Moneycontrol
Jan 14, 2018 06:00 PM IST | Source: Moneycontrol.com

Markets pricing volatility ahead of Budget; Mid & Smallcap stocks far away from bubble zone

While markets gauge the impact of possible political fallout on elections, some knee-jerk reactions may be expected, says Ananad James of Geojit Financial Services

Kshitij Anand @kshanand

VIX has already stretched higher, which suggests that markets are pricing some deal of volatility. This should mean that surprises, if any, are less likely to break the bullish momentum, Anand James, Chief Market Strategist, Geojit Financial Services, said in an exclusive interview to Moneycontrol’s Kshitij Anand.

Q) It has been a roller coaster ride for the bulls in the second week of January. The index (Nifty) rose to fresh record highs on Friday and index closed with gains of 1.1% for the week ended January 12? Do you think the momentum will continue?

We haven't seen any pattern breaks as yet, and all recent moves are in line with bullish continuation. However, Nifty, this month carries the burden of expectation from both Budget as well as earnings.

Mid and small cap names have continued sharp rallies but they are far from being in bubble situations. VIX has already stretched higher, which suggests that markets are pricing some deal of volatility. This should mean that surprises if any, are less likely to break the bullish momentum.

Q) Do you think the press conference carried out by CJI on Friday will weight on D-Street?

While markets gauge the impact of possible political fallout on elections, some knee-jerk reactions may be expected, but that should ease over time, especially as the market has enough to ponder over in terms of oil, budget, earnings and the sectoral stimuli that are flowing in.

The stock-specific action will depend on the specific judgments on companies or sectors, if at all any that could be up for scrutiny.

Q) How is the market looking on the weekly as well as monthly charts?

Monthly charts show that the upside momentum is intact. Standard deviation studies pointing to 10780/860 and 10460 as near-term range extremities. Weekly charts are clearer and the push above recent peak suggests that a flag, which is a bullish continuation pattern is maturing.

Volume's initial decline followed by sharp advance during the flag breakout adds further to the bullish conviction. The flag pole gives an 800 point upside objective putting 11300-11370 in sight as the medium term upside target.

The break away from flag patterns are usually swift, and hence the upside objective should ideally be achieved earlier than the 6 months that this pattern took to form.

Q) What should be the strategy — buy on dips or sell on rallies in the coming week?

As Q3 numbers flow in, we are certain to bump into pockets of volatility that should give opportunities. It would be prudent not to focus on index moves for the next two months, as moves are likely to be stock specific or thematic.

However, there is no reason to rush, and we would recommend preserving some capital for new thematic plays that may emerge beyond February.

Q) Top stocks which are looking attractive at current levels based on technical?

Here is a list of top two stocks which are looking attractive on technical charts with a time horizon of 1 month:

Kwality, which has been a clear laggard in its sector is seeing turnaround signals, eying 125 as likely upside. It has been hitting higher highs and lows ever since turning higher from a 7 month low in September 2017.

MAS Financial is another stock that has not only been lagging the sector, but is significantly below listing price, and has begun to show revival signals. It has formed a triangular bullish pattern, setting an initial objective of 689. Both moves are expected to unfold within a 30 day perspective.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol are his own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions. The analyst or the company might have a position in the stocks recommended.
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