Chartist Talks | This week's Bank Nifty and Nifty 50 should use the short iron butterfly technique, according to Jatin Gedia

Chartist Talks | This week's Bank Nifty and Nifty 50 should use the short iron butterfly technique, according to Jatin Gedia

According to Jatin Gedia, for the Nifty, 23000 seems more likely, while 23,500 would be too ambitious in the May series.

Technical research analyst Jatin P. Gedia works at Sharekhan by BNP Paribas.

According to Jatin P. Gedia, a technical analysis analyst at Sharekhan by BNP Paribas, the overall chart structure for the May series indicates that the Nifty will continue to trade inside the upward-sloping channel and gradually climb beyond 23,000 in the run-up to the election results on June 4.

He explains why, in an interview with Moneycontrol, he anticipates rangebound price activity in the Nifty and Bank Nifty during this shortened week that starts on April 29.

Therefore, in order to trade this rangebound outlook, this financial services industry expert—who has over ten years of experience—suggests using a 22,500 short iron butterfly strategy for the Nifty 50 and a 48,400 short iron butterfly approach for the Bank Nifty.

Given the chart structure, do you think the Nifty 50 will end the May series above the 23,000 or 23,500 levels?

Since the middle of January 2024, the Nifty has been generally trading in an upward-sloping trend. The geopolitical environment has created a lot of bearish triggers, but the Nifty has managed to cling into the bottom end of that range, which is located between 21,950 and 22,,000. When looking up, the psychological level is at 23,000, and the immediate barrier is between 22,750 and 22,776.

The general structure of the chart indicates that the Nifty may stay in this channel and gradually move closer to 23,000 in the days leading up to the Lok Sabha election results. Therefore, 23000 seems more likely, although 23,500 would be too optimistic.

Do you believe that the Bank Nifty is prepared to establish higher highs and lowers on the daily charts in the upcoming May series?

The Bank Nifty has been gradually rising and is now in an uptrend. The Bank Nifty was able to successfully defend the prior swing lows of 46,600 and 45,800 during the recent drops that occurred in both March and April. This allowed the uptrend and the higher high higher low pattern to remain intact. We anticipate that this will also apply to the May series.

What is your F&O trading plan for the Nifty and Bank Nifty for the next week, furthermore?

We anticipate rangebound Nifty and Bank Nifty market movements throughout this shortened week. At Sharekhan, we advise using the 22,500 Short Iron Butterfly approach to trade this rangebound outlook. This strategy entails selling the 22,500 CE and 22,500 PE and purchasing the 22,250 PE and 22,750 CE. This strategy's breakeven points are 22,330 and 22,670. Therefore, the approach will be lucrative if the Nifty expires inside this range. It is a risk-reward beneficial investment as the greatest profit potential is Rs 4,300 and the maximum loss is Rs 1,950.

We recommend a 48,400 Short Iron Butterfly strategy for the Bank Nifty, which entails selling the 48,400 CE and 48,400 PE and purchasing the 47,900 PE and 48,900 CE. This strategy's breakeven points are 48,050 and 48,750. Therefore, the approach will be lucrative if the Bank Nifty expires inside this range. It is a risk-reward beneficial investment as the greatest return potential is Rs 5,400 and the maximum loss is Rs 2,050. Due to the shortened week and the April 30 Bank Nifty weekly expiration, the theta decay is probably going to be quicker.

Selling a middle strike Put and Call (ATM Put and Call) and purchasing a lower strike Put (OTM Put) and higher strike Call (OTM Call) with the same expiry date are the two components of the short iron butterfly strategy. OTM is out-of-the-money, while ATMs are in the black.

Do the charts indicate that Maruti Suzuki would surpass the Rs 12,000 milestone in the near future, which also happens to be the 50-day EMA?

Over the last three months, Maruti's pricing has increased by 34%. On the weekly charts, it has created an Inverted Hammer Pattern, indicating profit booking at higher levels and pointing to a near-term correction. The daily momentum indicator's negative divergence also suggests an upward momentum decline.

On the negative side, we anticipate a correction in the stock around Rs 12,300–Rs 12,100, where the 40-day moving average and the 23.6 percent Fibonacci retracement level provide support.

In light of the emergence of a Bearish Engulfing pattern on the daily charts, what is the likelihood that HCL Technologies will break the 200-day EMA in the next week?

A countertrend decline in HCL Technologies petered out between Rs 1,530 and Rs 1,515. The bearish engulfing pattern development suggests that there is a considerable likelihood of the stock declining further towards Rs 1,415 unless Rs 1,530 is taken out on the upside. that is, the 200 EMA.

Since we think the IT sector is nearing its bottom, a certain segment of the market is expected to show interest in the stocks as they get closer to long-term supports, which will prevent a further steep loss.

Which are your two favorite May series picks?

It seems like Laurus Labs has embarked on a new upward trajectory. The 50 percent Fibonacci retracement level and the 40-day moving average, two key support levels, were where the most recent correction stopped, at about Rs 420–415. The stock might increase in the May series, perhaps reaching Rs 500–524. We recommend a stop-loss of Rs 421 for long trades.

For the last four months, UltraTech Cement has been going through a corrective phase. The weekly momentum indicator, which may initiate a new cycle on the upside, has hit the equilibrium line, suggesting that the correction has reached a more mature stage. During the May series, we anticipate the stock will aim for levels between Rs 10,250 and Rs 10,300. For long trades, one should maintain a stop-loss of Rs 9,450.