The 50 component index Nifty 50 as well Sensex closed nearly 1.2% lower today. The former closed 293 points lower at 24,852 while the latter dipped by 1,017 points to 81,184.
Analyst Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities interacted with ET Markets regarding the outlook on Nifty and Bank Nifty the ongoing series. Following are the edited excerpts from his chat:
Nifty still seems well placed but facing some resistance at its all time high. On the weekly chart, it is still above all the MAs. But still, the index has also been down for the last two sessions. Do you suggest any caution here or the “buying the dips” stance will be beneficial?
Yes, we recommend adopting the cautious stance for now. During the last week, the benchmark index Nifty has marked a fresh all-time high of 25,333 level. However, it has failed to sustain at higher levels and thereafter witnessed profit booking. This resulted in the formation of a Bearish Engulfing candlestick pattern on a weekly scale. Bearish Engulfing is a reversal candlestick pattern, which usually occurs at the end of an uptrend.
Along with this bearish formation, the index has slipped below its 20-day EMA level for the first time after August 16. The daily RSI and Stochastic have given a bearish crossover, which indicates a limited upside. Most noteworthy, among the constituents of the Nifty index, 56% of stocks are trading above their 20-day EMA level. Last week, 80 percent of stocks were trading above their 20-day EMA level. This clearly indicates marked breadth has weakened significantly as compared to the prior week.
Talking about levels, the zone of 24,500-24,400 will act as crucial support for the index as it is the confluence of the 50-day EMA and 61.8% Fibonacci retracement level of its prior upward rally (23,894-25,334). If the index slips below the level of 24,400, then the next support is placed in the zone of 24,100-24,050 level. While, on the upside, the resistance shifted lower in the zone of 25,050-25,100 level.
September, as it is said, has not been a good month for markets globally. Do you foresee any events that may make this true for our market again? Or do you think our market may be ready to break this record just like its previous record of closing on new highs for 13 consecutive days?
Tracking seasonality, over the past 17 years, the September month has often exhibited a mixed trend for Nifty. On 9 occasions, the index has concluded on a positive note with an average gain of 6.83%, while on 8 occasions, it has ended on a negative note with an average loss of 2.75%. Overall, average returns for the September series have been 2.32% for Nifty.
Going by this trend, we believe September is likely to show a mixed trend. However, instead of predicting price we should focus on key levels. For the next couple of trading sessions, the zone of 24500-24400 will act as crucial support for the index as it is the confluence of the 50-day EMA and 61.8% Fibonacci retracement level of its prior upward rally (23,894-25,334).
What insights do you derive from the current PCR data on Nifty?
On Thursday, the Open Interest Put-Call Ratio (OI PCR) stood at 0.97, but Friday saw a sharp decline to 0.62. This notable drop is a clear indication of heavy call writing activity, particularly in strikes at 25000 and above. The aggressive call writing suggests that market participants are positioning for Nifty to trade with a negative bias in the coming sessions.
The substantial build-up of calls at higher strikes also indicates that traders are confident the market is unlikely to breach the 25000 level in the short term, reinforcing the expectation of limited upside potential.
Bank Nifty was gaining some momentum, even trying to break above the 50 DEMA. However, it broke below its short-term EMAs also yesterday. What is your outlook on the index now?
On Friday, the Bank Nifty slipped below its 20 and 50-day EMA level. These averages started edging lower, which is a bearish sign. Most noteworthy, during the recent pullback, the daily RSI has failed to cross 60 mark and thereafter witnessed a sharp decline. This clearly indicates that the range has shifted to the Bearish zone as per RSI range shift rules.
Going ahead, the 100-day EMA zone of 50200-50100 will act as immediate support for the index. Any sustainable move below the level of 50100 will lead to further selling pressure in the index. In that case, it is likely to test the level of 49600, followed by 49100 in the short-term. While, on the upside, the 20-day EMA zone of 51050-51150 will act as an immediate hurdle for the index.
Can you help the traders in understanding how to read the FII-DII data to their advantage?
Traders can leverage FII-DII data to gauge market sentiment. FII inflows often indicate bullish trends, while outflows signal caution. DIIs usually act counter-cyclically, offering stability when FIIs sell. By analyzing daily trends and combining this with technical indicators, traders can make informed decisions on market direction.
Sectorally, Nifty Pharma, FMCG and consumer durables are at their ATHs. Do you think these are the themes to play?
We believe, stocks specific action is likely to continue in Pharma, Healthcare, IT, FMCG and Consumer Durables in the short-term. Apart from this, the Paint sector is showing some bullish momentum.
If yes, any stocks to keep on radar?
We believe Asian Paint, Berger Paint, Marico and Coforge are likely to outperform in the short-term.
Talking about indices again, the midcap 100 index is also up. Do you see any safe bets in that space for the traders?
The Nifty Midcap formed a Bearish Engulfing candlestick pattern on a weekly scale, which is a bearish sign. Also, it has slipped below its 20-day EMA level.
However, stocks like Tata Technologies, PI Industries, Coforge and Syngene are looking good from this space. Tata Technologies has given the Falling Wedge pattern’s breakout on a weekly scale along with robust volume. While PI Industries, Coforge and Syngene have given Horizontal trendline breakout on a weekly scale.
On Thursday, the index was dragged down by the heavyweight reliance. Despite its bonus issue announcement, the stock fell by 1.4%. What is your technical view on the counter given that the stock is still in an uptrend on the monthly chart? Is it likely to test its 10 period EMA and then will be ready for a bounce back?
The short-term trend of the stock is bearish as it is trading below its 20, 50 and 100-day EMA level. The 20 and 50-day EMA has started edging lower. The rising slope of the 100 and 200-day EMA has slowed down significantly, which is a bearish sign. The daily RSI is in bearish territory.
These technical factors are indicating the bearish momentum in the stock. Talking about levels, the zone of 2870-2850 is likely to act as crucial support for the stock as prior swing low and 200-day EMA are placed in that region. While, on the upside, the resistance is shifted lower in the zone of 3020-3040 level.
Do you have any view on the much-hyped stock Zomato?
The stock has marked a low of 146 on June 04, 2024 and thereafter it has witnessed a sharp upside rally of over 90 percent in just 51-trading sessions. However, after registering the high of 280.90, the stock has witnessed a minor throwback. Interestingly, during the period of throwback the volume activity was mostly below average, which indicates routine decline after a sharp upside rally.
The throwback was halted near 240 level and stock has started witnessing bullish momentum along with robust volume. Since the last two trading sessions, it has strongly outperformed frontline indices. Hence, we believe, as long as it is trading above the level of 240 it is likely to continue its upward journey and test the level of 280, followed by 290 in the short-term.
Do you suggest any broader sectors to watch out for?
Technically, Nifty Healthcare, Nifty Pharma, Nifty IT and Nifty Consumer Durable are likely to outperform the frontline indices. Apart from this, Paint stocks are likely to outperform in the short-term.
While, on the flip side, Nifty CPSE, Nifty PSU Bank, Nifty Private Bank, Nifty PSE and Nifty Auto are likely to underperform in the short-term.
Any stocks to play within those sectors?
The stock like Asian Paint, Berger Paint, Akzo Nobel India, Tata Technologies, PI Industries, Syngene arr looks good for short-term.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)