F&O Talk | Pullback rally to 100 DEMA likely in Nifty, bulls may eye 24,550 level: Sudeep Shah of SBI Securities

Indian markets rallied on Friday, snapping a five-day losing streak, with tech and banking stocks leading the charge. Companies across the IT, banking and auto sectors benefited on the day, helping markets reclaim key levels in a broad-based rally.

The benchmark Nifty 50 rose to 23,907.25, while the Sensex touched 79,117, showing a strong reversal from recent losses.

Analyst Sudeep Shah, Deputy Vice President and Head of Technical and Derivatives Research, SBI Securities, spoke to ET Markets, sharing his outlook on Indian markets. Following is an edited excerpt from their chat:

Nifty is now above its 200 DMA. What is the short-term outlook on the index?

From its all-time high of 26277, the benchmark index Nifty tumbled over 11% in just 36 trading sessions, experiencing a swift and sharp correction. However, Thursday brought a ray of hope as the index found solid support near the 61.8% Fibonacci retracement level of its previous rally (21281–26277) and bounced smartly.

In technical parlance, the 61.8 percent Fibonacci retracement level, known as the “golden ratio,” often serves as a key turning point, sparking optimism for a potential trend reversal. With this pullback rally, the index has bounced above its 200-day EMA level. Also, the daily RSI has given a bullish crossover. Now, the million-dollar question is, is it just a retracement or a reversal? We think the pullback rally is likely to continue for the next two trading sessions.

Do you see any critical support in Nifty that can bounce back?

Talking about critical levels, on the downside, the zone of 23,500-23,450 will act as an immediate support for the index. As long as the index trades above the 23450 level, it is likely to continue its pullback rally to the 100-day EMA level, which is currently at the 24,323 level. Above 24,350, Nifty may witness further strength till 24,550 level.

While, on the downside, any sustained move below the 23.450 level would resume its southward journey. In that case, it is likely to test 22,800 then 23150 level in short term.

Looking at options data, do you see a bounce in Nifty before the next range starts? Does the index indicate any improvement?

Talking about the Nifty option chain, there is a significant concentration of call open interest at the 24000 strike, followed by the 24,200 strike. While significant open interest on the put side is seen at the 23800 strike, followed by the 23,700 strike. According to the straddle cost of the ATM strike, the range for the next two trading sessions will be 24,252-23496 levels.

Bank Nifty looks better compared to Nifty. It was able to take support at the crucial 200 DEMA and is placed in its support zone. Do you think a surge is possible? Or do you see a consolidation or maybe even a downtrend?

The banking benchmark index, Bank Nifty, has strongly outperformed the Frontline index in the last five trading sessions. Notably, on Thursday, the index found solid support near its 200-day EMA, triggering a sharp upside rally. By the end of the week, it registered an increase of about 2%.

An interesting observation is that during the recent correction, the daily RSI of the index remained consistently above the 40 mark. This resilience indicates that the Bank Nifty remains firmly in bullish territory as per RSI range shift rules.

Hence, we think the Bank Nifty is likely to continue its outperformance in the short term. Talking about the levels, the zone of 51400-51500 will act as an immediate barrier for the index. Any sustained move above the 51500 level would lead to a sharp upside to the 51,900 level, followed by 52,400 in the short term. Whereas, on the downside, the 50,600-50,500 zone will act as an immediate support for the index.

Considering Bank Nifty is doing quite well, any stocks from the index?

Federal Bank has been strongly outperforming the frontline index over the last two trading sessions. It marked a fresh all-time high on Thursday. Most notably, the stock is moving higher with relatively high volume, indicating strong buying interest from market participants. The ratio chart of the stock against the Nifty has given a consolidation breakout, which is a bullish signal.

As the stock is trading at all-time highs, all moving averages and momentum-based indicators indicate strong bullish momentum in the stock. The daily RSI is in bullish territory, and is in rising mode.

Hence, we Rs. We recommend the stock to consolidate in the zone of 210-208 levels with a stop loss of 202. On the upside, it is likely to test 230 then 220 levels in the short term.

With drag indicators, do you see any areas for traders to hide?

We think traders should look for opportunities in the nifty IT space. It has given a downward-sloping trendline breakout on a daily basis. The ratio chart of the Nifty IT index is at a 128-week high compared to the Nifty, indicating continued outperformance. Momentum indicators and oscillators also indicate strong bullish momentum in the index.

Talking about levels, the index is likely to test 44800 then 44000 level in short term. Whereas, on the downside, the zone of 42600-42500 will act as an immediate support for the index.

As for Indian Hotels, he gave a promising commentary on the company’s strategy. It is one of the stocks showing strength, even trading at its all-time highs. Any positions?

Indian Hotels has been strongly outperforming the frontline index for the past two trading sessions. During the week, it marked a fresh all-time high for three consecutive trading sessions. Most notably, during this outperforming phase, volume activity is often above average, indicating strong participation by market participants.

Momentum indicators and oscillators also indicate strong bullish momentum in the stock. So, we believe that in the medium term it will be Rs. It is likely to test 850 and then 870 levels. While on the downside, the zone of 760-750 is likely to provide a cushion in case of an immediate decline.

Have you seen any other stocks showing strength in a weak market? If yes, any strategies or recommendations?

HCLTECH: The stock is strongly outperforming the frontline indices, and is moving higher on relatively high volume. Interestingly, the daily RSI has given a downward-sloping trendline breakout, indicating that bullish momentum is increasing. Hence, we Rs. 1,900-1,880 in the zone of Rs. Recommend stock accumulation with stop loss of 1820. On the upside, it is Rs. 2,000 level, followed by Rs. 2,050.

(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)