The 50-component index Nifty 50 and Sensex closed down nearly 1.2 per cent today. The former fell 293 points to close at 24,852, while the latter dropped 1,017 points to settle at 81,184.
Analyst Sudeep ShahDeputy Vice President and Head of Technical and Derivatives Research, SBI Securities He interacted with ET Markets regarding the outlook on Nifty and Nifty Bank The ongoing series. Below are edited excerpts from his talk:
The Nifty still seems to be well positioned but is facing some resistance at its all-time high. On the weekly chart, it is still above all the moving averages. But still, the index has been on a downtrend for the last two sessions as well. Do you suggest any caution in this regard or will the “buy on dips” stance be beneficial?
Yes, we recommend taking a cautious stance for now. Over the past week, the benchmark index Nifty marked a new all-time high of 25,333 points. However, it failed to sustain at higher levels and thereafter witnessed profit-taking. This resulted in the formation of a bearish engulfing candlestick pattern on a weekly scale. The bearish engulfing candlestick is a reversal candlestick pattern, which usually occurs at the end of an uptrend.
Along with this bearish formation, the index has fallen below its 20-day EMA level for the first time since August 16. The daily RSI and Stochastic have given a bearish crossover, indicating limited upside. Most notably, among the Nifty index constituents, 56 percent of the stocks are trading above their 20-day EMA level. Last week, 80 percent of the stocks were trading above their 20-day EMA level. This clearly indicates that the marked breadth has weakened significantly compared to the previous week.
As far as levels are concerned, the 24,500-24,400 zone will act as a crucial support for the index as it is the confluence of the 50-day EMA and the 61.8% Fibonacci retracement level of its previous bullish rally (23,894-25,334). If the index breaks below the 24,400 level, then the next support lies at the 24,100-24,050 zone. While on the upside, resistance has shifted to the downside at the 25,050-25,100 zone.
September, as they say, has not been a good month for markets globally. Do you foresee any developments that could cause this to happen again in our market? Or do you think our market may be ready to break this record just like its previous record of closing at new highs for 13 consecutive days?
Following the seasonality, over the last 17 years, the month of September has often shown a mixed trend for Nifty. On 9 occasions, the index has concluded on a positive note with an average gain of 6.83%, while on 8 occasions, it has ended on a negative note with an average loss of 2.75%. Overall, the average returns for the September series have been 2.32% for Nifty.
Based on this trend, we believe that September is likely to show a mixed trend. However, instead of predicting the price, we should focus on the key levels. Over the next few trading sessions, the 24,500-24,400 zone will act as a crucial support for the index as it is the confluence of the 50-day EMA and the 61.8% Fibonacci retracement level of its previous bullish rally (23,894-25,334).
What conclusions do you draw from the current PCR data on Nifty?
On Thursday, the put-call open interest ratio (PCR OI) stood at 0.97, but on Friday, there was a sharp decline to 0.62. This notable drop is a clear indication of intense call option writing activity, particularly at strikes of 25,000 and above. Aggressive call option writing suggests that market participants are positioning for the Nifty to trade with a negative bias in the coming sessions.
The significant accumulation of calls at higher strike prices also indicates that traders are confident that the market is unlikely to break above the 25,000 level in the near term, reinforcing the expectation of limited upside potential.
Bank Nifty was gaining some momentum, even attempting to break above the 50-day exponential moving average (DMA). However, it also fell below its short-term exponential moving averages (EMA) yesterday. What is your outlook on the index now?
On Friday, the Bank Nifty fell below its 20-day and 50-day EMA level. These averages started turning down which is a bearish signal. Most notably, during the recent pullback, the daily RSI failed to cross the 60-mark and thereafter, it saw a sharp decline. This clearly indicates that the range has shifted into the bearish zone as per the RSI range shifting rules.
Looking ahead, the 100-day EMA zone of 50200-50100 will act as an immediate support for the index. Any sustainable move below the 50100 level will generate further selling pressure on the index. In that case, it is likely to test the 49600 level, followed by 49100 in the near term. While on the upside, the 20-day EMA zone of 51050-51150 will act as an immediate hurdle for the index.
Can you help traders understand how to read FII-DII data to their advantage?
Traders can leverage FII-DII data to assess market sentimentIFI inflows typically indicate bullish trends, while outflows indicate caution. IFIs typically act countercyclically, offering stability when IFIs sell. By analyzing daily trends and combining them with technical indicators, traders can make informed decisions about the direction of the market.
Sector-wise, Nifty Pharma, FMCG and consumer durables are at all-time highs. Do you think these are the themes to watch?
We believe that the stock-specific action is likely to continue in the near term in the pharma, healthcare, IT, FMCG and consumer durables sectors. Apart from this, the paint sector is showing some bullish momentum.
If so, is there any action I should consider?
We believe Asian Paint, Berger Paint, Marico and Coforge are likely to outperform in the near term.
Back to indices, the Midcap 100 index is also up. Do you see any safe bets in that space for traders?
The Nifty Midcap has formed a bearish engulfing candlestick pattern on the weekly scale, which is a bearish signal. Moreover, it has fallen below its 20-day EMA level.
However, stocks like Tata Technologies, PI Industries, Coforge and Syngene are looking good in this space. Tata Technologies has given the breakout of the falling wedge pattern on a weekly scale along with solid volume, while PI Industries, Coforge and Syngene have given the breakout of the horizontal trend line on a weekly scale.
On Thursday, the index was dragged down by heavyweight Reliance. Despite its bond issue announcement, the stock fell 1.4%. What is your technical view on the stock market, given that the stock is still in an uptrend on the monthly chart? Is it likely to test its 10-period EMA and then be ready for a rally?
The short-term trend of the stock is bearish as it is trading below its 20-day, 50-day and 100-day EMA level. The 20-day and 50-day EMA have started turning down. The upward slope of the 100-day and 200-day EMA has slowed down significantly which is a bearish signal. The daily RSI is in the bearish territory.
These technical factors indicate bearish momentum in the stock. As far as levels are concerned, the 2870-2850 zone is likely to act as crucial support for the stock as the previous low and 200-day EMA lie in that region. While on the upside, resistance shifts down to the 3020-3040 level zone.
Do you have any opinion on Zomato’s much-hyped stock?
The stock marked a low of 146 on June 4, 2024, and thereafter, it has witnessed a strong bullish rally of over 90 percent in just 51 trading sessions. However, after recording the high of 280.90, the stock has seen a minor pullback. Interestingly, during the pullback period, the volume activity was mostly below average, indicating a routine decline after a strong bullish rally.
The pullback stopped near the 240 level and the stock started seeing bullish momentum along with solid volume. Since the last two trading sessions, it has been significantly outperforming the blue-chip indices. Therefore, we believe that as long as it trades above the 240 level, it is likely to continue its upward trajectory and test the 280 level, followed by 290 in the near term.
Do you have any suggestions for a broader sector to consider?
Technically, Nifty Healthcare, Nifty Pharma, Nifty IT and Nifty Consumer Durable are likely to outperform the blue-chip indices. Apart from this, Paint stocks are likely to outperform in the near term.
On the other hand, Nifty CPSE, Nifty PSU Bank, Nifty Private Bank, Nifty PSE and Nifty Auto are likely to underperform in the near term.
Are there stocks to trade within those sectors?
Stocks like Asian Paint, Berger Paint, Akzo Nobel India, Tata Technologies, PI Industries, Syngene and others look good in the near term.
(Disclaimer:The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of the Economic Times)
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