A convincing move above 16000 would pull the index towards the 16400 – 16500 mark while on the contrary, a breakdown below 15600 would apply breaks to the bullish momentum, Mehul Kothari, AVP – Technical Research at AnandRathi said in an interview with Moneycontrol’s Kshitij Anand. Edited excerpts:
Mehul Kothari, AVP – Technical Research at AnandRathi
Q) The Nifty50 remained volatile throughout the week, but it managed to close above 15800 levels for the week. What led to the price action on D-Street?
A) Since the past few weeks, we have been mentioning that the market has turned range bound and traders can deploy mean reversion techniques. Well in line with that the markets have been reacting.
Although volatile the benchmark index, Nifty50, is respected supports and resistance levels. That is the reason why Nifty managed to close above 15,600 levels during the selloff and closed the week near the 15,800 mark.
Q) FIIs remain net sellers pulling out more than Rs 19000 cr from the cash segment of the Indian equity markets. What is leading to panic in FIIs and what does the options data suggest?
A) I guess they have been sceptical on Indian markets for the past couple of months and that may be due to profit booking at higher levels.
On the other hand, domestic institutional investors (DIIs) have been doing well in absorbing that pressure. But, you ask for a medium-term then once there is a considerable correction in the markets, we expect them to be back.
Q) What is your call on small & midcaps which have remained slightly more resilient?
A) We reiterate our view that the indices like Nifty500 and NIFTY Midcap 100 are trading near their supply zone. The Nifty500 index is hovering near the long-term trend line resistance and 200% retracement level of the previous crack.
The momentum in it would start only above the 14200 mark. On the other hand, even Nifty Midcap 100 is approaching a trend line resistance placed around 28000 – 28500.
So, ideally, the broader markets are hinting towards some exhaustion. The rally from here in midcap and small-cap might not be one way like it did in the past couple of months. For the short term, one needs to stay cautious in them.
Q) Sectorally, metal showed a strong move on Thursday up over 8% for the week. What is fuelling the rally in metal space?
A) Well as per our colleagues who study Fundamentals, the recent spurt in the Metal sector can be attributed to multiple factors which added fuel to the Metal Index.
First, the US Federal Reserve reiterated its dovish policy stance which was positive for Metals. Further strengthening rupee and short-covering in select heavyweights also added to the momentum.
Secondly, Arcelor Mittal have upgraded the Steel consumption forecast to 7.5% - 8.5 % from 4.5% - 5.5% earlier, which is positive for the Metal sector globally.
Third, China again have raised export tariffs for some steel products and shall remove tax rebates for 23 steel products from Aug 1. This is the second adjustment in the last 3-months as it seeks to ensure domestic supply while controlling output to curb emissions.
This move will benefit Indian Steel manufacturer’s across as Indian Steel is still approximately15% cheaper as compared to global steel prices.
Going ahead we could see many domestic steel companies to Increase Steel prices providing additional revenue for the companies.
Q) Based on rollover data and price action – what are your expectations from the August series? Can we hit fresh record highs or will there be some pressure considering it will be an IPO-heavy month that could extract liquidity?
A) Rollover of Nifty stood at 82.76%, which is higher than its quarterly average of 76.06%. The high rollover figure is mainly due to the low base of open interest.
The daily chart of Nifty indicates that the index is stuck in a band for around 2 months. If we plot a Bollinger band indicator on a daily scale then we can conclude that there is a squeeze in them due to consolidation.
Generally, such squeeze in Bollinger Band is followed by faster price action in either direction. So, one needs to be prepared for such kind of momentum.
On the pattern front, we are witnessing a ‘Broadening Top’ kind of formation. A breakout or breakdown from this pattern would dictate further trends.
The breakout would be confirmed on a close above 16000 while the breakdown would get confirmed below 15600 on a closing basis.
A convincing move above 16000 would pull the index towards the 16400 – 16500 mark. On the contrary, a breakdown below 15600 would apply breaks to the bullish momentum.
The move-in VIX suggests that the consolidation phase is about to end and markets might turn volatile going ahead.
Thus, we advise short-term traders to stay extremely selective while picking up long bets and remain vigilant in case of any ambiguity going further. Investors should wait for a significant dip in stocks to create fresh longs.
Q) Your 3-5 trading ideas for the August series?
A) Here is a list of trading ideas for the next 3-4 weeks:
Godrej Properties Ltd: Buy| LTP: Rs 1602| Stop Loss: Rs 1480| Target: Rs 1780| Upside: 11%
Godrej Properties is a heavyweight from the Nifty Realty index which has confirmed a breakout. Even the stock has confirmed a multi-year breakout recently.
We expect a faster move in the stock since it has closed above the 1600 mark. Traders can go long in the stock at the current price with a stop loss of 1480 for an upside target of 1780.
PFC: Buy| LTP: Rs 130| Buy Above Rs 135| Stop Loss: Rs 125| Target: Rs 155| Upside: 14%
The monthly chart of PFC construes that the stock is on the verge of a breakout from its lifetime high of 136. Before confirming that breakout PFC has already confirmed a breakout from the pattern which resembles a symmetrical triangle.
Even the monthly RSI is about to come out of falling trend line resistance and that can give immense strength to the stock. Since the stock has a habit of giving whipsaw’s more often we want traders to buy the stock on confirmation.
Thus, traders are advised to buy the stock only above 135 with a stop loss of 125 for the upside potential target of 155 in the coming weeks.
Punjab National Bank: Buy| LTP: Rs 39.50| Stop Loss: Rs 35| Target: Rs 48| Upside: 21%
A couple of months back; PSU Banks surprised everyone on the street by displaying a decent rally. Then after they corrected a bit and even consolidated.
The stock PNB too did the same. The weekly chart of PNB indicates that the stock confirmed a breakout and now has retested the same.
We are witnessing a hammer kind of formation on a weekly scale. Also, the stock has confirmed higher bottom and higher top on the larger degree which indicates a change of trend.
Even the monthly RSI has crossed the decisive level of 40 which suggests strength in the stock. Traders are advised to buy the stock near 39.5 with a stop loss of 35 for an upside target of 48 in the coming weeks.Disclaimer
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