MC Interview | Nifty rally looks mature at 20K, IT sector to take lead, says Waves Strategy Advisors' Ashish Kyal

Q: Will the 20,000 on the Nifty look sustainable? If it sustains above the same, then what could be the ultimate target, and what could be in the driver's seat?

Nifty has moved as we expected and talked in earlier interviews that it is best to buy this market and keep riding it on the upside. Nifty has continued to rise despite the majority of retailers having been on the sidelines. Many have been trying to catch a top in this strong trend on the upside but the market for 17 weeks has not given a single close below the prior week’s low. This is the simplest trend-following method.

Nifty has reached 20,000 levels but it is prudent to use dips as buying opportunities for better risk-reward. We can see sectorial rotation where different sectors are helping to take the index higher which is a positive sign.

IT largecap stocks are showing positive reversal signs and possibly this sector can take the front seat for driving the index from here. Over the near term, profit booking is possible as prices have approached the Gann level of 19,952 which usually acts as a mean reversion level. The earlier Gann level was near 19,391 which acted as a base before the upward trend resumed.

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Similarly, we can start seeing prices oscillate around 19,952 before the trend resumes.

Open interest profile shows huge Call open interest build-up near 20,000 and sustaining above that level is not going to be easy. We need to see at least an hourly close above 20,050 levels for Call writers to panic for further short covering.

In a nutshell, the trend for the index is positive as long as support near 19,680 is intact. On upside, 20,220 will open if Nifty sustains above 20,050 levels. Until then expect a rangebound move between 20,050 – 19,680 levels.

Q: What is the possibility of correction considering consistent rallies in the equity markets? Is it a minor correction?

As mentioned above, the rally has been strong and fast. Short-term profit booking is possible as indicators are overbought but not expecting a major correction as of now. We are seeing different leaders in the space which is a healthy sign. The overall breadth of the market has remained healthy.

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On the downside, we are not ruling out a correction of 300 to 500 points but that would be an opportunity to enter the market for many who have been on the sidelines.

Also before any major correction, we need to see some distribution pattern which is not the case as of now. In a nutshell, the short-term rally looks mature as per Elliott wave perspective but a correction might be an opportunity to re-enter the uptrend.

Q: Is the Bank Nifty looking strong now?

In the recent rally, Bank Nifty is yet to catch up with Nifty. PSU banking stocks are looking strong and the index might eventually outperform over the medium term. Bank Nifty has short-term support near 45,300 levels. Also, the index looks to be in its 3rd wave higher as per Elliott wave and so dips can be used as buying opportunities.

Do note that volatility can increase given that we have seen an upward move without much of a pullback and so one should be prepared for the risk and position size accordingly.

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On the upside, Bank Nifty's immediate resistance is near 47,200 which is the channel trendline with major support at 44,500 levels on the downside. As long as the same is intact dips or corrections can be used as buying opportunity.

Q: Do you think the Nifty IT is ready for the next leg of upmove, towards 35,000 levels?

Nifty IT index has not contributed much to the rally of Nifty for a year. IT stocks are forming bottoming patterns and giving strong breakouts. So there is a possibility that this sector might take a leadership role. CNX IT is currently trading near 31,145 which is the upper end of the range. The index formed triple bottom near 26,300 with the neckline at 31,500 levels.

The pattern width if projected on the upside gives the pattern target of 36,000 levels over the medium term. So the index looks ready to break above the neckline after many months of struggle which can support the upward trend in the broader market.

Q: Will the Nifty Midcap 100 hit 40,000 in the current ongoing rally?

Nifty Midcap 100 index rose by nearly 27 percent since March 2023. The entire rise has seen only a shallow correction without much reversal. So, the momentum is strong in this index but short-term consolidation is possible given that the indicators are overbought.

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Many start selling when the rally looks stretched which is not correct as it is better to use dips as an opportunity to go long. The Nifty Midcap index can eventually touch 40,000 levels maybe by October 2023 with August - September can be the month of consolidation.

Q: Will the Nifty Smallcap 100 index test its record high by the end of the current quarter?

The Nifty Smallcap index is still 5 percent away from its lifetime highs whereas the BSE Smallcap index is already trading a lot higher. Smallcap stocks are high beta and they move with a lot of volatility. Moving up by 5 percent for a Smallcap index might not even take a quarter and given the current momentum, there is the possibility for Nifty Smallcap 100 to touch lifetime highs by August 2023.

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Follow Ashish Kyal on Twitter - @kyalashish