Nifty snapped its two-day winning streak on the back of weak global cues to close with a loss of 129 points at 12,119.
In the last technical column on January 13, we had predicted that one should focus on mid and small-cap stocks to make money.
Our view is vindicated as during the last fortnight, Nifty Midcap100 and Smallcap100 outperformed with a gain of 4.3 percent and 3.80 percent, respectively, while Nifty declined by 1.7 percent.
We stick to our belief that 2020 will belong to the mid and the small-cap stocks as they vie for investor attention while large-caps consolidate.
Of the 22 sessions in the current January series, the mid-cap index has beaten Nifty in 18 out of 22 sessions and Nifty Smallcap100 in 20 out of 22 days. Nifty Midcap100 and Smallcap100 indices have risen by 8.5 percent and 11.6 percent, respectively, in the series till now.
Nifty Smallcap index saw a fall of 47 percent from the all-time high registered in January 2018 to the bottom seen in August 2019.
From that bottom, Nifty Smallcap index has risen 24 percent but it is still down by 34 percent from the all-time high.
Nifty Smallcap Index has not even retraced 38.2 percent of the entire fall of 47 percent seen from January 2018 to August 2019.
This observation becomes important especially when the benchmark indices Nifty and Sensex are hovering around their all-time highs.
So, to narrow down the performance gap and for reaching its historical mean, Smallcap Index has to at least retrace 50 percent to 61.8 percent, which are placed 8 percent and 16 percent higher from the current levels and benchmarks should consolidate in some range.
Coming to Nifty, it snapped its two-day winning streak on the back of weak global cues to close with a loss of 129 points at 12,119.
Last week, Nifty found support in the gap, formed on January 9 between 12,045 and 12,132. This range is expected to act as a support for Nifty. Nifty has also reached to the upward sloping trendline support, adjoining the lows of October 9, January 8 and January 23.
In the derivatives’ segment, We have seen put writing at 12,000-12,100 strike prices, indicating that 12,000-12,100 level will act as strong supports going forward.
Considering the technical and derivatives evidences discussed above, we believe that 12,000-12,100 is strong support for Nifty and unless that level is breached, the trend for the market would be considered bullish. Therefore, our advice would be to accumulate longs in Nifty with a stop loss of 12,000. Immediate resistance is seen in the range of 12,350-12,400 where calls have been written.
Bank Nifty is trading in the broadening formation and it still seems to have not ended the short-term downtrend. A strict stop loss should be maintained at 30,500 for longs and pull back rally should be utilised to lighten the long commitments.
Bank Nifty needs to close above 31,400 to negate the bearish setup.
We continue to believe that mid-cap & small-cap stocks which have already started outperforming the benchmark Indices will continue their outperformance for the coming days.
Here are three buy calls for the next 3-4 weeks:
Pfizer | Buy | LTP: Rs 4,360.10 | Target: Rs 4,700 | Stop loss: Rs 4,150 | Upside: 8%
The stock has broken out on the daily charts by closing above the resistance level of Rs 4,280 to close at the highest level since December 17.
Volumes were sharply higher as compared to the last 10-day average, suggesting strength in the breakout.
The stock price has also broken out from the downward sloping trendline, adjoining the high of December 4 and December 17.
Max India | Buy | LTP: Rs 91 | Target: Rs 100 | Stop loss: Rs 86 | Upside: 10%
The stock has broken out on the weekly chart last week to close at an eighteen-month high level with a sharp rise in volumes.
The primary trend of the stock is positive where stock is trading above its 20, 50 and 200-day simple moving average.
Oscillators and momentum Indicators like RSI and MACD have turned bullish for the stock on the daily and weekly charts.
Hindustan Oil Exploration Company | Buy | LTP: Rs 104.80 | Target: Rs 115 | Stop loss: Rs 99 | Upside: 10%
The stock has broken out on the daily charts by closing above the resistance level of Rs 104 to close at its four months high.
Oscillators and momentum Indicators are showing strength in the stock on the daily and weekly charts.
After forming multiple lows around Rs 82 during the last month, the stock price reversed northwards with a sharp rise in volumes.
The short-term trend in the stock is positive where the stock price is trading above its 5 and 20-day simple moving averages.
(The author is Senior Technical & Derivatives 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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