Chartist Talks: Sudeep Shah of SBI Securities advises caution in mid, smallcap segment ahead of budget

For the seventh consecutive week, the benchmark index Nifty has ended on a positive note. It has marked a fresh all-time high of 24,854 during the week ended July 19. However, on Friday, it failed to sustain at higher levels and witnessed a profit booking of over 250 points. This resulted in the formation of a Bearish Engulfing candlestick pattern on a daily scale. The Bearish Engulfing is a bearish reversal candlestick pattern, which usually occurs at the end of an uptrend.

Additionally, on a weekly scale, it has formed a Shooting Star candlestick pattern, which also indicates profit booking at higher levels. Further, the daily RSI has given a bearish crossover after touching the overbought zone. These technical formations indicate limited upside for the short-term.

Talking about Nifty levels, the 20-day EMA (Exponential Moving Average) zone of 24,250-24,200 will act as strong support for the index. Any sustainable move below the level of 24,200 will lead to further profit booking in the index up to 23,900 levels in the short term. While, on the upside, the zone of 24,850-24,900 will be the crucial hurdle for the index. We expect the index to trade in the range of 24,200 to 24,850.

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

Over the last nine trading sessions, the banking benchmark index Bank Nifty has been oscillating in a range of 52,818-51,749. During this phase, it has significantly underperformed compared to the frontline indices and has mostly formed indecisive candles. The ratio chart of Bank Nifty, in comparison to Nifty, is at a 39-day low, clearly indicating underperformance.

Due to the consolidation, the Bollinger Band has been narrowed considerably on a daily scale. In technical parlance, it is known as Bollinger Band squeeze. It occurs when the volatility falls to low levels and the band narrows. A volatility contraction or narrowing of the bands can foreshadow a significant advance or decline. Hence, we expect a trending move in the index in the next couple of trading sessions.

Talking about levels, the zone of 51,900-51,800 will act as strong support for the index. If the index slips below the level of 51,800, then the next support is placed at 51,200 level. While, on the upside, the zone of 52,700-52,800 will be the crucial hurdle for the index. Any sustainable move above the level of 52,800 will lead to resume its northward journey. In that case, it is likely to test the level of 53,400 in the short term.

Do you expect the traders to be cautious about the midcap and smallcap space in the coming week?

Yes, we recommend adopting a cautious stance ahead of budget in mid and small-cap space.

Nifty Midcap marked a high of 57,909 on Wednesday and thereafter witnessed a sharp profit booking of over 3 percent. On a weekly scale, it has formed a sizeable bearish candle. Along with this fall, the index has slipped below its 20-day EMA level for the first time after 29 trading sessions. The daily RSI (Relative Strength Index) and Stochastic have given a bearish crossover, and they both are in falling mode.

Going ahead, any sustainable move below the level of 55,500 will lead to further selling pressure in the index. In that case, the next support is placed in the zone of 54,700-54,600 level. While, on the upside, the resistance has shifted lower in the zone of 56,400-56,500 level.

Nifty Smallcap 100 index has also witnessed profit booking from all-time high levels. It has also slipped below its 20-day EMA level. The daily RSI has given a bearish crossover, and it is in falling mode. Going ahead, the zone of 18,150-18,100 will be the immediate support for the index. Any sustainable move below the level of 18,100 will lead to further correction in the index up to the level of 17,800 in the short term.

Which sectors do you feel one should focus on in the budget week??

Technically, the Nifty IT and Nifty FMCG are in a better position. Hence, we believe these sectors are likely to outperform the frontline indices.

On the other hand, Nifty Metal and Nifty Media are looking weak on charts.

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