Even after Friday’s sharp surge, laregcap IT stocks are not yet in the overbought zone as gains in the last one year have been most visible among smallcap stocks, says Anand James, Chief Market Strategist, Geojit Financial Services. Among index stocks, we look forward to Infosys and Tech Mahindra, he says. Edited excerpts:
1) We are entering the earnings-heavy week with Nifty being at record high levels. How cautious should F&O traders be at this point?
The ongoing rise is exhilarating as well as worrying. Last year, three months of pain at the start of the year, was followed by nine months of joy, that has now spilled over into the new year. Hopefully the new year’s upmoves are all not done within this month or the next few. History suggests that an entry into the earning season with indices at new record peaks, or at month highs, presents a high chance of a monthly close in the red. That said, we may be riding on exceptions this month, as the santa rally looks to have passed on the baton to the election wave. However, while these two aspects have been propping up sentiments in the last fortnight or so, one of the critical underpinnings of the rally may have lost a step or two, with recent CPI readings from the US, prompting traders to reduce their bets on Fed’s rate cuts. With these in the background, we would like at 22240 and 22400 as likely objectives for the next fortnight, with 21790 as the downside marker.
2) Do you see signs of a stronger breakout in any of the IT stocks? Which ones look best avoided at this stage?
IT stocks were the major gainer this week, with most of the gains coming in towards the end of the week after Q3 earnings from Infy and TCS. Gains were contributed by TCS, Infy and HCLTech, which forms around 73% of BSE IT index. In the F&O space, TCS, Infy, Hcltech from Largecap and LTTS and Mphasis from Midcap space have seen Long buildup on a weekly basis. The IT largecaps have not moved into the overbought region yet though, (14D average RSI is 53), as the gains for the last one year has been most visible among the smaller cap IT stocks. Among index stocks, we look forward to playing Infy and Tech Mahindra.
3) Nifty Bank would be in focus this week as heavyweight HDFC Bank announces its quarterly numbers. How would you go about strategies for your trades?
Banking stocks have remained weak on most of the days this week except Friday. HDFCBank, ICICIBank, Kotakbank and SBI which forms 78% of BankNIfty contributed the most to the fall in banking stocks this week. In the F&O space, 58% of the BankNifty stocks have seen Short buildup this week. ICICI Bank looks to be the dark horse which could lead the index if there happens to be a pull back. The Nifty Bank Index, looks less poised than Nifty to charge. Despite rising in the last three days, the index failed to close above its 10 day SMA, potentially an early sign of rejection trades, and that there is not enough momentum to push beyond the 1500 point range that it appears to have settled in for now.
4) Network 18 shares were the top gainer in the week. Do you see signs of the counter being at overbought levels? What are the targets?
At Wednesday’s high we had probably fully achieved the rounding bottom pattern’s objective, but the pattern as such is suggestive towards further strength, allowing us to expect extended uptrend. Further last three month’s average daily volumes have seen a rise, with intermittent spikes in between, which are classic to underlying strength. But Friday’s fall back following two days of trades above upper Bollinger band, suggest a sideways move for a few days, that may present further entry opportunities. These factors encourages us to project upwards trajectory to 170 in a couple of months. Downside marker may be placed near the neckline region of 88-81.
5) Give us your top ideas for the week.
CEATLTD (CMP: 2490)
View : Buy
Targets : 2595 – 2700
Stoploss : 2375
The stock has been moving within a rising wedge pattern in weekly time frame and the bounce from the lower trendline has recently begun.
Also, the MACD forest in weekly time has crossed above zero and signal line in recent weeks which favors more upside for the stock in the short term. We expect the stock to move towards 2595 and 2700 in the next few weeks. All longs may be protected with stoploss placed below 2375 levels.
FUSION (CMP: 642)
View : Buy
Targets : 675 – 695
Stoploss : 615
After making an all-time high in July 2023, the stock has been moving within a wedge pattern. A break of the wedge pattern happened this week with strong volumes. Also, the MACD histogram has shown signs of exhaustion at lower levels in weekly time frame supporting our assumption of a continuation of the uptrend. We expect the stock to move towards 675 and 695 in the next few weeks. All longs may be protected with stoploss placed below 615 levels.
First published in The Economic Times