Sameet Chavan, Chief Analyst-Technical Derivatives at Angel Broking Pvt Ltd, sees a trading range of 10,500 – 10,370 for the Nifty and says a sustainable move outside the range would trigger some momentum towards 10,600.
Edited excerpts from an interview:
It was a roller-coaster ride for the bulls last week. The index hit fresh record highs ahead of the Christmas holidays. Do you think the market would continue with its bullish momentum in the last week of 2017?
Barring the first couple of days, the index did nothing for the remaining part of the session. We saw interest getting shifted to the broader market post the Gujarat Assembly election verdict and ahead of Christmas celebrations.
Eventually, some buying towards the fag end pushed the Nifty towards another milestone of 10,500. If we go back to previous week’s close, we were in two minds as the index was placed in the corridor of uncertainty.
We saw sharp volatile moves in the initial part of Monday during the counting process. But then, post the final verdict, the index settled above 10,400 and remained sideways with a positive bias throughout the remaining part of the week.
We switched our focus to individual stocks from the midcap universe that was soaring as if there was no tomorrow.
Historically, we do witness such kind of moves towards the tail-end of the calendar year as the domestic institutions become more active for their adjustments.
Technically speaking, we see a trading range of 10,500–10,370 for the index and a sustainable move outside the range would trigger some momentum.
A breakout in an upward direction would extend the rally towards 10,600– 10,640, whereas a slide below the lower range would trigger some weakness.
We would like to highlight one notable observation in the ‘Nifty Midcap’ index. We saw this index hitting fresh highs during the week, which obviously was an encouraging sign for the traders and we also advised participating in it.
We generally see a good rally in the midcap basket during the last week of the calendar year, termed as ‘Santa Rally’; but, now, we do not want to be in such bandwagon as we are seeing some cautionary signs on charts.
The daily chart exhibits a ‘Wolfe Wave’ and as per the requirement, the 5th point has been met at the 161 percent retracement level of the recent down-move. The said structure is considered as a contrarian play and thus, sometimes it works on assumptions.
But, to add weightage to this hypothesis, we can also see a ‘3-point Negative Divergence’ in ‘RSI-Smoothened’ oscillator. Hence, we advise traders to be very selective while picking up the stock — do not trade aggressively and follow strict stop losses.
What should be the strategy in the coming week — buy on dips or sell on rallies?
Looking at the medium to long-term charts, there is no sign of weakness and the monthly time frame indicates this Bull Run getting extended towards 11,200–11,700 over the next few quarters.
But, we remain a bit skeptical whether it will happen in this leg of the rally considering the extreme oversold conditions of momentum oscillator and the way key moving averages are stretched.
Yes, with such strong optimism, it’s very difficult to time the correction as they generally get more delayed than one would anticipate.
As far as strategy is concerned, it depends on the time frame that one would consider. Long-term players should keep adding on meaningful declines as the Bull Run is going to last for a few years to come.
But, with a short-term view, although there is no sign of reversal, one should not be too gung-ho or complacent with the momentum. Hence, timely profit booking is required in such kind of environment.
Which are the top 3-5 stocks that are looking attractive at current levels based on technicals?
We have highlighted our observation on NSE Midcap index and hence, we advise traders to follow strict stop losses on below-mentioned recommendations:
CESC: BUY| Target Rs 1102| Stop Loss Rs 1025| Time 5-10 sessions| Return 5%
Since last three months, this stock has been consolidating in a narrow range. During last week, prices have given a breakout above the higher end of the range with good volumes.
Also, the RSI oscillator on the daily as well as the weekly chart is hinting a positive momentum and hence, we believe the stock is likely to resume its higher degree uptrend in the near term.
Thus, we recommend buying this stock at current levels for a target of Rs 1102 over the next five to 10 sessions. The stop loss should be fixed at Rs 1025
Brigade Enterprises: BUY| Target Rs342| Stop Loss Rs308| Time 5-10 sessions| Return 7%
This stock has been forming a ‘Higher Top Higher Bottom’ structure on the weekly chart and is thus in an uptrend. Recently, prices had consolidated in a range which seemed to be a ‘Time Correction’ within an uptrend.
During the week gone by, the prices have moved higher from the consolidation phase with increasing volumes and thus, the stock seems to have resumed its uptrend.
Thus, we recommend buying this stock at current levels for a target of Rs 342 over the next five to 10 sessions. The stop loss should be fixed at Rs 308.
Wockhardt: BUY| Target Rs946| Stop Loss Rs798| Return 8%
We have been quite upbeat on this stock since the last couple of months and have been consistently recommending longs ever since it broke out from the important hurdle of 640.
Now, due to last week’s massive rally, the stock has confirmed a trend reversal on monthly chart and is now poised for much higher returns.
With a medium-term view, we will not be surprised to see this stock even heading towards 1,100–1,200 over the next few months; but with a short-term horizon, we recommend buying in the range of 860 to 840 for a target of 946. The stop loss should be fixed at Rs 798.
How have FIIs positioned their portfolio ahead of US Fed and state election results?
In the last few months, foreign investors (FII’s) have been consistently curbing their liquidity in the cash segment and a similar trend was seen ahead of two major events (the US Fed and State elections) as well.
So, we need to accept that the recent relentless rally has clearly been propelled by the massive inflows from domestic institutions.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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