Chartist talk: SBI Securities' Sudeep Shah sees rally continuing in these 5 stocks next week

The benchmark Nifty index has continued its downward trajectory, extending its losing streak for the fourth consecutive week. This persistent weakness can be attributed to a combination of factors — the absence of strong positive triggers, Q1 earnings from key corporates coming below expectations, and lingering uncertainty on the global trade deal front, all of which have dampened investor sentiment.

During the week, the index made a feeble attempt to rebound from the crucial support zone; however, the recovery lacked conviction and fizzled out quickly. On Wednesday, Nifty managed to close above its 20-day EMA, briefly reviving hopes of a turnaround. But the optimism was short-lived, as renewed selling pressure dragged the index back into negative territory.

The bearish undertone deepened on Friday, when the index decisively broke below two critical technical levels — the 50-day EMA and the 61.8% Fibonacci retracement of its recent upswing from 24473 to 25669. This breakdown not only reflects fading bullish momentum but also signals growing nervousness among market participants. With no clear positive cues on the domestic or global front, the market appears vulnerable to further consolidation or downside in the near term.

Talking about crucial levels, the 100-day EMA zone of 24,600-24,550 will act as immediate support for the index. Any sustainable move below the level of 24,550 will lead to further correction up to the 24,200 level. However, on the upside, the 20-day EMA zone of 25,100-25,150 will be the crucial hurdle for the index.

Do you think bears will drag the Bank Nifty below its 50-day EMA next week?

The banking benchmark index, Bank Nifty, has relatively outperformed the broader frontline indices by closing the week on a mildly positive note, even as the overall market sentiment remained weak. Throughout the week, the index attempted to stage a recovery from lower levels, supported by selective buying in heavyweight banking names. However, it once again struggled to surpass the horizontal trendline resistance (57,300-57,400), which continues to act as a formidable barrier for the bulls.

Despite the intraday attempts to break out, the index faced selling pressure near resistance zones and eventually retreated from higher levels. By the end of the week, Bank Nifty settled near the 56,500 mark, registering a modest gain of 0.44 percent.

From a technical standpoint, the weekly price action has resulted in the formation of a Gravestone Doji candlestick pattern, which typically signals indecision in the market and a potential reversal when it appears after an up-move. This pattern, coupled with the repeated failure to breach resistance, suggests caution in the near term, with the need for a strong breakout to resume upward momentum.

Going ahead, the zone of 57,300-57,400 is likely to continue to act as a crucial hurdle for the index while on the downside, the zone of 56,200-56,100 will act as important support for the index as it is the confluence of the 50-day EMA and prior swing low. Any sustainable move below the level of 56,100 will lead to further selling pressure in the index upto the level of 55,500 in the short term.

How are FIIs positioning themselves amid the ongoing bearish sentiment in the market?

Over the past four months, Foreign Institutional Investors (FIIs) remained net buyers in the Indian cash market, investing a total of Rs 24,011 crore — averaging over Rs 6,000 crore per month. However, this trend has sharply reversed in July, with FIIs pulling out Rs 28,528 crore so far, signaling a significant shift in sentiment. This selling has been far more aggressive than the pockets of mild buying seen on select days.

Alongside, the FII long-short ratio in index futures has dropped steeply from 36.4 on June 30 to just 14.83 by July 24, driven by a sharp rise in short positions — net contracts worsening from -38,123 to -1.45 lakh.

Multiple factors seem to be at play. The US dollar has strengthened by 0.88 percent since the start of July, making Indian assets relatively less attractive. Additionally, expectations of a Fed rate cut, lack of any major trade deal announcement involving India, and the impact of the Jane Street ban have also weighed on FII sentiment. This combination of heavy outflows, rising shorts, and low confidence has contributed to a 3.24 percent decline in the Nifty from its July highs, reflecting the nervousness in the broader market.

Which two stocks are you looking to buy for the coming week?

Shyam Metalics and Energy

On the weekly chart, the stock has confirmed a Cup and Handle pattern breakout, accompanied by robust volume, which adds credibility to the breakout. Importantly, the breakout candle is a large bullish candlestick, reflecting strong buying interest and conviction among market participants.

As the stock is trading at an all-time high level, all the moving averages and momentum-based indicators suggest strong bullish momentum in the stock. Given this strong technical setup, the stock is well-positioned for a potential continuation of its upward move in the coming sessions. Hence, we recommend accumulating the stock in the zone of Rs 975-965 level with a stop-loss of Rs 940. On the upside, it is likely to test the level of Rs 1,040 in the short term.

Cipla

The stock has registered a breakout above a downward sloping trendline on the daily chart, signaling a potential trend reversal. This breakout is further validated by volume activity, as the move was accompanied by volumes exceeding the 50-day average — a key confirmation of strength. Adding to the bullish sentiment, the stock has also managed to surpass both its short-term and long-term moving averages.

Notably, the daily RSI has also broken above its own falling trendline, reinforcing the view that momentum is shifting in favour of the bulls. This confluence of price and momentum breakouts suggests that the stock may be poised for a sustained upward move. Hence, we recommend accumulating the stock in the zone of Rs 1,540-1,530 level with a stop-loss of Rs 1,480. On the upside, it is likely to test the level of Rs 1,620 in the short term.

Do you expect the rally in Torrent Pharma to continue next week?

Yes, the rally in Torrent Pharma is expected to continue next week. On the weekly chart, the stock has confirmed a Stage-2 Cup pattern breakout, backed by strong volumes, indicating healthy participation. With the stock trading at all-time highs, there’s no overhead supply to restrict further gains. Technically, all key moving averages are trending upwards, and momentum indicators are aligned in favour of the bulls. Notably, the daily RSI is in the super bullish zone, as per the RSI range shift principle, suggesting strong and sustained buying strength. Given this confluence of bullish signals, the stock is likely to maintain its northward momentum in the coming sessions.

Are you strongly bullish on Sharda Cropchem and Vimta Labs?

Yes, we are strongly bullish on both Sharda Cropchem and Vimta Labs. Over the past week, both stocks have significantly outperformed the broader market, showcasing impressive relative strength compared to frontline indices. This outperformance has been accompanied by robust volume activity, which reinforces the conviction behind the current upmove. Technically, both stocks are trading well above their key moving averages, and all major indicators and momentum oscillators are aligned in favour of the bulls. The price action, volume structure, and momentum setup collectively suggest that these stocks are well-positioned to extend their upward trajectory in the near term.

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