72% of Nifty stocks nearing or in overbought zone: Anand James

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Chief Market Strategist Anand James

About 72% of Nifty50 stocks are either nearing or in the overbought region, with IT, Auto and Banks being the top 3 sectors by weightage in Nifty that are overbought, says Anand James, Chief Market Strategist at Geojit Financial Services.

“However, overbought signals seldom signal a reversal in a trending market, as much as they do in a sideways market,” he says. Edited excerpts:

  • Nifty has now been scaling new peaks every other day. Are the charts giving overbought signs?

It is true that 72% of the Nifty50 stocks are either nearing or in the overbought region, with IT, Auto and Banks being the top 3 sectors by weightage in Nifty that are overbought. However, overbought signals seldom signal a reversal in a trending market, as much as they do in a sideways market. Further, despite Friday’s sharp fall in Nifty, broader market has not been troubled as much, with only 38% of NSE500 stocks slipping below Thursday’s low, suggesting that a sell off may be ruled out.

  • PNB was among the top performers with an upside of around 15%. What would be your trading strategy in the stock?

PNB has set off on a multi month upside with 75 as a near term objective, but we feel that recent rallies may have rendered present levels a difficult entry point. We would rather see dips below 55 before considering re entry.

  • PSU banks were a major positive surprise during the week. How do you read the rally and are there any stocks that have further steam left?

Bankbaroda, Canbk, PNB and Unionbank which forms 80% of the PSU Bank Index led the index higher this week. That said, we continue to remain positive on the sector, with follow through buying expected in Union Bank and Indian bank.

  • TCS and HCL Tech are going to announce their June quarter numbers of July 12. What should be the trading strategy ahead of the results?

TCS is at the upper band of a four month trading range, and with momentum in favour of upsides, we may fancy a stride into the 3400-3550 band, sustainability is doubted, given the lack of continuation patterns. HCL Tech meanwhile has had two days of set backs, hinting at a correction after a scorching uptrend. However we are more positive on the stock, hoping to see 1300, as long as 1100 holds, and hence a “buy on decline” approach may be preferable.

  • Eicher Motors was the top loser during the week within the BSE500 pack. Does the chart indicate more selling ahead?
  • We feel that the recent sell off is overdone, and due a pull back. At 3185, the stock has retraced 61.8% of the recent uptrend, thus providing an ideal launch pad for a recovery rally. Alternatively, slippage past 3185 would confirm that this downtrend is fulfilling the full objective of the H&S pattern identified at the top, and collapse past 3080 is less expected.
  • Share 3-4 stocks that you would recommend a sell on at this stage. (Technical rationale, target, SL)

DATAMATICS (CMP: 617)

View: Buy

Entry range: 599 – 617

Target: 650 – 690

Stoploss: 580

The stock has been on an upmove since April 2023 and is looking positive on daily charts as the stock looks enroute its projected trendline resistance of 690. Also, with the MACD breaking above the signal line, we expect the stock to continue with its momentum and move towards 650 and thereafter 690 levels in the next two to three weeks. All longs may be protected with stoploss placed below 580. A buy on dips approach may be adopted given the recent upside in the stock price.

ALLCARGO (CMP: 286)

View: Buy

Entry range: 278 – 286

Target: 299 – 320

Stoploss: 270

The stock has been trading within a rising trend channel in monthly time frame and is currently consolidating around the channel support of 275-280 region. MACD forest has shown signs of exhaustion at lower levels indicating that the situation is ripening up for a bounce back towards the monthly channel resistance of 430 in the medium term. However, we will keep a conservative target of 299-320 to be seen in the next two to three weeks. All longs may be protected with stoploss placed below 270 levels.

First published in The Economic Times

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