A downside break of 10 day SMA, which kept protecting the trend for most of the days since the April’s rally began, sparked fears of major down move. But the 20 day SMA quickly came into support, swinging Nifty back into the upside trajectory. However, repeated swings kept disappointing both bulls and bears last week. We feel that such swings are characteristic to VIX floating in the 17 vicinity.
Small caps have started bubbling. Froth yet on small caps
Last week we had pointed out that SMIDs’ bounce of the previous week has not formed any froth in order to signal any bubble like situation. But last week, we found that SMIDs, especially the small caps have started to outperform, even on days of falls on the Nifty.
Reflecting this sentiments, we found that on 22nd of May, when Nifty fell sharply from open, pushing 72% of its constituents below their respective 10 day SMA, only about 25% of the small caps closed below this key benchmark. At close of Friday, 69.6% of small caps were trading above their respective 10 day SMA, while Nifty 50 had 50% of them, above the same. The figures for 20 day SMA were 84 and 70 for small cap and Nifty 50 respectively.
PSU Banking Index poised for reversal amid technical breakouts
The PSU Banking index has been in a profit-booking phase this week but has managed to hold above the Supertrend. Notably, it closed above the declining trendline resistance, while the MACD histogram on the daily chart indicates exhaustion at lower level signaling potential for a strong reversal.
Key banking stocks such as State Bank of India, Bank of Baroda, Punjab National Bank, Union Bank, and Canara Bank have either crossed their respective weekly Supertrend levels or are showing signs of diminishing short-term bearishness. This is further supported by the weekly SMIO close to moving above the zero line. From a derivative perspective, 57% of PSU Bank stocks saw long buildup on the last day of the week and 43% saw short covering on a week-on-week basis adding to the positive construct.
IT stocks signal reversal with strong derivative support
The IT index has been trading within a widening wedge chart pattern since 2024 and has recently bounced off the rising trendline support, indicating a potential reversal. Despite a weak start to the week, buying resumed toward the end, and the weekly MACD has crossed above the signal line – reinforcing the bullish outlook.
From a derivatives perspective, 90% of IT stocks witnessed long build-up on the last trading day of the week, further strengthening the positive sentiment.
We expect TCS, Infosys, HCL Tech, Tech Mahindra, LTI Mindtree, and Persistent Systems to lead the upside in the coming weeks.
First published in Financial Express
