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Momentum: Futures Traders Eyeing on this Bounceback!

Published 18-08-2023, 11:11 am

After falling continually for the last few sessions, the Nifty Bank index is showing some signs of stability and is in fact, outperforming the broader market Nifty 50 index. One of the stocks from the baking space that is looking good to deliver a quick move on the upside is AU Small Finance Bank Ltd (NS:AUFI).

It is a private-sector lender with a market capitalization of INR 46,638 crore and holds a weightage of 1.07% in the Nifty Bank index. The stock had fallen through a one-way move from mid-July 2023 which got fueled after a 3.6% gap-down opening on 24 July 2023.

Image Description: Daily chart of AU Small Finance Bank with volume bars at the bottom

Image Source: Investing.com

However, the fall seems to be abating now, as investors are kicking in from lower levels. Increased demand started matching the supply which turned the stock sideways in a brief consolidation phase during this week.

Now, this range is getting breached on the upside which can probably lead to a short-term bounce that can be capitalized by traders in the derivatives market. Currently, the stock is trading at the upper end of the range, gaining 2% to INR 715, by 10:45 AM IST. As the broader trend is still negative, the bounce on account of mean reversion would probably be short and therefore quick and nimble traders can seize the opportunity on the long side.

The stock seems all set to touch INR 730 in the next week, which is where some profit booking should be done. To curb the risk, a stop loss below INR 700 can be placed, giving the whole trade a risk-to-reward ratio of 1:1.

Traders who are not comfortable with a naked futures position can also buy a put option to hedge the downside risk.

Read More: Navigating High Inflation: 10 Strategies to Safeguard Your Investments!

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