Anand James: After a 25% rally in August, it’s time to book profits in CDSL stock

Edited excerpts from a chat:

Do you think the current momentum of the Nifty can take it to all-time high levels in the week ahead of the monthly expiry?
We believe momentum has slowed, with the DMI and ADX moving directional indicators declining. A pick-up in momentum encouraged us to maintain the uptrend last week, although we had spotted several resistances that stalled the ascent. This week, we started with those hopes tempered, with standard deviation studies pointing to a possible rise in the VIX, a sign of which we also saw on Friday, where the VIX closed 4.25% higher despite a positive close in Nifty. There are no signs of a breakdown either, but we expect a lack of premium expansion as well as a slowness in the ascent, which will surely limit the style of options and equity traders respectively. We had entered last week with bullish expectations capped at 24,975, and we are still missing signs of an explosive uptrend. The favored view sees a fair chance of a spike above 25k, or a spike to 25,365, neither of which are expected to hold. The bearish marker for the week can now be pushed higher to 24,530.How would you approach trading Nifty Bank towards the end of the August series? Can it outperform Nifty this time?
Even though Nifty Bank closed lower on Friday, there are reasons to believe that the index will outperform Nifty next week. This is because while 64% and 76% of the stocks in Nifty 500 and Nifty 50 are now trading above the 20-day simple moving average (SMA), only 50% of the Nifty Bank constituents are trading above this key moving average, suggesting that the possibility of a tailwind is higher in Nifty Bank. We will maintain this view with a bearish marker placed near 50600, but upsides may be limited to 51800. Metals were one of the biggest gainers of the week. Do you see any chances of some consolidation going forward?
Nifty Metal has rebounded this week from the broadening wedge pattern support of 8800. The stock is trading well above its 50-week and 100-week moving averages, suggesting strength. The average RSI of the major continues to hold strong above 50, suggesting further upside room. We continue to maintain our targets of 9750/9970 in the coming weeks and such a move could be led by stocks like JSW Steel, Tata Steel, Hindalco, NMDC, Vedanta and Jindal Steel.

RIL’s big annual general meeting is due to take place on August 29. Increased volatility is expected, but do you also see renewed buying interest in the stock in the run-up to the annual general meeting?
Reliance Futures has been adding to short positions since the beginning of this expiry. However, since the latter part of last week, we have seen short covering on most days and fresh long positions on Friday, with open interest up by around 1.6% for the first time since the 14th. However, the open interest picture on the options side tells a different story. OTM CE options up to 3100 show addition of short positions and ITM CE options up to 2900 show profit-taking. Also, ATM options (CE and PE) have seen selling, which could be related to traders opening short positions ahead of the Annual General Meeting next week. This is a sign of limited positivity in the stock as well as an expectation of declining volatility.

CDSL shares were one of the biggest gainers during the week. Once the euphoria surrounding the bond issue subsides, do you think there will be consolidation in the future?
While patterns point to the uptrend continuing in the long run, the current euphoria is very likely to be followed by a wave of profit-taking, as evidenced by the 50% of intraday gains being pared back from the peak. At the current pace, we would feel more comfortable buying the stock once it falls to the Rs 1440-1290 region.

Give us your best ideas for next week.

CONCOR (LTP: 990)

See: Buy

Target: 1095

Stop loss: 944

The stock has been moving inside a broadening wedge chart pattern on a weekly basis since September 2023 and this week it has bounced off the lower support of the pattern. Moreover, the MACD has shown signs of exhaustion at the lower level, suggesting a reversal. We expect the stock to move towards 1095 in the coming weeks. All long positions can be protected with a stop loss placed below 944.

Indian Hotel (LTP: 641)

See: Buy

Target: 710

Stop loss: 613

The stock has been moving inside an ascending trend channel since April 2024. Moreover, it has formed a symmetrical triangle chart pattern on the daily time frame and is close to breaking out of the pattern to the upside. The MACD has broken above the signal line and the RSI is holding strong above 55. We expect the stock to move towards 710 in the near term. All long positions can be protected with a stop loss placed below 613.