Momentum may take Nifty50 towards 18400 levels in January 2023

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“Despite the late, but powerful short covering on the expiry day, OTM strikes beyond 18,400 failed to attract call longs, while 18000 puts found the strong short build-up,” says Anand James, Chief Market Strategist at Geojit Financial Services.

In an interview with ETMarkets, James said: “We feel that this needs to be read along with the directional cues (lack of) mentioned initially, and prompt us to expect rejection trades on the approach of 18400, but with low prospects of a collapse, unless 18000 is taken out,” Edited excerpts:

Little bit of volatility but the bulls managed to put handsome gains on the board in the last week of 2022. What led to the price action?

“You can’t beat the child twice for the same mistake” appeared to be the line taken by traders as they looked past covid and inflation fears that had presumably triggered a massive sell-off last week.

In fact, running up to the last week, profit booking was also due, as fresh triggers had failed to emerge and traders became tentative after the Nifty50 failed to keep the gains following the breach of record peaks.

Both the triggers appeared to eat away from the gains through this week as well, but accumulation emerged on every dip, keeping the upside trajectory intact.

Metal and Oil sectors led the gains while IT media and power dragged the F&O segment in the December expiry.

Based on the December series expiry and rollover position for the January series – where do you see Nifty50 hovering in the new series?

We would be entering January with less directional expectations, as indicated by swings in VIX as well as fall in roll cost, which has happened across the board.

Despite the late, but powerful short covering on the expiry day, OTM strikes beyond 18,400 failed to attract call longs, while 18000 puts found strong short build-up.

We feel that this needs to be read along with the directional cues (lack of) mentioned initially, and prompt us to expect rejection trades on the approach of 18400, but with low prospects of a collapse, unless 18000 is taken out.

In terms of sectors, metals bounced back sharply in the week gone by – what led to the price action and will the momentum continue?

Easing of China’s covid measures and reports pointing to China’s fresh covid outbreak may be less severe than previously assumed gave a boost to the sector.

FPI has bought metal shares worth Rs.4086 Cr. since October. In the first fortnight of December, they bought shares worth Rs.1391 Cr which forms 34% of their total investment since October 2022.

Hindalco and Tata Steel, which form ~61% of the Metal Index, drove the index with an average return of 10% last week. With more than 80% of stocks trading above 50 & 200 DMAs and 70% of stocks having their 14_D RSI still below 60 there is indeed more room for upside in the coming days.

The metal index turned lower again on Friday from record peaks, but December’s consolidation appears to have stabilised the sector and we are encouraged to expect record peaks in the metal index in January.

Small & Midcap stocks also outperformed in the week gone by – can we say that the pre-budget rally especially in the economic-centric stocks has begun? How should one play this theme in January?

Last time when we had the Interim Budget presented on Feb 1st, just before the General Elections of 2019, Midcaps and Small cap stocks gave an average -5.2% and -8.3% return respectively in the month of Jan 2019.

In fact, the budget has ceased to be a trigger for big moves lately. That said, small caps do have room for upside, given the fact that while 64% of the Nifty 50 stocks are above the 200-Day MA, only 47% of the small-cap stocks are above this key benchmark.

What are the expectations from the investors’ community from the finance minister for Budget 2023?

Though 2020 is still behind us, the investing community is still recovering from the disruption dealt by covid and has had to face the trauma of rising inflation too.

To ease this pain, and raise the dispensable income at the investor’s hands, there is an expectation to reduce the income tax slab from 30%, as well as increase the basic exemption limit. Further, to nurture savings and investments, raising the slab of 80 cc is also hoped for.

What is fueling the rally in RCF – up 30% in a week? And will the rally continue? What do technicals suggest?

RCF was poised to test a new record peak a fortnight back, before stalling. The recovery rally of last week suggests that this could again be a reality, but this rise appears too abrupt to find confirmation from oscillators, suggesting that we may be in for consolidation for some time, on either side of 130. Downside markers may be placed near 122.

Your 3-5 trading ideas for the January series

Here is a list of top trading ideas –

Dishman Carbogen Amcis: Buy| LTP Rs 95| Target Rs 104-110| Stop Loss Rs 89| Upside 16%

After declining for the last two months, the stock has bounced off the declining trendline support and has successfully broken above the PSar value of 91.

Also, the MACD has crossed above the signal line hinting at further upside for the stock in the next few months.
We expect the stock to move initially towards 104 and thereafter towards 110. Longs may be protected with stop loss placed below 89

Aptech Ltd: Buy| LTP Rs 329| Target Rs 345 – 360| Stop Loss Rs 315| Upside 9%

Aptechhad recently bounced off the declining trendline support and has now broken above the declining wedge pattern on daily charts.

Also, the MACD has broken above the signal line and the stock has closed above the PSar value of 325 indicating more positivity in the next few weeks.

We expect the stock to move towards 345 – 360 levels. Longs may be protected with a stop loss placed below 315.

Amara Raja Batteries: Buy| LTP Rs 572| Target Rs 600-620| Stop Loss Rs 550| Upside 8%

The stock has been in a corrective mode since the start of December and has seen a bounce back from 550 which is the 61.8% Fibonacci retracement level of the September 2022 low and Dec 2022 high.

Currently, it has formed a Morning Star candlestick pattern on daily charts along with exhaustion seen in the MACD forest pointing towards a bullish outlook for the stock in the next few weeks.

We expect the stock to move towards 600 and thereafter towards 620. Protect longs with stop loss placed below 550.

First published in Economic Times.

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