Headline index Nifty was trading in the green on Wednesday led by gains in banks and financial stocks. The 50-stock index was hovering near 22,000 around 10:30 am, up 70 points or 0.32% with potential for testing new lifetime highs from here.

Analyst Anand James, Chief Market Strategist, Geojit Financial Services said that the downsides never sought to challenge the 21,720 region again and upside attempts grew from strength to strength and he now eyes 22,200-22,240 initially. A pull-back below 21,870 could deflate the upside possibilities, though an outright collapse is less expected in his view.

Decoding the derivatives data, James said that Nifty’s weekly contract has the highest open interest at 22,500 for CALLs and 21,000 for PUTs while monthly contracts have the highest open interest at 23,000 for CALLs and 21,000 for PUTs. Moreover, FIIs increased their future index long position holdings by 8.84%, increased future index shorts by 3.81% and in index options by 11.35% in CALL longs, 4.29% in CALL short, 0.07% in PUT longs and 0.95% in PUT shorts.

We spoke to analysts on how one should trade stocks that were in focus in the previous trading sessions based on derivative and technical data:

Analyst: Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities told this to ETMarkets.

HCL Technologies gives trendline breakout

On Tuesday, the Nifty IT sector stood out as the top performer among sectoral indices, recording a remarkable surge of nearly 3%. This surge marked a significant outperformance compared to the frontline indices. Notably, the ratio chart depicting Nifty IT against Nifty itself exhibited a fresh consolidation breakout on a daily scale, signalling sustained outperformance. All constituents within the Nifty IT sector concluded the day on a positive note.Specifically, HCL Technologies experienced a breakout from a 15-day consolidation phase on the daily scale. This breakout was accompanied by trading volumes exceeding the 50-day average, further validating the strength of the move. Additionally, the stock formed a substantial bullish candle on the breakout day, reinforcing the momentum behind the breakout.As the stock is trading at an all-time high, all the moving averages and momentum indicators are indicating strong bullish momentum. The daily and weekly RSI is in a super bullish zone. The Average Directional Index (ADX), an indicator measuring trend strength, is currently in a rising trajectory on both the daily and weekly charts. Specifically, it stands at 28.48 on the daily chart and 45.28 on the weekly chart. Typically, a level above 25 is indicative of robust trend strength, and in this case, the stock meets this criterion in both timeframes. This underscores the considerable strength in the ongoing trend, suggesting a notable and sustained directional movement in the stock.

On the derivative front, the February series future has surged by 4%. The cumulative OI of current, next and far series has dipped by nearly 2%, which indicates overall short-covering rally. A significant concentration of CALL open interest is evident at the 1640 strike, followed by the 1700 strike. While substantial open interest on the PUT side is concentrated at the 1600 strike. Delving into the option chain, there has been a discernible accumulation of long positions from 1770 to 1620 CALL strikes. Conversely, on the PUT side, there is noteworthy PUT writing observed from 1640 to 1500 strikes. This clearly indicates bullish momentum in stock.

These technical and derivative factors are aligning in favour of bulls. Hence, we recommend accumulating the stock in the zone of Rs 1625-1615 with a stop loss of 1570. On the upside, it is likely to test the level of Rs 1700, followed by 1740 in short-term.

Long build-up signals bullish sentiment for ICICI Lombard

On Tuesday, ICICI Lombard General Insurance Company Limited experienced a notable uptick, with its stock price surging by close to 5%. This upward movement was supported by trading volumes that exceeded the 50-day average, signalling heightened investor interest. Additionally, the stock formed a significant bullish candle, further affirming the positive sentiment surrounding it.

Furthermore, the cumulative open interest (OI) across the current, next, and far series saw a substantial increase of nearly 3 per cent, indicating an overall long build-up in derivative space. This uptick in OI reflects growing confidence among market participants in the stock’s potential. Examining the option chain, it’s notable that there is a concentration of CALL open interest at the 1600 strike, while considerable open interest on the PUT side is observed at the 1500 strike. Additionally, from the 1580 to 1540 PUT strikes, there has been a consistent pattern of PUT writing, suggesting a bullish sentiment prevailing in the stock.

Technically, the stock is in strong uptrend as it is quoting above its short and long-term moving averages. These averages are in a rising trajectory and they are in the desired sequence, which suggests the trend is strong. The daily and weekly RSI is in the super bullish zone as per RSI range shift rules. The trend strength indicator, ADX is showing extraordinary strength as it is quoting above 40 mark and it is on a rising trajectory.

This combination of factors underscores the bullish momentum in stock. Hence, we recommend to accumulate the stock in the zone of Rs 1595-1585 level with the stop loss of Rs 1540. On the upside, it is likely to continue its northward journey and test the level of Rs 1670, followed by Rs 1710 in short-term.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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