US Fed meet kickstarts today; here's what the Street is expecting

The US Fed meeting would be the key trigger in the near term. The market has more or less factored in a 25 bps hike, said Rajesh Palviya of Axis Securities

The US Fed meeting would be the key trigger in the near term as the Federal Reserve is going to take a decision on policy rates. The market has more or less factored in a 25 bps hike, Rajesh Palviya, Head – Technical & Derivatives Analyst, Axis Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Q) US Fed meeting will be an important event to watch out for. What should be the strategy of investors?

A) The US Fed meeting would be the key trigger in the near term as the US Federal Reserve is going to take a decision on policy rates. The market has more or less factored in a 25 bps hike.

The US Fed Chair would address the conference and indicate his stance on rate hikes in 2019. Looking at current technical setup and derivative data points to the fact that as of now, 11,000 seems difficult to break on the higher side.

We are expecting 10,600 -11,000 range for the month of December 2018. So, one should book profits if Nifty reaches near 11,000 marks or one can initiate long positions near 10,700 in case of any correction in the near term.

On the derivative front, one can initiate a strategy to play the range of 10,500 -11,000.

One can sell 11,000 CE (38) Buy 11,100 CE (18) as a hedge. Inflow Rs 20

One can sell 10,500 PE (30) & Buy 10,400 PE (19) as a hedge Inflow Rs 11

These options strategy will give a profit of Rs 2,292 if Nifty stays between 10,500  and 11,000 till December series expiry. If Nifty beaks above/below the ranges then the maximum loss would be Rs 5,208

Q) It looks like the market is witnessing resistance around key levels. For Sensex it is 36,000, while for Nifty 10,800. What does the chart suggest?

A) Sensex is facing stiff resistance at 36,000 level and Nifty is experiencing supply pressure from 11,000 level since the last three months. These levels are at the inflection point of 50% retracement from high of September 2018 to recent low made in month October 2018 and coincide with 100-Day SMA.

On the weekly chart, the index has formed a bullish candle with a long lower shadow which indicates buying at lower levels. The chart pattern suggests that if Nifty crosses and sustains above 10,850 levels it would witness buying which would lead the index towards 10,900-11,000 levels.

As per Derivative data, highest Call (CE) OI Stands @ 11,000 strike which is likely to act as a stiff resistance for this month. Once Nifty manages to cross 11000 hurdles, we can witness a short covering action in the market which could take it towards 11,300-11,550 level in the short-term.

However, 10,700 and 10,600 are an important support level on the lower side. The weekly strength indicator RSI and momentum oscillator Stochastic both have continued to remain flat indicating a possible consolidation in the near term. We expect Nifty to remain in the range of 10,600-11,000 in December 2018.

Q) What is your call on the small & midcap? What does the trading behaviour tell you?

A) In the recent past, accumulation and buying interest at lower levels have been seen in some quality midcap and small-cap stocks.

Smallcap and Midcap indices managed to cross and sustain above 50-DMA but are still trading below 100 and 200-DMA which indicates supply pressure to continue on the higher side.

We believe that stocks with good fundamentals backed by a good set of results would continue to rally. So buying quality mid-caps and small-caps on dips is advisable.

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