Gaurav Ratnaparkhi, Head, Technical Research, Sharekhan by BNP Paribas, says the sharp rally in the Nifty in the last three weeks has stretched the short-term momentum indicators to the overbought zone which suggest that the index can witness some consolidation.
In an interview to Moneycontrol’s Kshitij Anand, Ratnaparkhi says the pause will be brief and the Nifty will resume its forward march. Edited excerpts:
It was a historic week for Indian markets as the Nifty surpassed the crucial 15,700 level intraday. What led to the price action?
The Nifty50 broke out from a consolidation phase in mid-May. It surpassed the upper end of a falling channel as well as the psychological mark of 15,000.
Since then the index has been rallying nicely. Expansion in the daily and weekly Bollinger Bands has been assisting the price action on the way up.
As a result, the Nifty50 surpassed the all-time high of 15,431 and went on to achieve the subsequent target of 15,700
After hitting a record high of 15,733 on June 4 the Nifty saw profit-booking post the policy. Can we say that we might have hit a top? Are there any signs on the chart?
The Nifty50 has seen a pretty sharp rally in the last three weeks. As a result, the short-term momentum indicators have been stretched to the overbought zone.
This observation, coupled with the fact that the index hit the crucial 15,700 levels, suggests that the Nifty can witness a brief consolidation.
Having said that, what we are expecting is a minor pause, which can be seen over the next couple of sessions. Once that is done, the Nifty is expected to head higher.
Sectorally, BSE realty and consumer durable rallied over 6 percent till June 3. What led to the price action?
The BSE realty index after a correction in the March-April period had seen a nice base formation above the junction of 40 WEMA and weekly lower Bollinger Band. These two parameters in combination act as good support and the same was seen in this case.
Thereon, the index witnessed a sharp rally. The consumer durable index had undergone a time-wise correction rather than a price-wise correction. It entered consolidation mode in mid-February that continued till mid-May.
Since the second half of May, the index resumed the larger uptrend. Both these indices are expected to stay on the upward trajectory from a short to medium-term perspective.
Which are the important levels to track in the coming week on the Nifty?
The daily momentum indicator has been pushed into the overbought zone, whereas the hourly momentum indicator is showing negative divergence. At the same time, the weekly momentum indicator has triggered a bullish crossover.
So, the multi-timeframe analysis suggests that the Nifty can witness a brief consolidation for the next two-three sessions, which will be followed by the next leg up.
So, a dip towards the swing low of 15,460 can be taken as a fresh buying opportunity. On the higher side, 15,700-15,750 will act as a near-term hurdle zone
Small & midcaps have outperformed. What is fuelling the rally in the broader market space?
Small & midcap space witnessed consolidation during March-April. However, they moved out of the consolidation much ahead of the Nifty.
For the last several weeks the broader market is seeing a strong rally that is supported by various technical parameters. Structurally, these indices are forming wave extension on the upside, which means that the rally is here to stay
Top three-five trading strategies for the next three-four weeks?
Here is a list of top trading strategies:
L&T Finance Holdings: Buy| LTP: Rs 97.45| Stop Loss: Rs 92.50| Target: Rs 108| Upside 11%
After a sharp fall from March to April, the stock is witnessing an equally sharp recovery. So far, it has crossed 38.2 percent retracement of the fall and is expected to go for a deep retracement. The short-term momentum indicator is in line with the recovery
Ashok Leyland: Buy| LTP: Rs 128.40| Stop Loss: Rs 123| Target: Rs 144| Upside 12%
Post a base Triangle breakout in mid-May, the stock resumed the larger uptrend. For the week gone by, it has formed a bullish outside bar pattern on the weekly chart, which reinforces the uptrend
Tata Chemicals: Buy| LTP: Rs 746| Stop Loss: Rs 712| Target: Rs 833| Upside 11%
The stock formed a base for itself above the 20 weeks moving average and started a fresh leg up in the last week. On the way up, it has broken out from a falling channel in the last session. The daily momentum indicator is in sync with the breakout.
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