We have been cautioning investors to refrain from fresh additions when it comes to high beta midcap names as most of them did showcase the development of negative divergence/falling relative strength despite an uptick in price, Sacchitanand Uttekar, DVP – Technical (Equity), Tradebulls Securities said in an interview with Moneycontrol’s Kshitij Anand. Edited excerpts:
Q) A week when bears tried to take control but buying at lower levels helped bulls to stay put. What led to the price action on D-Street?
A) The announcement by the US Federal Reserve to continue holding their interest rates steady till 2023 was a major trigger during the week gone by.
Sentiment shifted quickly as investors returned back to the equity market after last week’s fall when the market was caught off guard by US Fed’s plan to raise the interest rate.
With higher persistent inflation, markets are assuming that the US Fed won’t have much room to raise rates once the cycle starts.
The US Fed President Jeremy Powell commented that Fed will not apply the brakes so soon on its easy-money policies, which triggered the rally across global equity markets.
The subsequent announcement by US President Biden with regards to fresh approval of $1.3 trillion infrastructure package plans proved as another booster dose to uplift the sentiments of investors across the globe.
On the domestic front, unlocking of industries related to entertainment, dining & travel due to relief from curfew as a result of lower infection cases has been helpful for the Indian indices posting good gains as business cycles are getting back to normal.
Q) Small & midcaps witnessed some consolidation in the week. Are high beta plays at risk considering selling by FIIs?
A) We have been cautioning investors to refrain from fresh additions when it comes to high beta midcap names as most of them did showcase the development of negative divergence/falling relative strength despite an uptick in price.
We did witness its effects in the past few weeks as most of them saw meaningful corrective moves.
Apart from these, many small and mid-caps have witnessed some decent consolidation be it price-wise or time-wise and this is a healthy sign for broader markets as both indices have outperformed benchmark indices by strong margins in the past.
After last week’s selloff, FIIs are slowly trying to return to the market but investing via quality largecap stocks partly due to high valuations in mid-cap and smallcap stocks and also reducing their risk due to higher volatility in high beta stocks.
Retail investors and DIIs were major participants in lapping up small and mid-cap stocks and now they are also booking some profits and taking money off the table.
We believe they will sit on cash and wait for further corrective moves before deploying their cash as high valuations along with high beta remains a difficult avenue for long-term commitments during such market cycles.
Q) Nifty closed the June series with gains of about 3%. What are your estimates for Nifty50 – major levels to watch out for?
A) Unlike June which is a month of consolidation/deceleration, July is a series known for its high action, and expanded moves.
The seasonality factor score indicates an average growth rate around +3.57% when we look at the last 5 years which saw a negative return of 5.69% in 2019 while the rest of the years saw an uptick within the range of 5-7.5%.
Rollovers have been modest so far as market-wide rolls were seen at 93% along with Nifty at 85%, Banknifty at 84% while Stock futures at 94% respectively. Major option bounds for the series stand at 16500-15500 with mid-point placed around 16000.
Technically too, the index is cling to its ongoing pitchfork indicator range with 16040 being the breakeven zone to unlock upward momentum towards 16530 while on the downside the recent Bullish Hammer swing low around 15450 holds the key for any bearish uncertain moves.
Q) RIL was the big event in the week gone by. How is the stock looking on charts and near-term target for the stock?
A) Barring the last 3 sessions, June series did mark as a revival in strength which was lacking since the March series as the stock surged from Rs 2000 level right from day one.
The recent pullback has been good and looks arresting around the Rs 2080-2050 zone. We have a classic Rising Three bullish formation on its expiry-on-expiry price scale with its monthly ADX retaining its strength above 28-30 zone which is a good sign of strength.
It is likely that the stock post the event may witness some stable price action going forward & reverse its trend towards the Rs 2300-2360 zone soon.
Q) Sectorally, IT, and Capital Goods stocks turn out to be top gainers (as of Thursday). What led to the price action in these sectors?
A) The rally this week has not been broad-based but confined to specific sectors. IT sector was back in play post the Fed comments of not stopping easy monetary policy soon and unveiling of massive infrastructure plan by US president which will boost US economy.
As most of our IT companies have major exposure in the US market, the news boosted IT stocks. Capital goods saw some attraction as with unlocking and ease in restrictions, industries are trying to get back to running with 100% operation.Q) Your top 3-5 stock-specific recommendations for July series?
A) Here is a list of trading ideas for the July series -
SBI witnessed a breakout from a ‘V’ price pattern formation in May around Rs 405 levels. Post the initial up move, the stock saw a pullback towards its breakout zone.
The recent development of a Bullish Engulfing formation on its weekly scale is a reconfirmation of an elevated base around Rs 400.
The level also coincides with its 5-Weeks EMA level while its daily RSI has seen a strong rebound from its 50 zones & a crossover of its trigger line above 60 which complements the ongoing bullish move.
‘Piercing line’ formation on its daily scale around its 200-Weeks EMA zone marked the termination of its ongoing bearish move. With its weekly RSI now been placed around 49 zone, we can expect a quick upsurge once it crosses 50 zone.
The corresponding level to track during the week would be around Rs 2980 which is its 200-Days EMA, above which we expect the impending up move to witness acceleration. Fresh longs could be added with a weekly closing stop below Rs 2850.
Positive sector outlook. The occurrence of a ‘Morning Star’ formation on its daily scale around its trend line support reaffirms the ongoing trend strength.
A breakout above the neckline level of Rs 1580 would activate the inverse head & shoulder formation which is now at its maturing stage since February.
Positive sector outlook. Piercing line formation has occurred near its 20 WEMA support zone.
Daily RSI crossover around 51 with its daily volumes crossing its 5-Days average is a good sign of incremental strength. Trading longs could be deployed from hereon for an immediate up move towards Rs 170.Disclaimer: The views and investment tips expressed by the expert on Moneycontrol.com are his own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.