“But we feel that the two days’ consolidation suggest the formation of a continuation pattern, which augurs well for the sustainability of the uptrend with eyes on Rs 18-20 initially as it comes off a cup and handle pattern. Key support level is seen near Rs 12 which may be used as a downside marker,” he says. Edited excerpts from a chat:
Nifty has been playing hide and seek with its all-time peak of 18,888. Does the chart indicate that the index may remain directionless this week too? What are key levels to track?
The swing lower from oversold levels is similar to the one seen in late May, except for two facts: Firstly, this time, the turn is from a higher level, and closer to record peak. Secondly MACD histogram has registered a sizable dip below zero line. While these two factors prevented Nifty from staging a recovery as swift as what evolved post late May’s fall, favoured view sees a fair possibility of a regrouping first without stretching much beyond 18500. However the prospects of getting back onto the 18888-19070 trajectory is not clear, with 18600 and 18720 posing as key obstacles. Meanwhile, in the event of 18500 giving away, 18430 will hold only a slim chance of holding with 18200 emerging as the first downside target, while also raising the vulnerability of the 50DMA now positioned at 18047.
Nifty IT was the worst loser in the week with midcaps leading the decline. Do you expect more selling pressure in midcap IT stocks?
Selling pressure was spread across Large and Midcap IT stocks with an average decline of 3-4%. However, smallcap IT stocks found momentum. We could see some more profit booking in Midcap IT stocks in the coming week before bulls regroup. Smallcaps could outperform. Meanwhile, the tech heavy Nasdaq is above one year peak, and its progress will also be watched, given Indian IT stocks’ correlation with Nasdaq, especially as FOMC rate decision looms.
What is the kind of strategy that you would recommend for Nifty Bank traders in the week ahead?
While Axis Bank and IndusInd Bank tried to buck the trend, heavy weights in Bank Nifty fell this week. Meanwhile, HDFC Bank, ICICI Bank and Kotak Bank, which form ~60% of BankNifty, have shown early signs of reversal. Furthermore, Axisbank and Indusindbnk have not shown signs of giving up even after this week’s gains. All this is pointing towards the assumption that we might be gearing up for a pullback in BankNifty next week, and traders may attempt a bull put spread to capitalise on the recent rise in put premia.
Suzlon Energy ended the week around 27% higher. Do you see more steam left?
The stock warrants profit booking in the near term especially given the steepness of the rise and the oversold condition of oscillators. But we feel that the two days’ consolidation suggest the formation of a continuation pattern, which augurs well for the sustainability of the uptrend with eyes on Rs 18-20 initially as it comes off a cup and handle pattern. Key support level is seen near Rs 12 which may be used as downside marker.
Which are the 2-2 stocks that would be on your radar for the week?
1) Jyothy Labs
View: Buy
Entry range: 203 – 198
Target: 208 – 215
Stoploss: 194
The stock had broken out of the rounding pattern in the monthly time frame and the initial consolidation had honored the pattern breakout resistance of 186. Also it has taken support at the rising trendline support of 200 in the daily time frame with MACD showing signs of bullish exhaustion. We expect buying interest to emerge in the 198-203 region which could push the stock towards 208-215 levels in the next three months. All longs may be protected with stoploss placed below 194 levels.
2) Ramco Systems
View: Buy
Entry range: 236 – 228
Target: 248 – 260
Stoploss: 219
The stock has been moving within a triangle pattern in monthly charts since 2015 and has now bounced off the lower trend line support of the pattern hinting positive days ahead. Also, the momentum indicator MACD is about to cross the signal line supporting our assumption. We expect the stock to move towards 248 and thereafter towards 260 in the next three to six months. All longs may be protected with stoploss placed below 219.
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