A volatile week for equity markets. What led to the price action?
“An open above 18480 on Monday could invite long liquidation pressure that might stretch till atleast 18200 before resuming uptrend,” says Anand James, Chief Market Strategist at Geojit Financial Services.
In an interview with ETMarkets, James, said: “Preferred strategies from here on, would bet on debit spread strategies, or long straddle/strangle strategies as options are cheaper to hold. Position sizing also becomes very crucial here” Edited excerpts:
Since the start of November, we had Nifty trading above 18000-mark multiple times, making traders increasingly confident about the continuation of the uptrend.
And yet, as has been the trend recently, the market grew severely risk averse prior to the release of US CPI, as expectations were split between 75bps vs 50bps.
Sell-off in the crypto space also added to the caution, rendering the trend volatile in the second week of November.
While a low VIX ensured that the intraday ranges were limited, openings were mostly gapped-up or down. This turn of events finally culminated in a strong trade on Friday, breaching the year’s peak after a softer than expected US CPI numbers brought the probability of a 75bps US rate hike in December to less than 20%.
How is Nifty50 likely to trade in the coming week? Any important levels that one should watch out for Nifty and NiftyBank?
The Nifty50 will open with a week looking to clear the record peak of 18604, but, an open above 18480 on Monday could invite long liquidation pressure that might stretch till at least 18200 before resuming an uptrend.
If 18,200 survives, we could see 18,800 this week. Meanwhile, Nifty Bank, having already seen a new record peak, might slow down once in the 42500 vicinity, but looks poised for a long stretch of upsides aiming for 45000 shortly. A fallback below 41740 will however negate such expectations.
India VIX fell which is a good sign but does this mean that it is a good buy on dip market? Any strategy which traders can deploy on Nifty/NiftyBank?
Market has been in a declining VIX environment since the last week of September and has been a central theme helping directional upsides.
While this turn of events has been extremely good for the buy-and-hold stock investors, the fate of naked option traders as well as intraday traders have been extremely perilous as the intraday ranges remained extremely tight, requiring timing the entry and picking the trend correctly assuming extremely important for a successful trade.
For systematic traders, this reduces the odds of success. Now that VIX has declined even below 14.5, short-vega strategies have begun to look less attractive.
Preferred strategies from here on, would bet on debit spread strategies, or long straddle/strangle strategies as options are cheaper to hold. Position sizing also becomes very crucial here.
Small and Midcaps also witnessed some selling – how should one play this theme?
Midcap and Smallcap indices saw a decline in the last couple of days dragged by Chemicals and Healthcare stocks. Just 15% of Midcap and 11% of Smallcap stocks saw more than a 5% cut in the last week.
But it is safe to say that small and midcap stocks are yet to join the party. Even on Friday, when the Nifty breached the year’s high, 20% and 12% of the mid and small caps respectively, were seen pushing below the previous day’s low.
In a way, this is good, as there are no signs of froth or bubble here, as s would normally see when we breeze past record peaks in benchmark indices.
In terms of sectors, healthcare stocks saw selling pressure while metal stocks attracted buying. What led to the price action?
FPIs have been consistent buyers in healthcare stocks for the last four months. In October, they bought shares worth Rs.929 Cr. taking their net investment since April to Rs.13984 Cr.
Profit booking was a given hence, probably exacerbated after earnings release from Divi’s Lab, Sequent, Tarsons, Dr Lal PathLab, Metropolis, and Gland pharma.
Meanwhile, if 53% of stocks in the Healthcare sector were trading above the 200-DMA a week ago this has moved to 54% this week suggesting that if you are prepared to look beyond the decline among the sector biggies, there is continued improvement across sector and is still a favourite.
Any 2-3 trading ideas for the next 3-4 weeks?
Here are a few trading ideas –
Allcargo Logistics: Buy| LTP Rs 453| Target Rs 468-480| Stop Loss Rs 438| Upside 10%
The stock has seen a Psar and MACD breakout in the daily time frame backed by strong volumes. The stock has also managed to breach and close above ~2-month high adding more to positivity. We expect this stock to move towards 480 in the near term. Longs may be protected with stop loss placed below 438.
FDC Ltd: Buy| LTP Rs 314| Target Rs 335| Stop Loss Rs 304| Upside 10%
After breaking out of the declining wedge pattern resistance in August, the stock moved ~25% since then. After a minor correction, the stock is back on an upward trajectory.
The stock has seen a Psar breakout in monthly as well as daily time frames and the monthly MACD is about to cross the signal line supporting our expectation of a bullish outlook in the near term. We expect the stock to move towards 335 levels in the near term. Keep a stop loss below 304 to protect longs.
First published in The Economic Times
