F&O Talk | Nifty’s northward journey to continue, barrier at 24,850-24,900: Sudeep Shah of SBI Securities

After ending the week 2.2% higher, the Nifty is likely to continue its northward journey in the next two trading sessions, says Sudeep Shah, Deputy Vice President and Head of Technical and Derivatives Research, SBI Securities.

“The zone of 24,850-24,900 will act as a critical hurdle for the index. Any sustained move above the 24,900 level will lead to a sharp upside rally to the 25,200 level, followed by 25,500 in the short-term. Whereas, ongoing losses, the 100-day EMA zone at 24,350 -24,300 acted as immediate support for the index will,” he says.

Edited excerpts from the chat:

Nifty ended the week on a positive note but several traders were caught off guard by the strange and unpredictable movements in the index on Thursday. Will expiry-day trading remain challenging even after rationalization of F&O segment by SEBI?

Yes, we believe expiry day trading will pose challenges even after rationalization of the F&O segment.

On the weekly expiry day, the Nifty showed extreme volatility, trading in a 562-point range, marking the widest daily range in the last eight sessions. The index saw a sharp decline of 244-points in the first half, which found support near the 100-day EMA, followed by an impressive 565-point rally. However, the last hour of trading brought another correction of 365 points, creating a wild, unpredictable trading session that tripped up many traders.

Additionally, we have observed that mispricing of options adds another layer of complexity. During such volatile sessions, premiums often deviate significantly from their fair value due to aggressive speculative conditions, sudden institutional activity or low liquidity in certain strikes.

Going forward, traders need to focus on risk management, refine their expiration-specific strategies and closely track institutional trends and market sentiment to effectively navigate such unpredictable sessions. Understanding broader trends and using advanced tools like implied volatility analysis can further help mitigate risks during closing days.

December is usually a bullish month and keeping that in mind, what will be your target for Nifty in the coming week? Do you think the buying momentum will take the index back to the previous peak in the next 2-3 weeks?

As per seasonal trends, December is usually a bullish month. Technically, in the last week, the index has bounced above its short and long-term moving averages. The daily RSI is also poised to bounce above the 60-mark. Furthermore, the daily MACD remains bullish as it quotes above its zero line and signal line. The MACD histogram suggests a pickup in upside momentum.

Hence, we feel that the index is likely to continue its northward journey in the next two trading sessions. Talking about critical levels, the zone of 24,850-24,900 will act as a critical barrier for the index. Any sustained move above the level of 24,900 will lead to a sharp upside to the level of 25200, followed by 25500 in the short term. While, on the downside, the 100-day EMA zone of 24350-24300 will act as an immediate support for the index.

Now that all the weekly expirations have taken place except Sensex and Nifty, the interest in Sensex alternatives is increasing. How do you fare in Sensex next week?

Technically, the Sensex has taken support near its 200-day EMA level and witnessed a sharp upside. The index has gained more than 6 percent in just 12 trading sessions. With this increase, the index has risen above its short-term and long-term moving averages. Most notably, the daily RSI rose above the 60 mark for the first time in 44 trading sessions.

We believe that the index is likely to continue its upward journey in the next two trading sessions. The zone of 82300-82400 will act as an immediate barrier for the index. Any sustained move above the 82400 level will lead to a sharp upside rally to the 83200 level in the short term. While, on the downside, the zone of 80500-80400 will act as a crucial support for the index.

Given the way smallcaps and midcaps are booming with participation from all sectors, what is the overall take on the strength of this boom amid FII buying?

Nifty Midcap and Nifty Smallcap 100 have been strongly outperforming the frontline indices since the last two trading sessions. Last week, Nifty Mid Cap 100 and Nifty Small Cap 100 rose over 4 percent respectively. Notably, the small cap index is now just a stone away from its all-time high.

From recent lows, the benchmark index Nifty has rallied over 6% in three weeks. During the same period, the Nifty Midcap Index has gained 9.5%, and the Nifty Small Cap Index has gained nearly 12%. This outperformance by the broader markets underscores their strong momentum, decisively outperforming frontline indices. We maintain our view that the broader markets still have room for further upside.

We feel that Nifty Small Cap Index is likely to test 19900 then 19600 levels in the short term. While on the downside, the zone of 19,200-19,150 will act as an immediate support for the index. While the Nifty Midcap index is likely to test the level of 59700 in the short term. On the downside, the zone of 57900-57800 will act as an immediate support for the index.

How has your outlook on bank stocks changed after the RBI policy outcome? Do you think there might be some more steam left in PSU bank stocks in particular?

Yes, we think PSU banks have more steam left. Technically, Nifty PSU Bank Index has given a neckline breakout of Adam & Adam double bottom pattern on daily basis. Along with this, it has risen above its short and long term moving averages. These averages are in increasing motion and are in the desired sequence, indicating that the trend is strong. Daily RSI is in super bullish zone.

Hence, we think the index is likely to continue its northward journey. As per the measuring rule of double bottom pattern, upside target is kept at 7900 level in medium term. While, on the downside, the zone of 6950-6900 levels will act as an immediate support for the index.

HEG was among the top gainers in the Nifty 500 pack during the week amid a flood of positive news. Do you suggest profit booking?

Yes, we believe the stock is likely to enter a period of consolidation after its sharp rally. During the week, HEG rallied over 40%, driving momentum indicators and oscillators into overbought territory. The daily RSI has reached 80, indicating an overbought condition based on RSI range shift rules. Additionally, the appearance of a doji candlestick on a daily chart often signals a possible breakout or consolidation phase following such a strong rally.

Going forward, the 540-535 zone is expected to act as an immediate support for the stock, while the upside is likely to be capped by critical resistance in the 585-590 range. Given these factors, it may be prudent to consider partial profit booking at current levels while monitoring the stock’s behavior near these key levels to gauge its next move.

Give us your best ideas for the week

Zomato: The stock has given a cup pattern breakout on a weekly basis. Additionally, the stock has formed a large bullish candlestick on the weekly chart, adding further strength to the breakout. As the stock is trading at all-time highs, all moving averages and momentum-based setups show strong bullish momentum. Hence, we Rs. Recommend the stock to accumulate in the zone of 303-300 with a stoploss of 288. On the upside, it is likely to test 335 then 325 levels in the short term.

Jubilant Food: Recently the stock has taken support near its 200-day EMA level and started moving higher on relatively high volume. From recent lows, it has risen 24 percent in just 22 trading sessions. With this surge, the stock has risen above its short-term and long-term moving averages. Daily RSI is in super bullish zone. Hence, we Rs. We recommend the stock to consolidate in the zone of 695-690 with a stoploss of 670. On the upside, it is likely to test 750 then 730 levels in the short term.