Small & Midcap index could see further 3-4% corrections in coming weeks: Axis Securities

If the market in its own wisdom decides to breach 9900 level then major support appears to be in the zone of 9736 – 9685 levels, Rajesh Palviya, Head – Technical & Derivatives Analyst, Axis Securities, said in an interview to Moneycontrol's Kshitij Anand.

Q) It was a volatile week for Indian markets and a lot must have changed on the charts. The Nifty re-visited its crucial 200-DEMA and 10,000 level for the first time since October 2017. Do you see further pain in the market for the coming week?

A) Since the last few trading sessions, Nifty was trying to hold on to its 200-DSMA (10174) and 200-DEMA (10115) level, but the US Trade war announcement spooked the market.

The Nifty50 decisively gave a break down from its important support level of 200-DEMA and 10000 level on the weekly closing basis.

The Nifty Banks were already trading below to its 200-DMA since last 3 weeks and witnessed selling on every pullback action. If Nifty remains below 10070-10100 levels then we may see more selling pressure towards 9940-9750 level in the coming weeks.

Q) How are FIIs positioned in the market? Do you think the Fed rate hike and fears of trade war could push them to change their stance towards Indian markets?

A) The US Fed Rate hike was in-line with expectations and the stance too wasn't hawkish. While the US Fed signaled two more hikes for CY18 and two each in CY19 and CY20, this will not hurt much of the FII flows from India.

However, a bigger worry that could spook markets and FIIs, in particular, is the fear of trade war escalation. This could lead to pulling out money from most emerging markets including India.

Q) What should be the ideal strategy for mid & small caps which are underperforming benchmark indices by a wide margin?

A) If we look at the BSE Midcap and Smallcap index both are trading below its 200-DMA since the last few days which indicates we may see further downside in the near term.

Both the index are forming a lower top and lower bottom formations on the daily charts indicating weakness ahead. So one should avoid mid and small caps at the current juncture. We may witness another 3-4 percent correction in coming weeks.

Q) What should be the strategy -- buy on dips or sell on rallies in the coming week?

A) On the weekly chart, the index has formed a long bearish candle forming lower High-Low compared to the previous week and has closed below its low indicating weakness at current levels.

The Nifty continues to sustain below its one year “Down Sloping Trendline” support zone of 10300 levels which signals bearish sentiments. If Nifty crosses and sustains above 10030 level it would witness some pullback rally which would lead the index towards 10100-10250 levels.

However, if index breaks below 9950 level it would witness accelerated selling which would take the index towards 9900-9750 levels. So, selling on rallies continues to be our preferred strategy. For the week, we expect Nifty to trade in the range of 10150-9800 with a negative bias.

Q) Top 3-5 stocks which are looking attractive at current levels based on technical?

A) Here is a list of top three stock which could give up to 10% return in short term:

Marico: CMP: Rs 327 | BUY | Target: Rs 355| Stop loss: Rs 310| Return: 8%

For the week, Marico has witnessed bounce back from Rs 300 level which is a multi-week support for the stock. Another prominent observation on the price chart of Marico is that the entire consolidation underway since Jan 2018 till date has formed a down-sloping trend line.

The breakout of this trend line is witnessed at Rs 311 level on the weekly chart. The stock is sustaining above its 20-days moving average which supports bullish sentiments ahead.

On the volumes front, the stock has witnessed significant rise around breakout level indicating increased participation on the rally.

Both weekly and monthly strength indicator RSI along with the momentum indicator Stochastic are in bullish territory and sustaining above their reference lines which signals strength and upward momentum in price. Thus, taking into consideration the above factors, the maximum upside can be expected to Rs 350-355.

Titan Company Ltd: BUY | CMP: Rs 895 | Target: Rs 960| Stop loss: Rs 850 | Return: 7%

Titan Company is in an uptrend across all the time frames forming higher top - higher bottom formation. Since Jan 2018, the stock was in major consolidation mode within Rs 890-790 band on the weekly chart.

It gave a breakout at Rs 890 levels and is sustaining above the same. The stock is also sustaining above its 20, 50 and 100 SMA which supports bullish sentiments ahead.

Both daily & weekly strength indicator RSI along with the momentum indicator Stochastic are in bullish territory and sustaining above their reference lines which signals strength and upward momentum in price. Thus, taking into consideration the above factors, the maximum upside can be expected to Rs 960-975.

GE Power India Ltd: BUY | CMP: Rs 860| Target: Rs 945 | Stop loss: Rs 825 | Return: 10%

Since February 2018, the stock was in major consolidation mode within Rs 860-800 band on the daily chart. It has also formed Hammer like candlestick formation on the weekly chart indicating buying support at lower levels.

The stock is sustaining above its 20-days moving average which supports bullish sentiments ahead. On the volumes front, the stock has witnessed significant rise around breakout level indicating increased participation on the rally.

The daily strength indicator RSI along with the momentum indicator Stochastic are in bullish territory and sustaining above their reference lines which signals strength and upward momentum in price. Thus, taking into consideration the above factors, the maximum upside can be expected to Rs 930-945.