The 50-component index Nifty 50 as well as the Sensex closed around 1.2% lower today. The former fell 293 points to close at 24,852 while the latter shed 1,017 points to close at 81,184.
Analyst Sudeep Shah, Deputy Vice President and Head of Technical and Derivatives Research, SBI Securities spoke to ET Markets about the outlook on Nifty and Bank Nifty. Following is an edited excerpt from their chat:
Nifty still looks in good shape but facing some resistance at its all-time highs. On the weekly chart, it is still above all MAs. But still, the index is also down since last two sessions. Do you suggest any caution here or would a “buying the dips” approach be beneficial?
Yes, we recommend taking a cautious approach for now. During the past week, the benchmark index Nifty has marked a new all-time high of 25,333. However, it failed to sustain the highs and subsequent profit booking was seen. This resulted in the formation of a bearish engulfing candlestick pattern on a weekly basis. A bearish engulfing is a reversal candlestick pattern, which usually occurs at the end of an uptrend.
With this bearish formation, the index has slipped below its 20-day EMA level for the first time since August 16. The daily RSI and Stochastic have given a bearish crossover, indicating limited upside. Most notably, among the constituents of the Nifty index, 56% stocks are trading above their 20-day EMA levels. Last week, 80 percent of stocks were trading above their 20-day EMA levels. This clearly shows that the mark width has weakened significantly compared to the previous week.
Talking about the levels, the zone of 24,500-24,400 will act as a crucial support for the index as it is the confluence of the 50-day EMA and the 61.8% Fibonacci retracement level of its previous rally above (23,894-25,334). If the index slips below the level of 24,400, the next support is placed in the zone of 24,100-24,050 levels. While, on the upside, the resistance moved lower in the 25,050-25,100 level zone.
September, as it is said, has not been a good month for global markets. Do you foresee any events that could make this true again for our market? Or do you think our market will be ready to break this record like its previous record of closing at a new high for 13 consecutive days?
Tracking seasonality over the past 17 years, the month of September has seen a mixed trend for the Nifty. On 9 occasions, the index has ended 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, the average return for the Nifty for the September series has been 2.32%.
Given this trend, we believe that September is likely to show a mixed trend. However, instead of predicting price, we should focus on key levels. For the next two trading sessions, the zone of 24500-24400 will act as a crucial support for the index as it is the confluence of the 50-day EMA and 61.8% Fibonacci retracement level of its previous upward rally (23,894-25,334).
What insights do you get from the current PCR data on Nifty?
On Thursday, the Open Interest Put-Call Ratio (OI PCR) was 0.97, but on Friday it saw a sharp decline to 0.62. This significant decline is a clear indication of heavy call writing activity, especially in strikes of 25000 and above. Aggressive call writing indicates that market participants are positioning the Nifty to trade with a negative bias in the coming sessions.
A significant build-up of calls on the higher strike also indicates that traders are confident that the market is unlikely to breach the 25000 level in the short term, reinforcing the expectation of limited upside potential.
Bank Nifty was also picking up some momentum trying to break above 50 DEMA. However, it also broke below its short-term EMA yesterday. What is your take on the index now?
On Friday, Bank Nifty slipped below its 20 and 50-day EMA levels. This average started to move lower, which is a sign of recession. Most notably, during the recent pullback, the daily RSI has failed to cross the 60 mark and has subsequently seen a sharp decline. This clearly shows that the range has shifted into the bearish zone as per the RSI range shift rules.
Going forward, the 100-day EMA zone of 50200-50100 will act as immediate support for the index. Any sustained move below the 50100 level 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 barrier for the index.
Can you help traders understand how to read FII-DII data to their advantage?
Traders can leverage FII-DII data to gauge market sentiment. FII inflows mostly indicate a bullish trend, while outflows indicate caution. DIIs generally operate counter-cyclically, providing stability when FIIs sell. By analyzing daily trends and combining them with technical indicators, traders can make informed decisions on market direction.
Sector wise, Nifty Pharma, FMCG and Consumer Durables are at their ATH. Do you think these are the themes to play?
In our view, stock-specific action is likely to continue in the short-term across pharma, healthcare, IT, FMCG and consumer durables. Apart from this, some boom is being seen in the paint sector.
If yes, any stocks to keep on the radar?
We believe Asian Paints, Berger Paints, Marico and Coforge are likely to outperform in the short term.
Again talking about indices, midcap 100 index is also up. Do you see any safe bets for traders in that space?
The Nifty Midcap has formed a bearish engulfing candlestick pattern on weekly basis, 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 position. Tata Technologies has breakout of falling wedge pattern on weekly basis with strong volume. While PI Industries, Coforge and Syngene have given a horizontal trendline breakout on a weekly basis.
On Thursday, the index was dragged down by heavyweight Reliance. Despite its bonus issue announcement, the stock fell 1.4%. Given that the stock is still in an uptrend on the monthly chart, what is your technical view on the counter? Is it likely to test its 10 period EMA and then set 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 levels. The 20 and 50-day EMAs have started to edge lower. The rising slope of the 100 and 200-day EMAs has slowed significantly, a bearish sign. The daily RSI is in bearish territory.
These technical factors indicate bearish momentum in the stock. Talking about the levels, the zone of 2870-2850 is likely to act as a crucial support for the stock as the previous swing low and 200-day EMA are placed in that region. While, on the upside, the resistance is moved lower in the 3020-3040 level zone.
Do you have an opinion about the popular stock Zomato?
The stock had marked a low of 146 on June 04, 2024 and has since seen a sharp jump of over 90 percent in just 51-trading sessions. However, after hitting a high of 280.90, the stock has seen a marginal decline. Interestingly, volume activity during the throwback period was mostly below average, indicating a regular decline after a sharp upside rally.
The throwback was stalled near the 240 level and the stock has started seeing bullish momentum with strong volume. Over the last two trading sessions, it has strongly outperformed the frontline indices. Hence, we believe that till it trades above the 240 level, it is likely to continue its upward journey and test the 280 level, followed by 290 in the short term.
Do you suggest any broad areas to watch out for?
Technically, Nifty Healthcare, Nifty Pharma, Nifty IT and Nifty Consumer Durables are likely to outperform Frontline Index. Apart from this, paint stocks are likely to outperform in the short term.
While, on the other hand, 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 in those areas?
Stocks like Asian Paint, Berger Paint, Akzo Nobel India, Tata Technologies, PI Industries, Syngene arr look good for short term.
(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)
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