Indian markets witnessed a decline in profit booking for the week ended December 6, weighed down by mixed global cues on a trade deal between the US and China and the Reserve Bank of India (RBI) surprising everyone by keeping its key lending rate on hold.
The Nifty was down nearly 2 percent from its record high of 12,158 on November 28. The question that most traders have is: ‘Have we made an intermediate top’?
Experts say it will not be right to say that the Nifty has made a ‘top’ and the index is likely to decline in the short term, but the ideal strategy, for now, is to remain cautious and go short as long as the index trades below 11,950.
The index made a bearish engulfing pattern on the weekly chart after a recent run-up, and a bearish candle on December 6, but a break above 12,080 in the coming week will negate the negative implications of the patterns, they say.
“We have added 13 percent to the rally in the last few months and there may be a higher probability of profit booking rather than fresh buying. As far as ‘intermediate top’ is concerned, it would be too early to take a call, specifically at all-time highs and it would not be a brave one for sure,” Lovelesh Sharma, Head of Research, Epic Research, told Moneycontrol.
“So, there has to be some confluence or at least some warning signal to call it an ‘intermediate top’ or ‘double-top’ formation.”
The dip is an opportunity for investors sitting on the sidelines to get into quality stocks. For traders, however, anticipating a trend could be a struggle.
Given the fact that we are in the last month of the year, flows have mostly remained strong. Hence it is best to remain cautious and avoid leverage play.
“We were eyeing 12,300 in the Nifty first, citing buoyancy on the global front and noticeable buying in the index majors despite the overbought positions,” Ajit Mishra, VP Research, Religare Broking told Moneycontrol.
“However, the recent developments viz. weak GDP data, status quo from the RBI and a correction in the global markets amid lingering trade tension between the US and China has changed the market tone and now we feel that the prevailing profit-taking could extend further in the coming week too.”
Mishra still believes that the Nifty has the potential to test a newer high in December. “We’re not eyeing major correction in the benchmark index and expect the Nifty to find support around 11,700-11,800 zone. In case of a rebound, 12,000-12,100 zone will act as an immediate hurdle,” he said.
What should be your trading strategy this week? Expert: Mazhar Mohammad, Chief Strategist – Technical Research and Trading Advisory, Chartviewindia.in
Remain short on the index, with a stop above 12,000.
The Nifty appears to have registered not only a breakdown below its 19-day old ascending channel but also decisively closed below its 13-day exponential moving average, which had propped up the prices higher on a couple of occasions in the past.
For the time being, upsides shall remain capped around 12,081 and strength should not be expected unless it closes above the said level.
Therefore, positional traders can continue to remain short on the index, with a stop above 12,000 on a closing basis and look for a bigger target placed around 11,730.
Expert: Chandan Taparia, Vice President, Analyst-Derivatives, Motilal Oswal Financial Services Ltd
A hold below 11,950 may lead to profit booking.
The Nifty broke below its crucial support of 11,950 and formed a bearish candle on the daily and weekly charts.
The index has seen a breakdown from a head and shoulder pattern on the hourly chart, which has a bearish implication and suggests a profit booking decline after the recent positive momentum in the market.
On the weekly scale, it formed a bearish engulfing pattern and a hold below 11,950 may lead to a profit booking decline towards the next major support at 11,800 then 11,700.
On the flipside, the immediate hurdle is at 12,050 then lifetime high at 12,158.
Expert: Shrikant Chouhan, Senior Vice-President, Equity Technical Research, Kotak Securities
The market fell on December 6 largely on the back of a sudden rally in the 10-year GSEC, which closed higher at 6.65. This triggered weakness in financials and other rate-sensitive sectors.
The breadth of the broader market has turned poor too. Advances vs Declines stood at 1:3, which means the market has made a top at 12,160 and is heading lower to 11,700/11,600 in the near term.
Traders and short-term investors need to be cautious and should try to reduce weak long positions at 11,950 and 12,000.
Expert: Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Private Ltd
Technically, the Nifty breached its crucial support of 11,950 and formed a big red body candle on the daily chart. We also witnessed breakdown from head and shoulder pattern on the hourly chart, which doesn’t bode well for the bulls.
On the weekly scale, the index formed a bearish engulfing pattern and a sustainable move below 11,888 may lead to a correction towards 11,800 and then towards 11,700. On the flip side, the immediate hurdle is at 12,050 and 12,100.
Expert: Mustafa Nadeem, CEO, Epic Research
Investors should rather be cautious at this point, as the failure of the Nifty to sustain previous ATH gives a major bearish indication.
A close below 11,850 in the coming day or two will completely reverse the trend in favour of the bears and lower targets can be seen towards 11,200 – 11,250. While 12,100 continues to be a resistance.
We recommend a sell only below 11,850 on a closing basis for lower levels of 11,600–11,200. Sustaining above 11,850 will put us back in rangebound trading.
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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