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Nifty: Nifty needs to cross its peak to gain momentum: Analysts


Momentum indicators are showing overbought signs after the recent run-up in indices. The Nifty is likely to decline to 18,900-19,000 in the coming days, according to technical analysts. They suggest a ‘sell on rise’ approach till the Nifty reclaims its peak of 19,523. Hero Motocorp, ICICI Bank, PVR, Sunteck, Jamna Auto, Orient Electric, and Granules India are some of the stocks suggested for long-position trading.


Where is Nifty headed this week?
Nifty had a strong 800-point rally in the last eight trading sessions, making an all-time high of 19,523. In the shorter time frame, momentum indicators show overbought signs, and FII index long positions have also reached 73%. There is a possibility of profit booking from the current levels as global markets show signs of reversal. Short-term traders can take short position at the current level as the index can give a throwback to the breakout zone of 18,900- 19,000 levels in coming days. Traders who want to trade on the long side can wait for this dip and enter near the 18,900 zone. Bank Nifty can also dip to 44,000-43,700 levels.

What should investors do?
Traders can look to enter longshort pair trade. Eicher can be added from the auto sector on the short side, while Hero Motocorp on the long side. From banking sector, Bandhan Bank is on the short side, while ICICI Bank is on the long side. For long-only traders, PVR has made a strong base near Rs 1,350 level and is now heading for Rs 1,550-1,600. Sunteck has given a strong reversal on weekly chart, and any dip towards `310 is a buying opportunity for upside targets of Rs 400-450.


Where is Nifty headed this week?
Profit booking during last week’s final session resulted in a ‘Shooting Star’ candlestick pattern on the weekly scale of Nifty spot. The pattern has a reversal nature. Also, till Thursday, the long-to-short ratio of FIIs in index futures was around 73%. In the last couple of years, we have witnessed a top formation in the markets whenever this ratio reached near 75%, indicating overbought positioning of FIIs. In addition, a close below 19,000 might activate a bearish Wolfe Wave on weekly charts this week. Thus, we have a ‘Sell on Rise’ approach till the time the peak of 19,523 is reclaimed. On the downside, initial support is at 19,000, followed by 18,650. As of now, this seems to be a routine corrective move, but the long-to-short ratio data might prove to be the beginning of the end for this euphoria.

What should investors do?
Apart from a few stocks like PVR and Jamna Auto, which look poised to outperform, traders should refrain from aggressive bets on the long side. The index has rallied over 2,500 points without any meaningful correction, and this should not be taken on a lighter note. Traders might get attracted to the long ideas on the initial supports, but this time the supports might be broken, and a correction can be a bit painful, specifically in the broader markets.


Where is Nifty headed this week?
The weekly chart shows a small bullish candle with a slightly larger upper shadow, indicating tentativeness at higher levels following the recent surge. Despite this, we believe the bull run is likely to continue, marking the start of a major upward movement. However, the momentum on the upside may not match the intensity of the past couple of weeks. Immediate support is around 19,200, where a bullish gap was left last week, while the major breakout levels around 19,000-18,900 serve as a strong foundation. As the prices are currently in uncharted territory, it is challenging to identify resistance zones. 19,500- 196,00 appears to be an immediate hurdle for the anticipated consolidation.

What should investors do?
Considering the overbought conditions, we may witness a period of consolidation in the coming week, during which dips could be seen as buying opportunities. On the other hand, it is advisable to secure profits at higher levels and avoid complacency until the indicators exit the overbought territory. We like Orient Electric at this juncture for a target of Rs 270 with a stop loss of Rs 242. Stock has broken out on the daily chart and is poised for a good move soon. Also, Granules India has given a massive price-volume breakout on Friday. It can be bought for a target of Rs 328 with a stop loss of Rs 297.


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