Chartist Talks: Sudeep Shah of SBI Securities expects these 3 sectors & 2 stocks to fly north

In August, the Nifty experienced significant volatility, with 12 trading sessions opening either with a major gap up or gap down. Throughout the month, it fluctuated within a 1,300-point range, underscoring heightened market volatility. Despite this, the index reached new all-time highs and closed the month above the  psychological level of 25,200. Notably, the index ended on a positive note for the third consecutive month. On a monthly scale, it has formed a bullish candle with a long lower shadow, indicating buying interest at lower levels.

The rollover of Nifty Index futures was higher at 77.49 percent in August, compared to the previous month's 69.69 percent and the three-month average of 74.50 percent, indicating that long positions are being rolled over given the confidence in the bullish momentum.

Steady sector rotation has played a crucial role in supporting the market and maintaining these elevated levels. During the month, Nifty IT, Nifty Pharma, and Nifty Healthcare have strongly outperformed frontline indices. We believe these sectors are likely to continue their northward journey in the next couple of trading sessions.

Coming back to the Nifty, on Thursday, the index has demonstrated a horizontal trendline breakout on a daily scale, which is a bullish sign. The momentum indicators and oscillators are also supporting the overall bullish chart structure. The daily and weekly RSIs (Relative Strength Index) are highly bullish per the RSI range shift theory. The daily MACD (Moving Average Convergence Divergence) histogram is suggesting a pickup in upside momentum.

In terms of levels, the index is likely to test 25,700, followed by 26,000 in the short term. On the downside, the support has shifted higher to the 24,900-24,850 zone.

Do you think the Bank Nifty has just started its upward journey towards a record high after days of consolidation?

For the second consecutive month, the Bank Nifty has lagged the frontline indices. While Nifty is reaching new all-time highs, the Bank Nifty remains nearly 4 percent below its peak, formed in July.

This disparity highlights the ongoing underperformance of the Bank Nifty relative to the broader market. Notably, the ratio chart of Bank Nifty compared to Nifty is at a 200-week low, and is in a falling mode.

However, the index has recently formed a strong base near its 100-day EMA (Exponential Moving Average) level and  gradually started hitting higher highs and higher lows. Going forward, the 51,400-51,500 zone will be a crucial hurdle for the index. Any sustainable move above 51,500 will likely lead to a sharp upside rally up to 52,200, followed by 52,800 in the short term.

On the downside, the 51,000-50,900 zone will act as crucial support. If the index slips below 50,900, the next support is at 50,500-50,400.

Is it the right time to take a position in pharma stocks given the uptrend in the pharma index?

According to a simple trend analysis and the Dow Theory, the index is in a confirmed uptrend as it has marked higher tops and higher bottoms on daily and weekly charts. The uptrend remains intact as long as the sequence of higher tops and higher bottoms is maintained.

However, momentum indicators and oscillators are painting a different picture. The weekly and daily RSIs are in the extremely overbought zone. Additionally, the daily and weekly Stochastic indicators are also suggesting overbought conditions for the index.

These technical factors indicate that the index may enter a period of consolidation before hitting a higher high. Talking about levels, the 22,700-22,600 zone will act as immediate support for the index. As long as the index trades above 22,600, it is likely to trade with a positive bias.

What’s your take on AU Small Finance Bank, which has seen a trendline breakout?

AU Small Finance Bank's stock has broken out of a Falling Wedge pattern on the daily chart, confirmed by trading volumes exceeding the 50-day average. A robust bullish candle formed on the breakout day further validates this upward momentum. The stock has also surged above its 200-day EMA, reinforcing the bullish outlook. The daily RSI has broken through a downward sloping trendline, signalling strong bullish momentum. Additionally, the MACD histogram indicates an increase in upside momentum, further supporting the positive trend.

Looking ahead, the stock is expected to continue its upward trajectory, potentially reaching Rs 740 in the short term, with an extended target of Rs 785. On the downside, the Rs 650-640 zone is expected to provide immediate support.

Are you betting on Paytm after reading the charts?

On the weekly chart, Paytm's stock has recently broken out of an Adam and Adam Double Bottom pattern’s neckline, signalling a bullish reversal. Following this breakout, the stock has been forming a series of higher highs and higher lows on the daily charts, supported by strong trading volumes.

Currently, the stock is trading above both its short and long-term moving averages, which are beginning to trend upward — a positive sign for further gains. Notably, the weekly RSI has climbed above the 60 mark for the first time since October 2023, underscoring the strengthening bullish momentum.

Looking ahead, Paytm's stock is poised to test Rs 660, with a potential move toward Rs 750 in the short term. On the downside, Rs 560-540  will serve as crucial support.

Your top two stock picks for September?

LTIMindtree

Nifty IT has been strongly outperforming frontline indices over the past few trading sessions, and LTIMindtree's stock has recently broken out of a consolidation phase on the weekly charts. This breakout is backed by volumes exceeding the 50-week average and is reinforced by a sizeable bullish candle formed during the breakout week.

Currently, the stock is trading above its short and long-term moving averages, with momentum indicators and oscillators also supporting the bullish outlook. Given these positive technical signals, we recommend accumulating the stock in the Rs 6,150-6,100 zone, with the stop-loss at Rs 5,880. On the upside, the stock is likely to test  Rs 6,500, and potentially hit Rs 6,750 in the medium term.

BajajFinserv

On a weekly scale, the stock has recently given a Symmetrical Triangle breakout, confirmed by robust volume. Additionally, it has formed a sizeable bullish candle on the breakout week, adding strength to the breakout.

The momentum indicators are also suggesting strong bullishness in the stock. The daily and weekly RSIs are highly bullish. Most notably, the weekly RSI has surged above the 60 mark for the first time in CY 2024. Furthermore, the daily MACD histogram is suggesting a pickup in upside momentum.

These technical factors are aligned in favour of the bulls. Hence, we recommend accumulating the stock in the Rs 1,785-1,765 range with the stop-loss at Rs 1,680. On the upside, it is likely to test Rs 1,900, followed by Rs 1,960 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.