Bank Nifty Technical Outlook for 13th May’13

Bank Nifty as on 10 May’13 – 12752.30

Bank Nifty as on 10 May’13 – 12752.30

From above chart of Bank Nifty, few things I would like to high light here.

  • Bank Nifty is moving in a channel from quite a long time, and in recent past it is stuck near a trend line and consolidating here from last twelve trading sessions.
  • If we compare weekly chart, than in last week Bank Nifty made a high of 12783.30 and in last week it made a high of 12783.05. Exactly same high. Only significant difference between prior week’s high and last week’s high is, closing. In the last week Bank Nifty closed near highs, whereas in prior week, it closed near lows.
  • On 29th Jan’13 Bank Nifty made a high of 12960.65 and took a U turn. Now Bank Nifty is very close to this high.
  • As depicted in attached momentum oscillator RSI (14) is showing potential negative divergence, but situation is different on weekly chart, which suggest continuation of trend. This disparity is seemingly reflected in price action, as moving in choppy way from last couple of days.

Now, question is not that, whether Bank Nifty manages to test these highs, as I was expecting it to test these highs from mid Apr’13 onwards.  Big question comes in my mind, whether Bank Nifty will continue upward momentum and test all time highs of 13303.60 posted on 5 Nov’10? If so than it can move up to 13450-13500 levels.

If I have to answer above question then, in first case my answer is it is difficult to say at this point in time. According to my analysis everything is not in place to make fresh highs and sustain even for 2-3 days. Even if, it test the highs than momentum will start fading quickly. On micro analysis, Bank Nifty hourly chart is trading with divergence from quite a long time, Daily chart is showing divergence, and only weekly chart shows some positivity. As student of technical analysis, I should rely on weekly chart and not on daily and hourly chart, because they can turn their winds very easily, weekly charts will not.

Few major banks are standing at a point, where it can easily extend gains, but few smaller banks are not in position to step further. In such scenario Bank Nifty to move higher and sustain, looks difficult.

Keeping above things in consideration, traders can initiate Bank Nifty Long Straddle.

 Bank Nifty Long Straddle
Strike Price Options Recomm Lot Size Investment
12800 CE 256 25
12800 PE 277
533 25 13325

In above strategy risk is involved, if Bank Nifty turn sideways in coming days than this strategy will not earn anything and gradually option premium will start deteriorating. But, If Bank Nifty moves in either way than this strategy will start earning.  Stop Loss should be kept with 120/130 points (25X120=Rs. 3125)

Break even point on Higher Side will be ~13300 (all time high of Bank Nifty)

Break even point on Down Side will be ~12300 which is also very much possible.

So, I think it is best time to initiate this strategy. But risk-averse traders should ignore as it is risky in terms of financials.

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