Nifty 50 January Futures (17,090)

Major equity indices across Asia are in the red. Nikkei 225 (26,981) is down by 2.1 per cent, ASX 200 (6,948) lost nearly 2.8 per cent, Hang Seng (24,285) is trading lower by 1.5 per cent, and KOSPI (2,710) is tumbled by a little over 3 per cent. In line with this, the Indian benchmark indices too are trading lower today. Both Nifty 50 and Sensex began the session with a gap down. Although it has moved up post the open, Nifty and Sensex are still down by 0.65 and 0.7 per cent and are at 17,065 and 57,135, respectively.

The US market, which witnessed a substantial sell-off yesterday, staged an impressive recovery. Benchmarks like Dow Jones (34,364) and S&P 500 (4,410) lost about 4 per cent intraday but recovered sharply to end the session in the green. Dow closed 0.3 per cent up for the day and closed above the key support at 34,000. Similarly, the broader index S&P 500 gained 0.3 per cent, closing above the support at 4,400. This recovery might give some hope for the bulls, but we have to wait and see how far they will capitalise.

Futures: The January futures of Nifty began the session with a gap-down at 17,000 versus yesterday’s close of 17,151. While the contract slipped and marked an intraday low of 16,851, it recovered and hovered around 17,050. The price band of 16,850 – 17,000 is a considerable support band for the contract. Hence, even though the downward momentum is strong, one must wait until the support at 16,850 is decisively taken down to take fresh shorts.

On the other hand, if the contract can sustain above 17,000, it can see a recovery rally, possibly to 17,300 or 17,400. But today’s price action so far suggests that 17,200 can act as a hurdle.

So, considering that 16,850 – 17,000 is a support band, even though the market is on a decline and that Asian markets are bearish, it may not be a good idea to short with a reasonable risk-reward ratio. At the same time, a corrective rally is a possibility on the back of this support. But for this, 17,200 is a hurdle. Hence, traders can stay away now and initiate fresh longs on the break of 17,200 with stop-loss at 17,080. When the contract touches 17,300, revise the stop-loss to 17,180. Exit the longs at 17,400.

Strategy:

1 Buy the contract only if it breaks out of 17,200. 2 Keep the stop-loss at 17,080. 3 Shift the stop-loss to 17,180 when the price rises to 17,300. 4 Exit longs at 17,400.

Supports: 17,000 and 16,850

Resistances: 17,200 and 17,300

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