budget approaching, it’s important to maintain a balanced risk-reward approach and use strict stop-loss strategies. Nifty has strong support at the 10-day EMA zone of 24,250-24,200. As long as it stays above 24,200, it could reach 24,700 and then 24,900. If it falls below 24,200, the next support level is at 23,950.

Bank Nifty

For Bank Nifty, the support zone is 51,800-51,700. If it falls below 51,700, the next support is at 51,300-51,200. On the upside, if it moves above 52,600, it could reach 53,000 in the short term.

Trading Strategy

Shah suggests buying quality stocks on minor dips in Nifty. For index option traders, a Bull Call Spread is recommended to capture potential upside while limiting losses in case of a downturn.

Open Interest Insights

For Nifty, there is a lot of call open interest at the 24,600 and 24,700 strikes, and put open interest at 24,400 and 24,300 strikes. The range for the coming week is expected to be 24,250-24,750.

For Bank Nifty, significant call open interest is at the 52,500 strike, and put open interest at the 52,000 strike. The range for the next few sessions is expected to be 51,750-52,800.

Sector Watch

Shipping and fertilizer stocks are seeing good momentum. However, Shah recommends booking partial profits in shipbuilding stocks as they are overbought. Select fertilizer stocks like RCF, NFL, Coromandel, and FACT are expected to continue their upward trend.

Railway and Defense Stocks

Railway and defense stocks have been strong, showing higher highs and strong volumes. Shah advises holding these stocks with a stop-loss at the 10-day EMA level. For new entries, he suggests waiting for a dip to avoid poor risk-reward ratios.

Upcoming Budget Sectors

Nifty IT has broken out and is expected to continue rising, especially after TCS results. Nifty FMCG is also outperforming, along with Nifty Oil & Gas, Nifty PSE, Nifty CPSE, and Nifty Pharma, which are likely to move up in the next few sessions.

SEBI’s Proposed Measures

SEBI’s proposed changes to increase the minimum lot size for derivative contracts and limit weekly options are aimed at reducing high retail speculation. If implemented, these changes will impact trading volumes. Until then, it’s best to avoid speculation on these measures.