The upside looks limited, as of now, it is ideal for investors to ramp up their exposure to defensives. Meanwhile, post the sharp upward movement, traders should avoid leverage and focus on stock-specific longs due to the overbought state of the indices, Sacchitanand Uttekar – DVP – Technical (Equity), Tradebulls Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Q) A week powered by bulls which pushed Nifty beyond 11,600 levels. What led to the price action in the week gone by?
A) Sharp inflows and strong global sentiments have indeed helped our market to push beyond 11600 levels on the Nifty. The ongoing rally got further steam due to its short-covering based move ahead of its August F&O series expiry.
Announcements from the government on the relaxation of GST norms for specific sectors industries & goods etc. helped to boost the existing positive sentiments for the broad-based rally to continue.
Q) September series rollover data suggest bulls will most likely remain in control. What are the important levels that one should track in September? Can Nifty50 touch 12,000 levels in this expiry?
A) The Nifty September series commenced on a high note as market-wide rollover stood at almost 89% vs 87.85% with strong rollovers in both the indices as compared to their 3 months average.
The highlight throughout the August series was the FII action, which seems to continue in the September series as well.
The long-short ratio has jumped towards 75 percent indicating strong aggressive longs to be continued by the FII. Options bounds as of now state a likely range of 12000-11000 as 11000 PE strike commands the highest OI within the chain.
While 11500 is expected to be the mid-point of the range as denoted by the upper end of the rising trend line of the Broadening formation & reaffirmed by the OI concentration of PE & CE positions respectively.
Technically, the recent breakout from the ongoing ‘Broadening formation’ could see an extended towards 11800-12000 zone.
Since the rising trend line from 11550 levels of this Expanding/Broadening formation is also progressing along with the trend, any failure of the current breakout could be arrested in case the index again slips below 11450 from hereon.
With its daily RSI trending heading upwards, it is ideal to assume that despite the overbought state, the up move could continue until a reversal formation is witnessed.
Since upside looks limited as of now it is ideal for investors to ramp up their exposures into defensives while post the sharp upward movement traders should avoid leverage, and focus on stock-specific longs due to the overbought state of the indices.
Long Short positions for the current series could provide the necessary edge as upside from hereon could be restricted.
Q) In terms of sectors, action was in financials with banks taking the lead in terms of sectoral gainers followed by realty and auto. What led to the price action? In the coming week do you think Metals would be in limelight?
A) Banks remained under pressure compared to the rest of the markets for a substantial period while during the recent move there was a clear sign of the baton been passed on to them for the final sprint as its constituents too are witnessing a sharp catch-up rally.
Expectations that moratorium might not get extended beyond 31 August and growth seen in the loan books indicates that economic recovery is gradually underway.
Also, many of the banks have raised capital as they are preparing to boost their balance sheet early to play it safe in case of NPAs rise post the moratorium period, which has reaped them some early brownie points.
Raising of capital, economic recovery, and uncertainty regarding moratorium out of the way has been helping the sector catch up with other sectors.
Auto stocks have seen a run-up in anticipation of some relaxation in GST rates. Post lockdown recovery which happened in June has sustained in July and many of the auto ancillary makers are saying that they have a good order book for September.
We might also see a slight improvement of demand in the festive season and so all these developments have resulted in the upward movement of the auto as well as auto ancillary companies.
All the above factors more or less look priced in now as the sector could await for some fresh triggers going forward into the festive season.
Temporary stamp duty cut has changed the prospect and sentiment of realty companies especially the ones which have are focused in metro cities.
Construction companies are starting to see a lot of action on the upside as the announcement serves as yet another calling for fresh home buyers on an existing lowest borrowing rates & tax spos been laid by the government in the ongoing fiscal.
With reviving demand in China and Europe, metal stocks are looking good.
Selective outperformance had been expected & most of it now looks delivered as the Metal index saw relatively weak rollovers. Technically too it has now placed in close proximity of its long term declining resistance trend line, while its key constitutes have started displaying signs of exhaustion & reversals on their short term time scales.
Q) Mid & smallcap index has wiped out losses for the year 2020 compared to Sensex, or Nifty which still trade in the red. What is leading to optimism, and what are the factors which could steal the thunder for broader markets?
A) Many mid and small-cap stocks have registered three-digit gains since March lows while even the tail-enders within the sectors have been delivering double-digit gains since the last few weeks.
It looks like liquidity is now chasing growth instead of being risk-averse where participants poured liquidity into safe large caps. Mid-cap and small-cap space are likely to benefit when economy recovers fully and demand returns to normalcy.
Right now we are starting to see widespread recovery and so mid-cap and small-caps saw their mojo getting back purely based on liquidity rotations.
Any dent in sentiment or withdrawal of foreign funds from our market could steal the thunder for broader markets.
Q) What is your call on the rupee which touched 6-month high? How will it impact sectors and FII flows?
A) The Indian rupee has hit its 6 month high backed by robust foreign inflows (Approx. Rs 18141 cr month till date) and strength in our equity markets. One of the reasons rupee has appreciated sharply in recent time is the absence of OMO operations into dollar buying by RBI.
Usually, RBI supports rupee by increasing its foreign reserves whenever rupee appreciates. US Dollar’s weakness has also helped rupee in gaining strength.
Strong rupee would aid Indian exporters as our economy is struggling to remain competitive due to already slowing demand worldwide. It would also benefit the MNC & defensive stocks which are yet to get their share of the limelight.
Q) Please share 3-5 trading ideas for the coming week with a time horizon of 3-4 weeks.
A) Here is a list of five stocks which traders could consider for the next 3-4 weeks:
Sun Pharma: Buy| LTP: Rs 555| Target: Rs 610| Stop Loss: Rs 520| Upside 10%
The Pharma sector witnessed strong rollovers including Sun Pharma. Strong sectoral strength along with fresh breakout from a ‘Flag formation’ indicates the continuation of its existing up move.
The pattern target rests around 610 zone. Hence, fresh longs could still be added even on declines up to Rs 545 with a stop below Rs 520.
BlueDart Express: Buy| LTP: Rs 2250| Target: Rs 2630| Stop Loss: Rs 2040| Upside 16%
BlueDart Express has been trending lower after forming a high around 2015. In the last few months, the declining trend has been decelerating as its monthly RSI is also confirming a positive divergence.
The price structure looks like a ‘Falling Wedge’ which is about to witness a breakout. Usually falling wedge pattern occurrence in a declining trend is leading evidence of a bottoming trend.
Traders as well as investors should take advantage of a good risk-to-reward opportunity which is been presented by the pattern now.
In the long run, we expect Bluedart to witness an amplified up move towards Rs. 4180 once it closes above Rs. 2630.
Hence, long positions should be considered with a stop below Rs. 2040 even for positional longs for 3-4 weeks for an initial target up to Rs.2630 /Rs 2830.
Relaxo Footwear: Buy| LTP: Rs 660| Target: Rs 705| Stop Loss: Rs 620| Upside 7%
Relaxo witnessed a firm volume and price breakout on the final day of the week. The convergence of its 5 & 20-Weeks EMAs indicates that the momentum is likely to continue forward as its weekly RSI has jumped at 54 & closed above the crucial mark of 50 with a good margin.
Trading longs to be maintained with a stop below Rs.620 for an initial target up to Rs.705 followed by Rs.740.
Amara Raja Batteries: Sell| LTP: Rs 735| Target: Rs 670| Stop Loss: Rs 774| Downside 9%
The occurrence of Tweezer Top formation is a sign of exhaustion & likely reversals. Amara Raja Batteries has been gradually progressing upwards within a small ranged channel since 03 June 2020 when it registered the highest RSI reading above 70 when the stock registered a high around Rs.680 zone.
A breakdown from this narrow ranged channel could deform the structure & push the stock towards its 200 Days EMA placed around Rs.670 zone.
Hence, the up move should be utilised for fresh shorts with an anticipation of a break down rally towards 670 with a stop above Rs.774 (WCLBS)
Jindal Steel: Sell| LTP: Rs 216| Target: Rs 190| Stop Loss: Rs 232| Downside 12%
Jindal Steel now looks overbought & ready for a meaningful corrective action within its ongoing uptrend.
The occurrence of ‘Engulfing Bearish’ formation on its Daily & Weekly time frames is a sign of concern & could lead to a healthy corrective wave towards Rs.190.
A pullback towards Rs. 220 zone would make the setup more productive with its stop been placed around Rs.232.Disclaimer
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