"There are two factors that concern me. First, the VIX is at one of its lowest levels seen in the recent past. The second thing that concerns me is the market internals like market breadth," Milan Vaishnav, CMT, MSTA, Founder and Technical Analyst of Gemstone Equity Research, says in an interview to Moneycontrol.
Often, the persistently low levels of VIX are associated with the formation of temporary tops for the market. "We require much stronger market breadth for a strong and sustainable breakout than what we currently have. So, all-time highs may be tested but markets may take some time before it does that," says Milan with nearly two decades of experience.
The capital market professional expects the Bank Nifty index to consolidate just below 44,000 levels and eventually break out higher.
Q: The biggest index gainer in current financial year is the Nifty Realty index. Technically, do you still expect value in the sector?
YES. In my opinion, from a technical standpoint, Nifty Realty Index is set to relatively outperform the broader markets. In the current financial year, the Realty Index has gained 26 percent against the broader Nifty 500 index, which has gained 6.53 percent. This can certainly be called strong relative outperformance.
Adding to this, if we examine the technical charts, the Realty Index has attempted to show a strong breakout after moving in a broad but defined trading range of 380-480 levels. It appears a bit over-extended and may remain prone to some consolidation, but overall, it will continue to relatively outperform.
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Important to know that it is presently placed inside the leading quadrant of the RRG (Relative Rotation Graph) when benchmarked against the broader NIFTY500 index. I definitely expect value in this space from a technical perspective.
Q: Are the charts telling you that Nifty Auto is in a bull run?
Following the formation of a base near 4,580 levels in April 2020, this sector index has stayed in a secular bull run. The primary trend remains on the upside; the most recent impetus has come after the Index broke out from an area formation when it crossed above 13,415 levels. While some consolidation at current levels may happen which would be healthy, it certainly remains in a primary uptrend.
Q: Do you expect the Nifty50 to hit record high in June series or the will consolidation keep the index away from its record high for a longer time?
Nifty will eventually hit a new high, but in June or later is difficult to say. The reason is, the level of 18,887 is just an incremental high for the index. The original high of 18,604 was not taken out as the Nifty slipped below its breakout point of 18,600 to drift lower. This is the reason that once again the Nifty is resisting the 18,500-18,600 levels.
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This being said, there are other two factors that concern me. First, the VIX is at one of its lowest levels seen in the recent past. Often, the persistently low levels of VIX are associated with the formation of temporary tops for the market. The second thing that concerns me is the market internals like market breadth. We require much stronger market breadth for a strong and sustainable breakout than what we currently have. So, to sum up, all-time highs may be tested but markets may take some time before it does that.
Q: Do you still expect more uptrend in Rail Vikas Nigam that rallied more than 70 percent in current financial year?
RVNL has come off its highs, but it has still returned 56.54 percent in this financial year. That being said, the investors who are holding it can continue to hold this stock and trail the stop-loss at Rs 110. If you are sitting on decent profits and if the stock slips below Rs 110, it would be prudent to take profits home.
It is presently under consolidation and for any fresh entry in the stock, it should be done only if the stock goes above Rs 124 levels.
Q: Which are the three stocks on your radar for June month?
It would go a bit defensive here and stay with only those stocks that are showing good relative strength.
Info Edge India (Naukri)
This IT stock is testing its major resistance levels in Rs 4,250-4,275 zone. While the price breakout is yet to happen, the On-Balance Volume (OBV) has been consistently hitting new highs. This denotes strong accumulation in the stock while it consolidates just below its key levels.
This stock is testing major resistance levels in the Rs 114-114.50 levels; any move above that will invite a significant breakout. The stock may consolidate a bit but a breakout is expected.
The OBV has hit a new high; the stock is inside the leading quadrant of the RRG when benchmarked against the broader NIFTY500 index.
This is a pick from the broader markets. The price action over the past weeks has led to the formation of a bullish ascending triangle. Any move above Rs 2,820 will significantly propel the sock higher.
In all of the above picks, I am eying gains of 5-7 percent over the next 4 to 5 weeks.
Q: Can you explain your trading strategy that you love the most?
I am a classical technical analyst; I focus on the internal strength of the stocks and also its Relative Strength against the broader markets. I have been using RRGs a lot as I primarily have a top-down approach towards strong selection. Besides looking for strong relative strength, I also look for divergences on the RSI to pick stocks for trading.
Q: Do you expect the Bank Nifty to consolidate around 44,000 mark in coming weeks or will we see the big breakout on the higher side?
It is actually a tug-of-war kind of situation for Bank Nifty at 44,000 levels. There is a maximum accumulation of both Call and Put OI (open interest) at this strike going by the options data of last week's expiry.
I expect the Bank Nifty index to consolidate just below 44,000 levels and eventually break out higher. However, 43,500 is another level that we need to keep in mind; any slip below this point will make the Index weaker. But overall, I will it will eventually stage a breakout.
Q: Any thoughts on Adani Group stocks?
I will be a little blunt here; one must forgo the greed of getting quick gains from the stocks of this group. I would also suggest not having more than 10-12 percent stocks in your overall portfolio.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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