Booking profits during the Santa Rally towards 13760 could be an ideal strategy as the index has moved to its PRZ levels very quickly in the last few months. In case 13240 is violated, it may result in a breakout failure, Sacchitanand Uttekar, DVP – Technical (Equity), Tradebulls Securities said in an interview with Moneycontrol’s Kshitij Anand.
edited excerpts:
Q) Last week was historic for the Indian market – Nifty50 climbed above 13,500 levels while the S&P BSE Sensex also climbed Mount 46K. What led to the price action?
A) It is the sixth consecutive week where the index has shown resilience against most of the negative data that has been looming around since the last one or two months.
Despite the rise in COVID-19 cases in the US & Europe, markets scaled higher above its psychological levels of 13,500, and 46,000 respectively on the Nifty50 & Sensex.
The baton remained with the PSU stocks as banks took the lead during the beginning of the week while ONGC looked in charge of the rally at the end of the week.
The Mid & Small caps too continued to do well and witnessed some good rotational action throughout the week while largecaps remained relatively silent & lacked liquidity-driven moves.
Q) More than 200 stocks on the BSE have been hitting fresh 52-week highs on a regular basis. Does it make sense to chase the momentum in the small & midcap space especially such stocks?
A) As compared to its other emerging market peers, India is still far behind its other Asian counterparts. It is still not on the top of the list, meaning technically we might be in an overbought stage and trending at the top end of the respective trading range, but as compared to other emerging markets' YTD performance, we still have some catching up to do.
Hence, this is the only phenomenon in a high liquidity infused market that should keep the small and mid-cap stocks in the upbeat mode for some more time.
A lot of investors are chasing these stocks and we believe investors should hold on to leaders within the segments and should periodically take some profit off the table of those stocks which are consistently hitting fresh 52-weeks high.
Q) Small & midcaps underperformed in the week gone by, however, select stocks continued to attract buying. What are your view?
A) The interest shown by retail investors and inclusion of some of the midcaps in the MSCI will attract fresh funds into mid and small caps.
The underperformance of small and midcaps last week can be attributed to some profit-booking as both have outperformed largecap by quite a margin in a short period.
Selective stocks like leaders within segments and stocks that are yet to participate in the run-up are likely to attract continued funds in near future.
We continue to remain upbeat in midcap and smallcap stocks as economic recovery will lead to an increase in the valuation of midcap and smallcap stocks.
Q) What should investors do now as both indices have broken above crucial psychological levels in the week gone by. Can we call it a Santa Claus rally?
A) The Nifty50 has now moved to its PRZ (Potential Reversal Zone of 13590-13760) but its yet to register any exhaustion or reversal signs.
Even on its lower degree time frames it has been holding well above its 5 DEMA level & trending above it while the option base seems to shift higher to 13500-14000.
Traders should remain vigilant as despite the trending conditions the price action has not been very confident as the ongoing sequence consists of multiple narrow ranged bars.
Booking profits during the Santa Rally around 13760 could be an ideal strategy as the index has moved to its PRZ levels very quickly in the last few months & in case 13240 is violated, it may result into a breakout failure.
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