What’s Next for Reliance Industries?
At the beginning of February, I wrote an article on Reliance Industries (NS:
RELI
) in which I expressed my bearish outlook. My prediction was that the stock would experience a decline to Rs. 2,200 in the medium term. However, my view was met with opposition from fanatics of the stock. This was because they believed that such a scenario was improbable. However, despite their rose-colored optimism, the stock last week made a low of Rs. 2,202, which is only 2 rupees or 0.09% away from my given price target. Now, the question that remains is what comes next?
Now, in the upcoming sessions, I expect a dead cat bounce in the stock, which will lure in investors. I say this as Reliance Industries is still firmly within a downtrend. Thus, the dead cat bounce will simply serve as a mechanism to shake off the weak short positions while resetting the oversold status of the equity. Hence, I expect Reliance Industries in the coming sessions to hold my support zone of Rs. 2,200, which will allow it to have a rise until the resistance zone between Rs. 2,270 to Rs. 2,300. However, if the stock were to surpass this range, there is a possibility of reaching Rs. 2,380. Nonetheless, I anticipate a strong rejection at Rs. 2,300, which will allow the downtrend to resume with some fresh weak longs trapped in it. Once the downtrend resumes, we will be back to the same targets of Rs. 2,200 and Rs. 2,120, which is the ultimate target.
Regarding my trading strategy for Reliance Industries in the short term. I plan to use options rather than purchasing shares. This is because I do not want to tie up a large amount of capital into an equity position, given the expected volatility of the stock’s dead cat bounce. This is as the same amount of capital would generate a higher return through the use of derivatives as it lets me profit from both option buying and selling.
Thus, to capitalize on the stock’s sudden dips and rises as it tries to find its footing for the dead cat bounce, I plan to sell PEs with a strike price of Rs. 2,200 and below, while also selling CEs with a strike price of Rs. 2,270 and above. This strategy will allow me to earn a significant amount from option decay. I say this as the decay will be accelerated by the current volatility. Plus, by the fact that we are in the latter part of this month’s options expiry.
Regarding option buying, I intend to make short-lived trades that will last no longer than three trading sessions at most. This is as in option buying timing is key so me sharing a strategy for that will be rather pointless. Thus, I will provide more advice on option buys via my Twitter handle in the coming days.
Overall, Reliance Industries is still within a medium-term downtrend. Thus, I believe it would be unwise for investors to jump in as the up move will simply be a dead cat bounce. Thus, investing in it in such a scenario would only result in portfolio losses in the short term.
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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just read your view nicely wrote good clear view with price supporting... please try to give more clearly about your analysis working it will help all of us to sync with your viewLike 2
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your cat bounced wellLike
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@sumit gupta Thank youLike
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Dear Sir , at what level would you suggest one can invest in the stock. Is 1500 possibleLike 1
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@CE CE As of now its a wait and watch for investing.Like
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Super Sir jiLike
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@Amarnath Harihar ThanksLike
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