In a current bull market, we are witnessing shallow corrections from time to time rather than swift and deep corrections, Rahul Sharma - Head, Technical and Derivatives Research, JM Financial Services said in an interview with Moneycontrol’s Kshitij Anand.
Q) It has been a volatile week for Indian markets after a holiday-shortened week. The Nifty closed flat-to-positive. What led to the price action?
A) The Nifty lost 32 points over the week to close at 14,835. It started on a negative note last week on account of domestic news flow i.e. rising COVID-19 cases.
However, it bounced back very sharply from the major support zone of 14,450-14,500 and remained above the same throughout the entire week. The second half of the last week was very volatile and neither the bulls nor the bears wanted to give up.
Broadly, Nifty is trading in a range of 14,500 to 14,900 levels for the past couple of weeks and the sellers are very strong near the upper end i.e. between 14,850 to 14,900 levels and buyers have repeatedly shown their presence near the lower end i.e. near 14,450 to 14,500 levels.
This sideways consolidation is actually healthier rather than a sharp deep price correction. It indicates there is an inherent strength in the markets and every dip are getting bought into.
In a current bull market, we are witnessing shallow corrections from time to time rather than swift and deep corrections.
The pharma, technology, and Midcap and Small-Cap stocks/sectors were outperforming sectors while the Bank Nifty was an underperforming sector.
Q) Sectorally, one sector which stood out was the metal sector. Lot of stocks in the metals index hit a fresh 52-week high. What led to the price action and how should investors play the theme? Any stocks which are still looking attractive?
A) The Metal sector has been the dark horse and is also one of the leading sectors, which was responsible for supporting the Nifty50 to a great extent. However, the risk-to-reward ratio is not favorable for entering fresh longs here.
Those holding long positions can continue to hold with trailing stop loss above cost. The bias for metal sectors is still positive and one can look to enter longs on dips or a minor correction for another 3-5% upside.
Q) What should investors watch out for in the coming week?
A) We have result season starting from next week. The technical setup for IT stocks is very strong and if we see good quarterly numbers in the coming week from IT sector then we believe that the outperformance in the technology stocks is likely to continue going forward.
Q) How is the market likely to pan out in the coming week? Important levels to watch out for Nifty?
A) We are cautiously optimistic about the markets at the current juncture. At the same time, we do not want to jump the gun but wait for the breakout/breakdown to happen in the Nifty.
Technically, the market has seen a lot of “back and forth” action within the 14,500-14,900 zone in the last 7-10 sessions. This could be a way to absorb selling pressure and lay the foundation for a rally in the coming weeks.
Presently, Nifty is facing a lot of resilience near 14,850-900 levels on an immediate basis for the past couple of weeks and there is clearly a tug of war between the bulls and the bears for this make or break resistance zone.
Once past this level on a closing basis, we expect trending activity to continue and the index should move towards the next resistance zone of 15,000 to 15,050 and then towards new life highs. Supports for the Nifty are now seen at 14,785 and14,650 levels.
Q) Small & midcaps outperformed – what is leading to the price action?
A) The ratio charts of Nifty Midcap and Small cap Indexes vis-a-vis Nifty is very strong. The recent correction/consolidation has made the chart set-up very strong on all parameters.
The majority of stocks in Midcap and small caps space are also trading well above their 50 and 200-Days moving averages (DMA), which is a positive sign from a short to medium-term perspective.
The Midcap and Small Cap Indexes are still forming higher tops and higher bottoms both on the daily and weekly charts which is a positive signal as per Dow Theory. We are maintaining a positive bias on Small & Midcaps stocks and we believe it will outperform the large caps.
Q) Top 3-5 trading ideas for the next 3-4 weeks?
A) The stocks which technically look positive from short term trading perspective are Aurobindo Pharma Ltd., Divi’s Lab Ltd., Apollo Hospital Ltd. as follows:
Aurobindo Pharma: Buy with a target of Rs 955-995| Stop Loss Rs 874
Divi’s Laboratories: Buy with a target of Rs 3845-3950| Stop Loss Rs 3579
Apollo Hospitals: Buy with a target of Rs 3230-3325| Stop Loss: Rs 3014Disclaimer
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