We believe FIIs are betting on a resounding victory for the Bharatiya Janata Party (BJP) in Gujarat and the government will continue to focus on structural reforms ahead of the budget next year, Kunal Saraogi, Chief Executive Officer of Equityrush.com, said in an exclusive interview to Moneycontrol.
It has been a roller coaster ride for the bulls in the December series. The index is up by about 1.4 percent for the week ended December 8. The next week is crucial ahead of state polls as well as the US Fed meeting. What kind of action could we see in the coming week?
Historically speaking, December is known to be a good month, though a slow one, for the markets. But in 2017, December is full of major news events with Gujarat election results being one of them.
We expect a strong close to the year and won't be surprised if we get a heady Santa rally toward the end of the year once the Gujarat election overhang gets lifted.
The market internals look robust and pivotal stocks look firmly poised. The market has established a strong validated support in the region of 10,000-10,100 that is likely to hold even if volatility resurfaces.
What adds to a technical trader's comfort is the fact that although markets have mean reverted on more than one occasion in the current leg of the rally. they have marched higher after taking breathers.
For the week, we have a nice looking bullish hammer on the weekly charts that also is a 'Bullish Harami' pattern and augurs well for the week to start.
What is typically seen in December is a slowdown of FII trading activity and that generally means large moves in midcap stocks.
Therefore, it might be a good idea to train your eye on the second rung stocks that have broken out on the charts.
How have FIIs positioned their portfolio ahead of US Fed and state election results?
Although FIIs appear to be net sellers, if you go by the data alone they may not be as bearish as we think they are. Once SGX Nifty numbers are penciled into calculations, their stance may not be all that bearish.
We believe FIIs are betting on a resounding victory for the BJP in Gujarat and the government will continue to focus on structural reforms ahead of the budget next year. No red flags on that count so far.
How is the market looking on the weekly as well as monthly charts?
Both monthly and weekly charts look strong and have had continued higher tops and bottoms formations despite the volatility witnessed last week.
A simple first principle analysis would indicate a continued uptrend that is showing no signs of losing steam. No real divergences or volume conflicts are visible yet.
Traders would do well to not let the noise make them doubt the sustainability of the rally. The Nifty Bank is also trading comfortably above all key averages on the Weekly and monthly charts.
Another thing going for the bulls is the fact that dollar trades below 65 and has failed to cross its resistance at 66. As long as the dollar doesn't breakout above Rs 66, all dips must be aggressively bought into.
What should be the strategy in the coming week — buy on dips or sell on rallies?
Standard operating procedure for a bull market is to buy on dips. This one is no different. Buy quality stocks with strong chart structures on periodic dips even when they are shallow.
Bouts of short covering will trigger frenzies to cover shorts and fuel the rally further.
Can you name the top 3-5 stocks which are looking attractive at current levels based on technicals?
There are 3 stocks which I like right now:
Sonata Software: BUY| Target Rs325
Sonata has outperformed both the market as well as its peer set. The stock has broken a resistance placed at Rs 210 and is headed for much higher levels. One could look to buy the stock with a target of Rs 325 over the next few months.
Titagarh Wagons: BUY| Target Rs 250
The stock has broken out on the charts after clearing a historic resistance at Rs 165 and is likely to bounce toward Rs 250 levels. All technical indicators point to a perfect buy set up on the stock.
Action Construction Equipment (ACE): BUY| Target Rs240
This is one stock which I have been recommending for a while now. It looks particularly impressive despite the sharp run it witnessed in the last few weeks. The stock can be bought at dips for an eventual target of 240.Disclaimer: The views and investment tips expressed by the investment expert 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.