19,840 critical resistance in near term; Nifty could end up going back to 19,400: Rohit Srivastava

Rohit Srivastava, Founder & Market Strategist, Indiacharts.com, says that in the long term, he would still be bullish on the realty sector. “But near term, I would like to step back, wait for it to pull back to where we can assess where the entry points are. So, from a trading or investment perspective we would have very different views on what is going on. Three years is great but over one week, ten days, one month, it is time to be a little careful.”


Nifty seems to be struggling to hold on to 19,800 level. From day’s high of 19,820, we have come down to around 19,760. How are you viewing the Nifty chart currently?
My sense is that if we are not able to get past 19,840 – the high from which the market had fallen in October – it is going to be a critical resistance in the near term. If we fail to cross it and break around 19,680, it would be a sign that the short-term trend has turned down and we do see further selling and possibly going back to 19,400 or something like that. We do have some early indications of that specifically coming from some of the other sector indices to mention to Bank Nifty and Smallcap Index, both of which are lead indications that Nifty will possibly give up and head to those lower levels. We are looking for Nifty to confirm what the other indices are already showing us.

When it comes to sector specific, we are seeing some profit booking in Nifty Realty, which has been the top sectoral gainer on a YTD basis. How do you see the Nifty Realty chart over the long term?
Long term would mean thinking like one to two years in which time horizon I would still be bullish on the realty sector. But near term, I would like to step back, wait for it to pull back to where we can assess where the entry points are. So, from a trading or investment perspective we would have very different views on what is going on. Three years is great but over one week, ten days, one month, it is time to be a little careful.

We were looking at the Nifty to Nifty Smallcap Index ratio and we saw that the ratio has just managed to creep above the pre-Covid level currently. Earlier it used to trade at a much higher level. So, have you looked at that chart? How do you see that trend pan out? The rally in Nifty Smallcap is just halfway currently. How are you seeing the Nifty Smallcap Index?
I do look at the ratio charts, specifically the midcap to Nifty to understand where the segment is and the smallcaps have actually done much better this time around. However, in the last three days, the new highs that were made by the Smallcap Index were not confirmed by the Nifty and now that the Smallcap Index is giving up and leading on the way down, we are left behind with what we call a negative inter-market divergence on a two-month basis which is medium-term slightly bearish.

So, the new highs that we have seen in the Smallcap Index have essentially not been confirmed by the Nifty. We look at that as a negative medium-term divergence. It indicates that possibly we could get a top that has lasting value for several weeks or months to come and I think that is not a very good sign that new highs in the small and midcaps were not confirmed by the Nifty.

Having said that, the smallcap index also reached the top end of its weekly band and by band, I mean the Bollinger Bands which are essentially two standard deviations from the 20-day average and that is where the selling pressure has come in from. I would be pretty wary now. The Smallcap Index rally for the time being is over. Till we clearly see the momentum pick up again, we should be booking gains here, reducing our holdings, creating in fact cash so that we can actually buy when these stocks come down to lower levels, that would be the approach with smallcaps because of this divergence.

What is interesting today is shaping up of those spinning mill names; something like Nitin Spinners, Nahar Spinning. Obviously on the mid to smallcap companies, Vardhman Textiles can be compared as well. Is anything interesting coming from a trend in these players?
I am not so sure. It is not a sector that I have been very focussed on to really comment on the bigger trend for this particular segment because what I have really focussed on is what the main indices are doing and then drilling down more a top-down approach and these could be late movers because every time if I say that the Smallcap Index is moving down, there are going be some stocks that are still completing some final moves, this could be probably one of those things happening. So right now, I would be more concerned about what the key indicators are showing. I do not have a particular view on the sector itself.