Edited excerpts from a chat:
Friday’s session changed the trajectory for Nifty bulls. What do the charts look like for the week ahead?
While we have had 25800 as a floating target through the last fortnight, the urgency with which it was achieved on Friday, prompted us to check if the broader market was responding with equal vigour. While we found that Nifty Small cap 100 index rose almost as much Nifty during the run up to 25800 early in the day, with a lag of not more than 10 to 15 basis points, the lag expanded to almost 50 bps after that when Nifty dropped 200 points and recovered almost as much within no time. So, while it could be said that the broader market responded with reasonable vigour to the FTSE rebalancing, the volatility in the closing hours did bring in jitters, which explains the lag pointed out above between Nifty and smallcap indices. Another aspect we will be closely watching would be how Nifty futures would play in the next week as they had gone into discount, unable to keep up with sustained buying in some Nifty heavyweights. Ideally, this is a sign of large demand on the spot, willing us to consider the possibilities of 26,600 on Nifty. That said, how the discount will play out on Monday will guide us if we need to play upside with urgency or ignore Friday’s turn of events as part of index rebalancing.
How would you go about trading the monthly expiry in both Nifty and Nifty Bank?
Both have shown signs of urgency which is usually seen either at reversal points or points from where large uptrend takes off. Friday’s run has an obvious reason, but we need to see how much of it can be discounted, and how much of the momentum can be taken forward into the expiry week. While retail participants trimmed their long exposure in the index future segment by 2.5% their shorts were boosted by 25%. Even the short to long ratio fell only marginally to 0.5%. Meanwhile, FIIs boosted their longs in this segment by 23% to their highest this year, while reducing the short exposure by 18%, thus taking the long to short ratio of their index future positions to 75.9%. While this is an extreme, and it is usual to see reversals when FII positions reach extreme, the increase in OI lends a momentum that may weather the concerns of reversals. Rollover picture will get better in the next two days, by which time we will know if the extra positions will lend momentum or capsize the boat. Without doubt, let us brace for large moves in the expiry week in both the key indices.
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Nifty IT was among the top losers in the week. Do you see chances of a pullback?
Nifty IT Index has wiped off almost all of the gains of the previous week, but the Doji on Friday as well as exhaustion in bearishness as suggested by oscillators suggest that a recovery is due. Stocks like TCS, Infosys, HCL Tech, LTIMindtree and TechMahindra, which together form around 86%, could lead the recovery attempt.
BSE shares had a wonderful week amid expectations of NSE IPO. How safe is it to keep on riding the role?
Market’s resilience has also been giving additional legs to the run for sure, but we have certainly entered a region where risk reward has been unfavourable for the short term. Patterns haven’t run their course yet, but suggest an interim peak, which tired oscillators could act on. Brace for a rocky week ahead.
Vodafone Idea shares fell over 20% amid negative news flow. Do you see chances of the stock bouncing back?
Certainly the news flow appears to be the last nail on the coffin, as evidenced by the 20% fall on Thursday. However, Friday’s positive close does not agree with a stock that is doomed and hence cannot just be seen as a dead cat bounce. That said, while it may be tempting to average, assuming it is already in the portfolio, or dabble into single digit stock in a bull market, indicators have not yet begun to show reversals though. Remember, the pain from here on, may not be a long price, but a long time.
Give us your top ideas of the week
Stock – Mahindra Logistics
CMP – Rs 501
Target – Rs 540
Stoploss – Rs 480
The stock has been moving within a falling wedge chart pattern in the daily charts since July and eventually has broken out of the wedge pattern hinting at more upsides. Momentum indicators have turned around in daily as well as weekly time frames. It has also broken above the 100 and 50 DSMA adding to the positivity. We expect the stock to move towards 540 in the near term. Protect longs with stoploss placed below 480.
Stock – RVNL
CMP – Rs 544
Target – Rs 570
Stoploss – Rs 524
The stock has been in a correction since the beginning of this month and has seen a reversal today forming a Bullish Marubozu candle in the daily charts. Also, the MACD histogram has shown signs of exhaustion at lower level supporting a pull back. We expect the stock to move towards 570 in the next few weeks. All longs may be protected with stoploss placed below 524 levels.
