Nifty F&O data hinting at highly oversold conditions. Rupak De on what should traders do

The derivative data and the technical setup indicate highly oversold conditions, primarily resulting from relentless selling by the FIIs, says Rupak De, senior technical analyst at LKP Securities.

“On the downside, 18,800 is expected to serve as a critical support level, with put writers likely defending it. A decisive decline below 18,800 could trigger the unwinding of put short positions, potentially causing the Nifty to drop towards 18,650, where the 200-day moving average is located,” says the analyst. Edited excerpts:

After six days of non-stop decline that ended with October series expiry, was Friday's upside expected? Nifty showed strong support at 200-DMA. What are the targets for the new series?
The Nifty has experienced a 3% correction this month due to a combination of factors, including rising treasury yields, geopolitical tensions in the Middle East, and increasing crude oil prices. The Nifty has fallen below the 19,000 mark for the first time in four months, and market sentiment is quite bearish. This weak sentiment will likely persist in the short term as long as the Nifty remains below 19,250. Nevertheless, following a significant decline, a rebound may occur in the coming days. On the downside, 18,800 is expected to serve as a critical support level, with put writers likely defending it. A decisive decline below 18,800 could trigger the unwinding of put short positions, potentially causing the Nifty to drop towards 18,650, where the 200-day moving average is located.

In the new series, FII index-based long short ratio is at 10.87%, the lowest since March 29, 2023. Given the derivative set-up, what would be your trading strategy for Nifty options in the new series?
The derivative data and the technical setup indicate highly oversold conditions, primarily resulting from relentless selling by the FIIs. At one point during the October series, the Nifty PCR fell below 0.70, and the FII long-short ratio reached its lowest point in seven months, signalling extreme weakness. This bearish sentiment is expected to continue in the short term as long as the Nifty remains below 19,250. However, after a significant decline, a rebound may occur in the upcoming days.

Nifty PSU Bank jumped over 4% on Friday to signal that bulls are finding enough reasons to buy at lower levels. Which stocks within the pack are looking attractive at this stage?
Nifty PSU banks experienced a notable rally on Friday, as traders found compelling reasons to re-enter the previously beaten-down PSU Bank sector. Among them, Canara Bank garnered substantial buying interest, primarily due to its consolidation breakout, making it an attractive option for the short term.

Among stocks that fell the most in the week, do you find any of them at oversold levels?
After a substantial correction from the 2600 level, Reliance shares are now appearing more attractive for longer-term trading or investment. However, it might be advisable to consider buying once the stock begins trading above 2300, as it has fallen below the 200-day moving average (200DMA). A resurgence above the 200DMA is likely to spark renewed buying interest in the stock.


After the 18% rally seen in Swan Energy shares on Friday, what is the technical outlook for the week ahead?
The stock has recently experienced a consolidation breakout, indicating a boost in optimism. Over the medium term, it is possible that the stock will continue to rally. However, given the significant recent rally, it is advisable to consider entering any new long positions during a pullback.

Give us your top trading ideas for the week

Buy GNFC 665 TGT 700 SL 642
The GNFC stock has displayed a strong resurgence, characterized by a long-legged Doji candle testing its previous breakout resistance. Notably, the subsequent candle is significantly bullish, indicating a strong comeback by the bulls. Currently, the stock is trading above its 20-day EMA, with an RSI of 62, signifying strong momentum. Consider establishing a long position in the stock within the range of 660-665, while setting a strict stop loss at 642. On the upside, aim for a target price of 700.

Buy L&TFH 137 TGT 155 SL 131
The stock is following a higher high and higher low pattern on the daily chart, which is a bullish sign. The positive pattern is accompanied by good trading volume, indicating strength in the price action. The Relative Strength Index (RSI) indicator on the daily chart is in the positive zone, supporting the bullish sentiment. Consider establishing a long position in the stock within the range of 136-137, while setting a strict stop loss at 131. On the upside, aim for a target price of 155.

Buy RVNL 157 TGT 175 SL 150
The stock has reversed from a prior demand zone, indicating the potential for an uptrend to continue. Furthermore, the price has crossed back above the 50-day simple moving average (50SMA) on the daily chart. Consider establishing a long position in the stock within the range of 155-157, while setting a strict stop loss at 150. On the upside, aim for a target price of 175.