Could You Profitably Trade the Adani-Hindenburg Scandal

  • Stock Market Analysis

Today I will look at two Adani Group stocks. This is because the group’s equities literally broke the markets back last week as they sent the indexes spiraling down. However, in this article, I will not look at the Hindenburg report as that covers a lot of what we already know and a lot of what is also hearsay. Thus, here I will only look at the chosen stocks in perspective of what investors cum traders ought to expect going forward.

The first stock is Adani Enterprises (NS: ADEL ) and saying the stock has had a bad few days would be one hell of an understatement. This is because the equity has fallen by roughly 35% from its high and we aren’t done yet. Now, as it is listed in the derivatives space, I will look at it from an FNO trader’s point of view, whilst also looking at it from an investor’s point of view. Am doing so as both these groups play by a distinctively unique set of rules and have very different expectations from the market. Plus, the trading behavior of both these groups is different.

Now as an investor, I wouldn’t touch this stock as of now. This is because the equity will not be a buy any time soon as any reversal will be short-lived and I say this due to two reasons. The first reason is the news cycle. This is because as the Adani and Hindenburg Group fight gets more public, the stock will have many quick rises which will end in the stock price returning to the current point. Thus, this will be greatly beneficial for short-term traders but will play as a trap for the longer-term investor. Now the second reason investors ought to avoid this stock is due to how unfavorable the equity’s bullish-bearish volume is. This is because when we break down last week’s volume build-up we see that only 11% of the volume was bullish while 89% was bearish. Thus, such a negative volume build-up will only result in the equity having a further decline in the coming weeks. This is because all reversal attempts will be short-lived as many will utilize them as exit opportunities. Hence, in the coming weeks, I expect Adani Enterprises to fall to Rs. 2,200 and then Rs. 1,900. Naturally, it will not be a straight decline, but a bumpy one that will play on the hopes of many.

Now, as an FNO trader, the above levels will not be applicable. This is as in the derivatives space we are dealing with expiries and stuff like option Greeks. Plus, we want to capture the near-term volatility. Thus, if the stock were to hold the support at Rs. 2,600 to Rs. 2,620, then this would provide us with an opportunity for a sideways movement that would create a dead cat bounce which will use the resistance zones at Rs. 2,980 and Rs. 3,200 as a culmination point. However, if it fails to halt its descent at Rs. 2,600, then we will have a short-term slide to Rs. 2,450. If we get a halt at the supports, then this will provide us with an opportunity to sell CEs and PEs which will make a buck from capturing the volatility within the zone. Am not mentioning option buys as trading those positionally within the current levels would carry too much risk. This is I will suggest trading option buys on an intraday basis only.

The second stock is looking at is Adani Power (NS: ADAN ). Since the stock doesn’t have a derivatives option, I will look at this one from an investor’s point of view only. The stock had a powerful gap down on Friday, which has brought it to a long-term support zone at Rs. 240. Now, we ought to have a temporary bounce around here, after which we will begin a fresh decline. This is because the reversal will be short-lived as the equity will find it very hard to break the quant resistance zone at Rs. 275 and Rs. 285. This is because it doesn’t have the bullish volume build-up to do so. Plus, even if the volume build-up were to improve, it would still find a reversal, an uphill task due to the severe resistance it is facing in the weekly chart. Thus, in the longer term, I expect Adani Power to fall to the quant support at Rs. 190. This is as any upswing ought to be treated as a quick in and out owing to the chart structure.

Overall, both the stocks mentioned above are in a medium-term downtrend. Naturally, they will be small bounces along the way, but they ought to be avoided due to the bigger picture. However, since Adani Enterprises is in the derivatives segment, I believe traders will greatly benefit from the downswing. This is because it will provide us with many excellent opportunities down the road due to the fight between Adani and the Hindenburg Group. I will provide more updates about FNO plays in equity in the coming days via my Twitter handle. This is because there will be times to undertake option sells and times to trade the stock only via option buys. Thus, will share via Twitter what FNO strategy I am undertaking in equity at that given point in time.

Disclaimer: The investments discussed by Sandeep Singh Ahluwalia may not be suitable for all investors. Thus, you must trust your analysis and judgment before making investment decisions. The report provided is for informational purposes only and should not be interpreted as a proposition to buy or sell any securities.

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  • Niraj Singh @Niraj Singh
    No anyalsis works here
    Like 0
  • Upendra Karambelkar @Upendra Karambelkar
    Buying 680PE at 32 yesterday and towards the close of yesterday sell 570PE at around 57 puts this trade in profit whichever the stock moves.
    Like 0

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