Spiralling coronavirus cases, weak global sentiment and higher treasury yields remain a concern and will influence the market in the April series as well, Sumeet Bagadia, Executive Director, Choice Broking, says. Various macro indicators, too, will have a role to play.
In an interview to Moneycontrol’s Kshitij Anand, Bagadia says factoring in Nifty valuations, he is of the opinion that the index will try to consolidate, whereas a positive movement is possible in the broader market. Edited excerpts:
The Sensex and the Nifty50 fell by over 1 percent each in the week gone by. What led to the price action?
It was a good start to the month for both indices. After a positive opening, the Sensex made a high of 51,821.84 levels and Nifty50 touched 15,336.30 levels on 12th March 21.
After that, we have noticed further correction throughout the month which dragged the prices to their monthly low on the back of weak global sentiments, higher treasury yield, and the rise in coronavirus numbers in the country.
However, the above concerns still remain the same, which may lead the prices down for the upcoming sessions. We are expecting a bearish trend in both indices until we get any positive triggers. On the downside, the Nifty50 may find support around 14,100, while the upside, resistance comes around 14,800 levels.
What does the March expiry data say about market behaviour in the April series? What is the range you have for the Nifty and the Nifty Bank?
During the March series, we witnessed a further correction in both the indices. The Nifty50 plunged more than 6 percent from the high of 15,336.30 while the Bank Nifty crashed more than 9 percent from the monthly high of 36497.35 levels.
Based on the recent open interest (OI) development in Nifty, the highest open interest has been observed in 14,000-15,000 strike prices, which suggest a broader range for the market in the April series.
Moreover, the PCR ratio is at 0.89 percent (below 1), which suggests that traders are more optimistic and preferring to buy call options.
Technically, the Nifty index may test the support at Rising Trendline and 100-day exponential moving average (DEMA), which is at around 14,100 levels on the daily chart.
We can expect a good bounce back from those levels in the April series for the upside target of 14,800-15,000 levels.
Meanwhile, the Bank Nifty may also find good support at 100-DEMA and horizontal line support of prior swing highs, which comes around 32,000/32,200 levels, so essential buying can be seen around that level for the upside target of 35,000/36,500.
Any factors that investors should watch out for in the April series?
In the past 10-15 days, the domestic equity market was the victim of rising bond yield and dollar index in the US market.
In the last couple of days, the spread of the second wave of COVID-19 infections was also a factor negatively impacting the market movements.
For the next month, again these factors—US bond yield, dollar index and domestic & global infection spread—will influence the equity movement in the domestic and global markets.
Apart from these, various macro-economic data like PMI manufacturing & services, IIP data and auto sales data would also try to influence the market movements.
Taking a cue from the Fed's view on the rising yield, we are of the opinion that rising yield would not be an immediate concern for the market.
Nevertheless, factoring in the index valuations, we are of the opinion that the index would try to consolidate, whereas one can witness a positive movement in the broader market.
Small & midcaps underperformed. Are investors booking profit in the broader market space after the recent rally?
Yes, the Nifty midcap and smallcaps have shown profit-booking in the last few weeks after making an all-time high. The Nifty midcap index has formed a bearish candle on the top but now it has taken support of 50-day moving averages.
If it sustains above, it can show upside movement. The Nifty midcap index has been trading in a rising channel formation and tested the lower bottom of the formation, which suggests a further northward journey in upcoming sessions.
For Nifty Midcap100, support comes at 22,400, while resistance is at 24,000, crossing above it can further upside movement. The Nifty smallcap has confirmed the Bearish Engulfing Candlestick on a weekly chart and given the trendline breakdown, which suggests a southward journey.
For Nifty smallcap, support comes at 7,800 levels, breaching below it can show further downside, while resistance comes at 8,160 levels.
BSE auto and telecom sectors cracked by over 4 percent each. What led to the price action?
Due to the rise in the number of (coronavirus) cases, each sector is witnessing profit-booking, while the auto sector is having raw material high prices plus demand is going to be impacted by the resurgence of COVID cases.
Investor’s sentiments also remained under pressure due to the government scrappage policy announced last week. On the technical front, the auto index confirmed a Shooting Star candlestick pattern, which suggests a bearish movement for the upcoming session.
Furthermore, the auto sector has given a breakdown of the Head & Shoulder Candlestick Pattern, which points to southward momentum in the index. For the auto sector, 9,300 levels are the support levels, while resistance comes at 10,260 levels.
The Nifty service sector, after confirming Bearish engulfing pattern, showed the correction but took support from 89-day moving averages. Furthermore, the Index has been trading in a falling wedge pattern and tested the lower bottom of the pattern, which points to strength for the upside in the upcoming session.
Any three-five trading ideas for the April series?
A) Here is a list of top trading ideas for the April series
Godrej Consumer Products: Buy| LTP: Rs 710| Target: Rs 750-800| Stop Loss: Rs 670| Upside 5%
On the weekly scale, the stock is bouncing back after taking strong support around 670 levels, which is 38.2 percent retracement level of its previous move which suggests a positive move in the counter.
Moreover, the stock has confirmed a ‘Hammer’ Candlestick pattern with the support of its Horizontal Trend line which can be considered as a Bullish Reversal formation and indicates an upside movement in the counter.
On the daily chart, the stock is giving a breakout from its “Consolidation Phase” as well. It is trading above its 21-DEM, which indicates that the stock could see a northward movement.
Hindalco Industries: Buy| LTP: Rs 327| Target: Rs 365-390| Stop Loss: Rs 290| Upside 11%
On the daily chart, the stock has confirmed a Hammer Candlestick pattern which suggests an upside movement in the stock.
Moreover, the stock has been trading above its 21-Hourly Moving Average, which suggests that the stock has a great potential to move further.
Furthermore, the stock price has pulled back from the lower Bollinger Band, which indicates bullish sentiments in the counter.
Based on the above technical structure, we are expecting an upside movement in Hindalco in the upcoming trading session.
HDFC Bank: Buy| LTP: Rs 1492| Target: Rs 1580-1640| Stop Loss: Rs 1440| Upside 6%
On the weekly chart, the stock has formed a Doji candlestick with the support of 21-week moving averages, which suggests strength in the counter.
Moreover, on the daily chart, the stock has formed a hammer candlestick pattern, which points to a northward journey in the counter.
The daily momentum indicator RSI reading is at 46.45 level, with a positive divergence that points to a positive breath in the stock.
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