If Nifty crosses 18,200, it can touch 19,400 in five to six months, says this Wave Trader

(Photo by Anna Nekrashevich/Pexels)

The two month rally that started in mid-June has been moving sideways since mid August. Market watchers are divided on whether the levels will now trend downwards, even dropping below the June lows; or if they will trend upwards and make new highs. Bhaskar Radadiya, a well-regarded prop trader who uses Wave Principles and Gann Indicators for technical analysis, belongs to the second camp. In an interview with Moneycontrol, he explains why.

How do you interpret the present market movement, now sideways after a two-month rally that started mid June?

Any rally starts after a major collapse. In 2008, the rally started in October that year. Similarly, after Covid, the bull market started after the fall to 7,500 (on March 24, 2020) and continued till October 21, 2021. At present, we are in the corrective move of that bull rally. But we are still in a bull rally and it will go up to 21,000.

Also read: Ten key factors that will keep traders busy this weekAt what level will the correction of the bull rally end?

The end of the corrective move will be confirmed after Nifty crosses 18,200. If Nifty crosses 18,200, we can say that the correction from October 2021 is over…

Then it will move upwards to 21,000?

Yes. Then, in five to six months, it will head to 19,400 and can reach 21,000 by January 2024.

Could you elaborate on what signals you are seeing for a climb to 21,000?

Both Nifty Financial Services and Nifty Bank indices have crossed their major hurdles at 19,100 and 38,800 respectively so Nifty will cross 18,200 sooner than later. Then the market will trend towards 21,000.

Also, when Nifty corrected from its October 2021 high, it corrected in double-digit percentage points. That’s why there was a lot of panic in the market. But the reason I am bullish is that the Nifty corrected in a double zig-zag (pattern). Usually, after a double zig-zag correction, there is a higher probability of a strong upmove.

Again, if we go by Wave Principles, if the previous significant high or low is broken, then that can indicate a new trend. The last powerful swing upwards we had was towards 18,200 (in January 2022) in the mid-point of this rally that began in October 2021. Therefore, if that is broken, we should see an uptrend and chances are very low that it will break the previous significant low (of 15,100 in June 2022).

What if Nifty falls before 18,200?

Then that would indicate that this is the corrective move of the recent bull market (from mid June 2022, and not of the one that began right after Covid in mid 2020). If that is the case, then Nifty can fall to 16,800 but still not break the recent June low of 15,100. This is because the index saw a double-digit correction from October 2021 to June 2022, and that is a significant fall that absorbed various bad news including rate hikes and the Russia-Ukraine crisis. According to the Wave Principle, after such a double-digit correction, it is hard to form a new lower low. Also, multiple sectors have entered into a bull run and the Indian markets are seeing powerful inflows from foreign investors.

Which sectors do you see performing well once Nifty crosses 18,200?

Whenever there is a new bull run, consumption-led sectors will outperform, which includes commodity stocks. I am also feeling good about BFSI, cement, metal and auto because I am betting on economic growth and therefore development infrastructure.

I am doubtful about pharma though because channel checks show that the government has been intervening deeply in its pricing, even controlling prices of medical equipment such as heart valves and orthopaedic implants.

What are the levels you are looking at in these sectors?

In banking, the upper level was 38,800 and it has already been crossed. In Nifty Bank, even if there is a correction, it can’t fall below 32,400, which was the recent significant low in June. Since breaking the 38,800-level signifies an upward trend, I will start looking at individual stocks.

Since I will be looking for stocks that will drive this rally, I will be looking at stocks with higher weightage, which means Kotak, Axis, HDFC and ICICI… since major weightage is with these four banks.

For metals, I am looking at a resistance level of 6,650 after which it can go to 7,100-7,450. Metal is overbought now, so a pullback is possible. For auto, the resistance level would be 13,850 and above that 14,600 to 17,450.

Also read: Why HDFC Securities' big call for next 12 months would be industrials

What about inflation and recessionary fears?

I think all the important bad news got factored in in the June low.

We talk of recession when we are focussed on data from the US and the EU. Both are very different economies when compared to India. Recession will definitely dent demand, but in India, we have our own consumption story. Our economy is still in the expansion phase, and is years away from its peak. (Economic cycle has six phases, which are expansion, peak, recession, depression, trough and recovery.)

What about inflation?

Inflation will remain range-bound, from 5.5% to 8.5%. Even at the higher level, I don’t see it as a major risk to the Indian stock markets.

Where do you see the rupee at and by when?

The key level would be 81.9. If USD-INR crosses that, and if RBI does not intervene, it can go to 84.50 even by Diwali.