The best case scenario for June still remains sideways to negative based on long-term trend projections, and a breach of recent lows of 10,417 may extend the correction up to 10,320, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, said in an exclusive interview with Moneycontrol’s Kshitij Anand.
Q: The Nifty50 on weekly basis rose 1.2 percent. It failed to close above its crucial levels of 10,700. What does weekly, and monthly chart tell about the technical picture?
A: On the weekly and monthly charts, Nifty made an indecisive pattern ‘Spinning Top’ was witnessed on the weekly charts whereas on the monthly charts it registered a Doji kind of formation. April was a strong month whereas in May we haven’t made any progress.
Going forward, our best case scenario for June still remains sideways to negative based on our long-term trend projections. As we have been pointing out that we are in a multi-month corrective phase from the highs of 11,171, it seems that the pullback rally from the lows of 9,951 culminated at recent highs of 10,929.
We are presuming that inside this consolidation phase, Nifty50 may evolve itself into a triangular formation with lower tops but with higher bottoms.
According to the Elliot wave parlance, the triangular structure will unfold in 5 legs and it seems that second leg culminated at the recent high of 10,929.
If our reading is right then going forward we should breach recent lows of 10,417 and may extend the correction up to 10,320 to culminate the third leg. This may take a couple of weeks and hence the month of June may remain sideways to negative.
This view will be negated if Nifty50 manages a close above 10,929 levels as we adjust our charts to the next best alternative scenario available with us which is new highs.
Q: The rollover data for June series stood as just 63 percent. How do you see June series panning out for investors?
A: Yes, rollover figures for this month are relatively less which may point towards caution but as explained above Nifty may trade in a range.
In the case of 10,929 is decisively breached on the upside, we can expect new highs by the end of June/ July but that is not our preferred view as of now.
Besides, next week we have a monetary policy event which may keep markets volatile. Trading for the next week is going to be lacklustre.
Investors will be better off taking a cautious stance as this time it looks inevitable for the Reserve Bank of India (RBI) to go for a rate hike.
Q: But, it seems Bank Nifty in recent times is outperforming Nifty50. How is that index looking on the charts?
A: See, purely based on technicals, this index is surprisingly looking stronger when compared to Nifty50. We are very bullish on its outlook. It seems like the index is going to hit new life-time highs very soon. We have bigger targets on this index close to 30,000 by the end of FY19.
Q: Though Nifty and Bank Nifty are moving higher there are many stocks which are continuously hitting new 52-week lows. Is it a worrying sign?
A: Yes, undoubtedly it is something to worry about. Now, it is clear that a section of this bull market appears to be in a bear market of its own as certain stocks are consistently making new 52-week lows and some even trading at life-time lows.
This is the reason why we are continuously seeing negative advance-decline ratio which is something to bother about.
Q: What are the charts of mid and small cap indices suggesting?
A: Chart patterns on mid and small cap indices are almost similar and bearishly poised. The Midcap 100 index corrected 16 percent from its life-time high of 21,840 whereas the Smallcap 100 is down by 21 percent from its lifetime high of 9,656.
In April, indices witnessed a pullback rally, but resumed their down move after that and are now exactly staring at March lows which are equivalent to 9,950 on the Nifty50.
Interestingly, in May both these indices almost tested March lows but managed to attract some buying interest which resulted in a bounced back.
But, after that, they failed to hold on to these gains and are again staring at those lows. A breach of which may create panic selling among these scrips.
Hence, retail guys are advised to stay away from them as they get tempted to buy by seeing value erosion of 30-40-50 percent from their respective tops.
Technically, correction can be sharp in these scrips if these indices breach and settle below their respective March lows. If at all buying has to be done from this space one need to be very selective and understand not only present fundamentals but also future growth prospects.
Q: Top 3-5 positional call which could give handsome returns to investors in next 1 month?
A: Here is a list of top three stocks which could give up to 3-10 percent return:
Hero MotoCorp: Buy| Target: Rs 3,749| Stop loss: Rs 3,500| LTP: Rs 3,623.75| Return 3%
After retracing 50 percent of its rally from the recent lows of Rs 3,445 this counter appears to have resumed its up move after hitting a low of Rs 3,528.
The momentum in this counter shall pick up once it manages a close above Rs 3,624 paving way for a swift up move towards Rs 3,700 levels.
Hence, positional traders are advised to buy into this counter for a target of Rs 3,749. A stoploss suggested for the trade is below Rs 3,500.
Reliance Industries: Buy| Target: Rs 970| Stop loss: Rs 900| LTP: Rs 929.20| Return 5%
Albeit this counter has underperformed in the recent past, it appears to have formed a decent base around Rs 900 levels from the cushion of which it is bounced back.
On resumption of the up move, it can make an attempt to test the gap down area of Rs 974 – 976 registered on 16th of May. Hence, positional traders are advised to buy into this counter for a target of Rs 970 and a stop loss below Rs 900.
(Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)
HCL Technologies: Buy| Target: Rs 997| Stop loss: Rs 885| LTP: 906.40| Return 10%
This counter appears to be in a consolidation mode, around Rs 900 levels after the recent correction from the highs of Rs 1,108 registered in April.
As bottom appears to be in place around Rs 887 sooner than later it should resume its up move as the entire sector is looking positive. A minimum target of Rs 997 is possible, which is 50 percent retracement of its entire fall from the top of Rs 1,108 to Rs 887.
As risk-reward ratios are favourable, positional traders should make use of this opportunity to go long on the stock with a stop below Rs 885 for an initial target of Rs 997.
Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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