Chartist Talks: SBI Securities' Sudeep Shah expects pullback rally to continue in Nifty, picks 2 stock ideas for next week

Do you see a strong possibility of the Nifty holding 22,500 in the coming week and reaching 23,000 before entering a sharp fall?

In line with our expectations, the benchmark index Nifty has not only experienced a temporary halt in its downtrend but has also staged an impressive recovery, witnessing a sharp pullback rally of nearly 600 points from its recent low of 21,965. Finally, it closed the week above the 22,500 mark, posting an overall gain of approximately 2 percent. The broader market has also witnessed a strong pullback rally as the Nifty Midcap and Nifty Small Cap 100 surged by 2.66 percent and 5.47 percent, respectively.

But what exactly is driving this strong pullback rally? A key factor has been the significant weakness in the US Dollar index, which tumbled by 3.4 percent during the week—marking its steepest correction in recent times. This sharp decline has pushed the dollar index below both its short and long-term moving averages.

Further, Brent crude oil has ended on a negative note for the seventh consecutive week. This persistent decline in oil prices is a welcome development for oil-importing countries like India, as it helps reduce inflationary pressures, eases the trade deficit, and strengthens economic fundamentals. Such a scenario has proved to be a favourable tailwind for emerging markets like India as a weaker dollar, and declining crude prices typically improve liquidity conditions and ease currency pressures.

Technically, the index is likely to continue its pullback rally in the next couple of trading sessions. Talking about crucial levels, the zone of 22,670-22,700 will act as an immediate hurdle for the index as it is the confluence of 20-day EMA and 38.2 percent Fibonacci retracement level of its recent downward journey (23,807-21,965). If the index remains above the 22,700 level, then we may witness an extension of the pullback rally upto the level of 23,000, followed by the 23,300 level in the short term. On the downside, the zone of 22,300-22,250 is likely to provide a cushion in case of any immediate decline.

Do the charts and technical indicators convince you that the Bank Nifty is expected to hold last week's low going forward?

The banking benchmark index, Bank Nifty, underperformed frontline indices in the last week. During the week, it has taken support near its prior swing low and thereafter witnessed a minor pullback rally. Finally, it ended the week near 48,500 level with a minor gain of 0.32 percent.

On the weekly chart, the index has formed a Doji candlestick pattern, indicating indecisiveness among market participants. Additionally, momentum indicators and oscillators reflect a similar sentiment, suggesting a lack of strong directional bias at this stage.

However, we believe the index is likely to hold last week’s low. Talking about crucial levels, the 20-day EMA zone of 48,800-48,900 will act as an immediate hurdle for the index. If the index sustains above the 48,900 level, then we may witness an extension of a pullback rally upto the level of 49,700, followed by 50,500 in the short term, while, on the downside, the zone of 47,900-47,800 will act as a crucial support for the index as prior swing lows placed in that region.

What are your top 2 picks for next week?

Shyam Metalics & Energy

The stock has given a downward sloping trendline breakout on a daily scale. This breakout is confirmed by above 50-day average volume. In addition, the stock has formed a sizeable bullish candle on breakout day, which adds strength to the breakout. Currently, the stock is trading above its short and long-term moving averages. Most noteworthy, the daily RSI (Relative Strength Index) surged above 60 mark for the first time after October 2024, and it is in rising mode, which is a bullish sign. Hence, we recommend accumulating the stock in the zone of Rs 825-815 level with a stop-loss of Rs 785 level. On the upside, it is likely to test the level of Rs 880, followed by Rs 910 in the short term.

Paras Defence and Space Technologies

The stock has given a neckline breakout of Adam & Adam Double Bottom pattern on a daily scale. This breakout is confirmed by robust volume. Further, it has surged above its 20-day EMA level. The 20 and 50-day EMA started edging higher, which is a bullish sign. Furthermore, the daily RSI is in rising mode, and it is quoting above its 9-day average.

Are you bullish on Manappuram Finance and SRF?

Yes, both stocks have been strongly outperforming the frontline indices for the last couple of weeks. In the last week, they both formed a strong base and resumed their northward journey along with relatively higher volume.

Considering the current chart structure, they are both likely to continue their upward journey in the next couple of trading sessions.

Do you see Apollo Tyres resuming its upward journey?

The stock of Apollo Tyres has taken support near its 200-week EMA level in the last week and thereafter witnessed a rebound of nearly 10 percent. Along with this pullback rally, the stock surged above its 20-day EMA level. Further, the bullish diversion is clearly visible on daily RSI, which indicates limited downside for now.

Hence, we believe the stock is likely to continue its pullback rally and test the level of Rs 430, followed by 445 in the short term.

What is your suggestion on Deepak Nitrite and Tube Investments of India?

The stock of Deepak Nitrite is on the verge of giving neckline breakout of Adam & Adam Double Bottom pattern on a daily scale. Going ahead, if the stock sustains above the level of Rs 2020, then it is likely to extend its pullback rally and test the level of Rs 2,100, followed by Rs 2,180 in the short term.

Since the last three trading sessions, the stock of Tube Investments of India has been oscillating near its 20-day EMA level. If the stock sustains above the level of Rs 2,800, then it is likely to witness a pullback rally and test its 50-day EMA level, which is currently quoting at Rs 3,012 level.

Do you think the Nifty FMCG index has finished its correction?

The Nifty FMCG index recently tested the oversold zone and witnessed a pullback rally last week, pushing the daily RSI to 38.97. However, despite this rebound, the broader trend remains bearish as the index continues to trade below its short and long-term moving averages.

Going ahead, the 52,500-52,600 zone serves as a crucial resistance level as it is the confluence of 20-day EMA and a prior swing high. A sustained move above 52,600 could extend the recovery toward 53,900, but failure to break this level may lead to renewed selling pressure.

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