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Motilal Oswal:Avoid bottom fishing in beaten down stock

Yatheendradas C.k. at 03:28 PM - Sep 23, 2018 ( ) Views: 660

Last Updated : Sep 23, 2018 10:28 AM IST | Source: Moneycontrol.com

Motilal Oswal: Avoid bottom fishing in beaten down stocks in expiry week

Chandan Taparia of Motilal Oswal Financial Services feels traders may face mark-to-market burden if the market doesn't see a recovery
Moneycontrol Contributor

Chandan TapariaMotilal Oswal Financial Services

The Nifty witnessed one of the most volatile sessions on Friday as it opened positive but failed to hold above its immediate hurdle of 11,333. It corrected sharply towards 10,866 levels. The index fell around 480 points (its biggest intraday fall in recent months) from its high of 11,346 to 10,866 levels and formed a strong bearish candle on the daily scale.

However, it recovered around 300 points from its panic lows, but the bears continue to maintain a tight grip on the market. It has also broken its support of 11,171 and till it doesn’t cross and hold above 11,333 levels, overall weakness could remain intact for a decline towards 11,000 and lower zones.

 
The Nifty has been forming lower highs-lower lows for the last three weeks and corrected sharply by around 900 points from its record high of 11,760.

 
India VIX touched a high of 16.92, its highest zone in the last seven months. Volatility has jumped 12.28 percent with a decline in aggregate put-call ratio at 1.14, which is the lowest since March 27.

On the option front, maximum put open interest (OI) stands at 11,000, followed by 11,100 strikes. Maximum call OI is at 11,500 and 11,400 strikes. We have seen fresh call writing at 11,200, followed by 11,100 strikes and put unwinding at all immediate strikes.

The Bank Nifty fell sharply to test its swing low of 25,052 mark. It has been making a lower top-lower bottom formation on a daily scale, with resistances gradually shifting lower.

The index corrected by over 1,000 points during Friday's session. Till it remains below 26,165-26,250 zone, overall weakness could continue for a decline towards 25,000 levels.

The advance-decline ratio and most indicators are hinting at bearish momentum as major supports were broken in most indices and stocks with a spurt in volumes and OI.

Stock-specific weakness could continue in most public sector banks, private banks, automobiles, non-banking financial companies (NBFCs), cement and midcap stocks. Only selective heavyweight counters like Tata Consultancy Services (TCS), Wipro, ITC, Oil and Natural Gas Corporation (ONGC), Reliance Industries, GAIL India and Bharat Petroleum Corporation (BPCL) are showing some signs of strength.

Traders should wait for volatility to reduce or take protective puts for hedging their portfolio. Index traders can opt for a bear put spread or call writing activities to play the negative to rangebound market scenario.

Don't go for bottom-fishing in beaten down stocks till you don't see a meaningful sign of stability as during expiry weeks stocks which get stuck hardly see any relief as per past derivatives data.

Participants those who wish to use dips could go for systematic investments in heavyweights stocks rather than taking leverage position as after a long time many good quality stocks are cracking sharply and traders may face mark-to-market burden if it doesn't see a recovery.

Disclaimer: The author is Associate Vice President | Analyst-Derivatives at Motilal Oswal Financial Services. The views and investment tips expressed by experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.


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Yatheendradas C.k. at 09:08 AM - Sep 24, 2018 ( )

Markets can re-test Friday’s low  given liquidity and asset-liability mismatch concerns.  Derivatives and technical analysts feel the market could re-test lows of Friday.  Traders and investors wanting to hedge their risk from a falling market could do a bear put spread on  options expiring on September 27. Lets wait and watch the situation. 

 

 

 

 

 

Mukesh Kumar at 09:01 PM - Sep 23, 2018 ( )

"Sell when everyone is greedy and Buy when fearful "  It is said by stock gurus, but the same people are confused when real fear and greed attacks the market. Should we do bottom fishing, when market at all time high?? 

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