The relative strength index (RSI) on the Nifty50 daily chart has formed a negative divergence, but a new high cannot be ruled out on a sustained trade above 11,680.
Recent rallies have been in the largecap stocks and are limited to the Nifty-50 Index stocks, which clearly tells us about the flavour of the rally, Aditya Agarwala, Senior Manager, Technical Analysis at YES Securities Ltd, said in an interview with Moneycontrol’s Kshitij Anand.
Q) We are seeing some tiredness at higher levels both for Nifty and Nifty bank? Can we say that we have made an intermediate top? If not, what is the level to watch out for?
A) Both Nifty50 and Bank-Nifty have witnessed a minor correction or profit booking from recent highs. However, there is no significant evidence from various indicators and price patterns that suggests that an intermediate top has been formed.
The relative strength index (RSI) on the Nifty50 daily chart though has formed a negative divergence, but a new high cannot be ruled out on a sustained trade above 11,680.
Above 11680, the index can test levels of 11,885. Only a close below 11,540 will halt the current bull momentum and confirm a temporary high.
Similarly, Bank Nifty has a possibility of making a new high, as suggested by the RSI which has formed a positive reversal on the daily chart.
Positive reversal is formed when the RSI makes a lower low and the price makes a higher low, implying that the index has cooled off from overbought zone while the price action remains strong.
A positive reversal signal also gives out targets, and the target of Bank Nifty comes to 31,300. A close below 29,160 would terminate this bullish stance.
Q) Are there any specific trends which you are spotting in markets in terms of stocks or sectors?
A) The Nifty IT and the Auto Index seem to be bottoming out and start their respective uptrends. The IT Index is on the verge of a breakout from a Cup & Handle pattern neckline which is placed at 16,090.
A breakout above this resistance of 16,900 can lead to new highs in the index. Stocks that look attractive on charts within the IT space are Infosys, HCL Technologies and Tata Elxsi.
Auto Index has completed its 5-wave corrective move and is currently on the verge of a breakout from a falling wedge pattern neckline placed between the 8,650-8,700 zone. A successful breakout can trigger the start of a fresh bull run.
Stocks that look attractive on charts within the auto Index are Maruti Suzuki India, HeroMoto Corp, and Eicher Motors.
Q) Nifty might have hit a fresh record high, but the Smallcap index is down more than 20% from its high while mid-caps are down by over 10%. What does it say about the strength of the rally? Can we say it is hope-based?
A) Recent rallies have been in the largecap stocks and are limited to the Nifty-50 Index stocks. This clearly tells us about the flavour of the rally.
Barring Banks, select NBFC’s and Metals, nothing has really moved higher to make a new 52-week high. Though some of the Midcap and Smallcap stocks have witnessed fresh buying interest, but the Index continues to underperform.
Technically, if the Midcap Index trades above 18,500, it can see a sharp upside. If the Smallcap Index trades above 6,800, it can see significant gains in the coming months.
Moreover, it is seen from the past data that, post general elections, midcap and smallcap stocks and Indices rally and outperform.
Q) How are the stocks looking on charts which have hit fresh a 52-week high this week, including names like Bajaj Finance, Bajaj Finserv, Godrej Properties, HDFC, Pidilite Industries, etc. among others?
A) Bajaj Finance: Uptrend still looks strong on charts and can hit levels of 3,400 in the coming sessions.
Bajaj Finserv – Limited upside can be seen to levels of 7,660.
Godrej Properties – Bull trend is strong, and the stock can test levels of 1,045-1,200 in the coming trading sessions. Moreover, during election years, the real estate sector and stocks outperform the headline Indices.
HDFC - The stock has broken out from its previous peak of 2,050, making fresh all-time highs. It can test levels of 2,135-2,200.
Pidilite Industries: The stock has broken out from an inverted Head & Shoulders pattern neckline placed at 1,200.
However, the post-breakout stock is approaching an extremely overbought zone on a shorter time frame chart. This suggests limited upside from current levels. It can test levels of 1,315-1,350. A correction to levels of 1,250-1,230 will make it an attractive medium-term buy again
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