Technically speaking, patterns on Nifty are bearish pointing towards a target placed below 10,417, and whether this rally will sustain or not will be known only after observing one or two sessions, Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, said in an interview with Moneycontrol’s Kshitij Anand.
Q) Markets made a surprisingly strong comeback on Friday after two days of decline. Do you think the correction is over? What are the charts suggesting across time frame?
A) Friday’s rally might have caught the bears on the wrong foot. It was really surprising and unexpectedly a strong move after two days of severe correction.
Interestingly, on a month-on-month (MoM) basis, markets haven’t done any value addition after the strong close registered in the month of April.
May and June were both indecisive months with Doji kind of formations as they both closed almost where they opened. It is looking like a make-or-break kind of month going forward.
Friday’s move again brought the indices into the erstwhile trading range. Hence, sustaining above 10,700 kind of levels markets may once again remain sideways and volatile without any price damage.
But, an upside breakout above 10,830 may usher in a fresh leg of up move.
Q) Bank Nifty appears to be somewhat resilient irrespective of range breakdown seen in Nifty. What are the charts suggesting?
A) It seems that for the last couple of weeks, Bank Nifty is moving in a range of 26,767 – 26,200 levels. Interestingly, despite the range breakdown on Nifty50, this index remained inside the trading range as intraday dip below 26,200 was quickly bought into suggesting some strength.
Unless it closes below 26,160 levels, there may not be a big price damage to this index. In fact, this range bound move may also prevent the Nifty from going down to much lower levels.
On the upside, fresh leg of up move can be expected on a sustainable breakout above 26,770 levels.
Q) Do you think the strong rally we witnessed on Friday will sustain?
A) Technically speaking, patterns on Nifty are bearish pointing towards a target placed below 10,417. Inline with those patterns on last Wednesday market witnessed a breakdown and, for a couple of weeks, it should be under pressure but surprisingly a strong rally was witnessed in Friday’s session, raising doubts about the downside momentum.
Whether this rally will sustain or not will be known only after observing one or two sessions. In case Wednesday’s breakdown was a knee-jerk reaction to some of the negative global factors, then we may not go down to much lower levels.
Q) It appears that global factors resulted in the sharp fall for Nifty last week. What do the charts of some of the Asian Indices suggesting?
A) Among BRIC countries, it is only Indian Nifty and Brazilian Bovespa traded at new lifetime highs in 2018. Shanghai Composite clearly appears to be in a bear market as it retraced only 38% of its losses from 2015 high of 5,178 and appears to have resumed its downtrend from January 2018 highs of 3,587.
Besides, all other indices are in vertical fall for last two months whereas Indian Nifty is almost flat suggesting relatively better strength.
Q) It seems strengthening Dollar is causing the problem to the equities. How is Dollar Index looking on the charts?
A) There seems to be an inverse correlation between Dollar Index and Nifty. Interestingly, when this entire rally started in 2016 Dollar Index made a top around 103 in December 2016 whereas Indian Nifty made a higher bottom in the same month, after a 4-month of correction, at a low of 7,893.
Similarly, when Nifty topped out at 11,171 in January 2018, Dollar Index bottomed out around 88. After four months of the rally in the Dollar Index, it appears to be facing resistance around 95.
Interestingly, for the last two months, Nifty is not negatively reacting to the appreciation of Dollar index as it is stuck up in a range of 95 – 93.
Hence, there may not be more weakness in Nifty going forward if Dollar Index tops out around 95 which appears to be resistance on charts. But, a breakout above 95 may initially take this index towards 97 which then may result in weakness for Indian Equities.
Q) Any top ideas which investors can look at for a period of 1 month or so?
A) Here is a list of top three ideas which could give 6-12 percent return in the short term:
Tata Steel: Buy| CMP: Rs 567.85| Target: Rs 605| Stop Loss: Rs 547| Return 6%
At the recent low of Rs 536, Tata Steel appears to have made a double bottom kind of a formation from the cushion of which it is making an attempt to rally.
In that case, it can easily retest its 200-day Moving Average (DMA) on the way upside. Hence, positional traders should buy into this counter for a target of Rs 605 with a stop placed below Rs 547 on a closing basis.
Yes Bank: Buy| CMP: 339.60| Target: Rs 369| Stop Loss: Rs 325| Return 8%
This counter appears to be in a consolidation mode after registering swift gains from the lows of Rs 309 – 369 in a single week of April 2018. Since then, it is in a multi-week corrective and consolidation process, and it appears to have made a decent base around Rs 330 levels.
Hence, on a sustainable pullback, as long-term trend is strong and intact it can make one more attempt to retest recent highs of Rs 369. Hence, positional traders should make use of this opportunity to go long for a target of Rs 369 and a stop below Rs 325 on a closing basis.
Firstsource Solutions Ltd: Buy| CMP: Rs 70.40| Target: Rs 79| Stop Loss: Rs 67| Return 12%
After the recent correction from the highs of Rs 84, this counter appears to be making an attempt to bottom out around Rs 68 levels for the last three sessions. It defended the same level before registering a Harami kind of reversal formation in Friday’s session.
As the risk-to-reward ratios will be favourable, traders should buy the stock around these levels for a target of Rs 79 and a stop loss placed below Rs 67 on a closing basis.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his 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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