Chartist Talks: IT & FMCG stocks to bolster Nifty, spotlight on top blue chips

In the week ending July 12, the Nifty IT index played a significant role in propelling the market's upward trajectory. During the past couple of weeks, the continuous sector rotation has supported the market to sustain as well as move even higher. The benchmark index, Nifty, has ended on a positive note for the sixth consecutive week. Further, it has ended above the 24,500 mark for the first time.

From a technical perspective, despite consolidating since the last couple of trading sessions, the chart does not indicate any weakness. The momentum indicators and oscillators suggest room for some more upside. Additionally, nearly 84 percent of Nifty constituents are trading above their 20-day EMA (Exponential Moving Average), indicating strong internal strength of the index from a market breadth standpoint.

However, with a major event such as the Union Budget just a week away, we suggest keeping a balanced risk-reward approach at current levels and following strict stop-loss strategies. Talking about level, the 10-day EMA zone of 24,250-24,200 will act as strong support for the index. As long as the index is trading above 24.200, it is likely to continue its upward journey and test the level of 24,700, followed by 24,900 in the short term. While, on the downside, if the index slips below the level of 24,200, then the next support is placed at the 23,950 level.

Any strategy for index traders?

Rather than chasing prices at higher levels, we recommend buying on dips as well as reducing leveraged positions at current levels. One could attempt Nifty Bull Call Spread strategy (involves buying at-the-money and selling out-of-the-money Calls with same expiry date) to capture the potential upside while limiting the losses on the downside.

Whether one is a trader or investor, focusing on quality stocks would be of paramount importance.

What is your outlook on Bank Nifty for the coming week, given the consolidation in the week gone by?

During the week, the Bank Nifty has traded in a range of 1,045 points, which was the lowest weekly range in the last 4 weeks. This resulted in the formation of NR4 pattern on a weekly scale.

Going ahead, the zone of 51,800-51,700 will act as crucial support for the index as it is the confluence of the 20-day EMA level and the recent swing low. If the index slips below the level 51,700, then the next support is placed in the zone of 51,300-51,200 level. While, on the upside, any sustainable move above the level of 52,600 will lead to resume its northward journey. In that case, it is likely to test the level of 53,000 in the short-term.

Your take on midcap and smallcap segments?

During the last week, the Nifty Midcap and Nifty Smallcap indices took support near its 20-day EMA level. Thereafter, both indices have witnessed a smart rebound. This resulted in the formation of a small body candle with a long lower shadow on a weekly scale, indicating buying interest at lower levels.

Talking about levels, for Nifty Midcap 100, the zone of 56,600-56,500 will act as immediate support for the index. As long as the index is trading above 56,500 level, it is likely to continue its upward journey and test the level of 57,800, followed by 58,400 in the short term.

For Nifty Smallcap 100 index, the zone of 18,600-18,550 will act as immediate support for the index. While, on the upside, any sustainable move above the level of 19,100 will lead to a sharp upside rally upto the level of 19,500, followed by 19,700 in the short term.

Which sectors are expected to outperform in the short term?

Nifty IT: It has given Cup and Handle pattern breakout on a weekly scale. It has formed a sizable bullish candle on breakout week, which reinforces the strength of the breakout. Hence, we believe that largecap and midcap IT stocks are likely to continue their outperformance in the next couple of trading sessions.

Nifty FMCG: It has given consolidation breakout on a weekly scale. It is likely to continue its upward journey in the next couple of trading sessions.

Apart from this, Nifty Oil & Gas, Nifty PSE, Nifty CPSE, and Nifty Pharma are likely to continue their upward journey in the next couple of trading sessions.

With a fresh move in largecap space, what are your top 2 picks?

Tata Consultancy Services

After Q1 results, TCS has given horizontal trendline breakout on a daily scale along with robust volume. Hence, we recommend accumulating the stock in the zone of Rs 4,190-4,160 level with the stop-loss of Rs 4,050 level. On the upside, it is likely to test the level of Rs 4,400, followed by Rs 4,550 in the short term.

Reliance Industries

The major trend of Reliance is bullish as it is trading above its short & long-term moving averages. The momentum indicators and oscillators also supported the overall bullish chart structure. Hence, we recommend accumulating the stock in the zone of Rs 3,200-3,180 level with the stop-loss of Rs 3,090 level. On the upside, it is likely to test the level of Rs 3,350, followed by Rs 3,420 in the short term.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Disclaimer: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.