The theme of this month has been the mid and small-caps, which outperformed benchmarks with a huge margin.
Nifty started the week on a bearish note and lost 1 percent in the first session.
A complete engulfing candlestick pattern is formed on the daily chart of Nifty and Bank Nifty. In the case of Nifty, the engulfing pattern has been formed at the top and this should be considered as a short-term bearish trend reversal.
Nifty has been trading in the upward sloping channel on the weekly charts and the upper band of this channel was projecting a strong resistance in the zone of 12,400-12,430.
Nifty gave respect to this channel and retreated after forming the top at 12,430. Support for the Nifty now comes in the zone of 12,045-12,132, where a big gap was formed on January 9, 2020.
Bank Nifty has been underperforming for the last two weeks and continued its downward journey by losing more than 1.5 percent.
The index has now filled the entire gap which was formed between 31,451 and 31,667 on January 9.
Bank Nifty has been trading in an expanding triangle, which is formed when underlying forms higher peaks and lower troughs.
This is a complex setup and should be traded long when the underlying touches lower band of the triangle and traded short when the upper band is being tested.
Currently, expanding triangle projects the lower band support at 30,900 odd levels.
Any close below 30,900 would worsen the technical setup for Bank Nifty, as there will be neckline breakdown below 30,900 of bearish head and shoulder pattern on the daily charts.
Unless and until Bank Nifty surpasses the high of 31,925 of January 20, traders should remain cautious. A close below 30,900 could drag the Bank Nifty towards its 200-DMA placed at 30,060.
The theme of this month has been the mid and small-caps, which outperformed benchmarks with a huge margin. These indices too witnessed some profit-booking along with selloff in the large-cap indices at the start of this week.
However, we believe that after registering back to back daily gains, mid and small-caps could face running correction, which is healthy for the overall bullish trend.
Dips should be utilised to initiate fresh longs in quality mid-caps and small-caps. We don’t see mid-caps and small-caps to get a large negative impact from any correction in the benchmark indices.
During the quarterly result days, there could be a lot of whipsaws in trend and it becomes difficult to take a directional call, as far as Nifty is concerned. So, it is better to take stock-specific calls for the remaining days of January.
Here are three buy calls for the next 3-4 weeks:
Jubilant Life Sciences | Buy | LTP: Rs 608.50 | Target: Rs 670 | Stop loss: Rs 570 | Upside: 10%
The stock has registered an inverse head and shoulder breakout on the weekly charts. It has recently surpassed the crucial resistance of its 200-DMA.
Mid-cap pharma stocks have been outperforming. Volumes have gone up along with price rise in the current month.
AU Small Finance Bank | Buy | LTP: Rs 888.95 | Target: Rs 960 | Stop loss: Rs 840 | Upside: 8%
The stock has registered a new all-time high with healthy volumes. In the week ended January 17, the stock broke out from the bullish flag pattern on the weekly charts.
Moving average and oscillator setup has been bullish and the stock price has been forming higher tops and higher bottoms on daily and weekly charts.
Sobha | Buy | LTP: Rs 451.65 | Target: Rs 490 | Stop loss: Rs 422 | Upside: 8.49%
Real Estate sector has been in the limelight in the recent past. Nifty Reality Index has reached a 23-month high. In October 2017, this stock broke out from a long-term downward sloping trend line but failed to sustain at higher levels thereafter.
In October 2018 and December 2019, the stock price saw throwback retracements, which indicates the probability of continuation of the primary uptrend.
In December 2019, the stock reversed from long-term upward sloping trend line support. The stochastic oscillator on the monthly charts has exited the oversold zone.
(The author is a Senior Technical and Derivative Analyst at HDFC securities)Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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