Chartist Talks: Go long on the Nifty, bet big on the railways — Sudeep Shah, SBI Securities

For the second consecutive week ended June 21, the Nifty has traded in a narrow range of 269 points. This is the lowest weekly range since November 2023. It ended the week on a flat note and formed an indecisive candle. Further, on the daily scale, for the last nine sessions, the index is trading in a narrow range, forming indecisive candles. This clearly indicates indecisiveness at higher levels.

However, sector rotation is helping the market sustain at higher levels. Last week, buying interest in the banking and financial services sectors bolstered the market over the first two trading sessions of the week. In the following two sessions, the chemical, IT, and metal sectors provided support. This clearly indicates that sector rotation is playing a crucial role in maintaining the market's elevated levels.

Going ahead, the zone of 23,300-23,270 is likely to act as strong support for the index as the short-term 13-day EMA (exponential moving average) is placed in this zone. As long as the index is trading above 23,270, it is likely to continue its northward journey and test the level of 23,800, followed by 24,100 in the short term. On the downside, any sustainable move below the level of 23,270 will lead to profit-booking in the index, up to the 23,000 level.

What is your strategy for index traders?

We suggest traders stay nimble and use the dips to go long on the Nifty, with the 23,250-23,270 zone acting as an important support.

What is your outlook on the Bank Nifty for the coming week, given the strong breakout in the past week?

The  Bank Nifty has seen a rising channel breakout on the weekly scale and marked a fresh all-time high, strongly outperforming the Nifty last week. In addition, it has formed a sizeable bullish candle, which adds strength to the breakout.

On the ratio chart, the Bank Nifty compared to the Nifty has formed a strong base near the lower trendline of the rising channel, and witnessed a sharp upside. This clearly indicates that the banking space is likely to outperform frontline indices. The private bank space is likely to make a major contribution as the Nifty Private Bank index has traced a Stage-2 Cup pattern breakout on the daily scale, and looks headed towards 26,300, followed by 27,000 in the short term.

Going ahead, the 51,000-50,900 zone will act as strong support for the Bank Nifty. As long as it is trading above this zone, it is likely to test the level of 52,200, followed by 53,000 in the short term. On the other hand, if the index slips below 50,900, then the 50,400-50,300 zone will act as the next crucial support for the index.

How should traders approach the mid and smallcap space in the coming week?

We believe that the Nifty Midcap and Nifty Smallcap indices are likely to continue their outperformance in the next few trading sessions. The ratio chart of the Nifty Midcap 100 index compared to the Nifty has shown a consistent upward trend, forming a sequence of higher tops and higher bottoms. Additionally, the ratio chart of the Nifty Smallcap 100 compared to the Nifty has recently broken through a horizontal trendline. This clearly indicates that the mid and smallcap sectors are outperforming frontline indices.

Talking about levels, for the Nifty Midcap 100, the 54,700-54,600 zone will act as a crucial support as the 8-day EMA is placed in that region. As long as it is trading above 54,600, it is likely to continue its northward journey and test the level of 56,000, followed by 56,700 in the short term.

For the Nifty Smallcap 100 index, the 17,950-17,900 zone is likely to cushion any immediate decline. On the other hand, any sustainable move above  18,400 will lead to a sharp upside rally up to the level of 18,700, followed by 19,000 in the short term.

Which sectors are expected to outperform in the short term?

Apart from banks, metal, IT, chemical, and railway stocks are likely to outperform in the short term.

What are your top two picks in the railways pack?

Railtel Corporation

The stock has seen a horizontal trendline breakout on the daily scale, which is confirmed by robust volumes. In addition, it has formed a sizeable bullish candle, which adds strength to the breakout. Currently, the stock is trading above its short and long-term moving averages. These averages are in a rising trajectory, and in the desired sequence, which suggests that the trend is strong. The daily RSI (relative strength index) is bullish, and rising. Going ahead, it is likely to continue its upward journey and test the level of Rs 510, followed by Rs 540 in the short term. On the downside, the zone of Rs 460-455 will act as strong support for the stock.

Rail Vikas Nigam

The stock is on the verge of a horizontal trendline breakout. On Friday, the stock's volumes were above its 50-day average, which is a sign of accumulation before the actual breakout. As the stock is trading near its all-time high level, all the moving averages and momentum-based indicators are suggesting strong bullish momentum in the stock. Going ahead, it is likely to test the level of Rs 440, followed by Rs 460 in the short term. On the downside, the zone of Rs 384-380 is likely to cushion any immediate decline.

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