1) The market rally now looks Teflon-coated. Do you see some consolidation around 21,200-300 levels given that FII flows may slow down due to Christmas and New Year holidays in the West?
Atleast during the last five years, a more deciding factor for the second half of December has been the nature of the lead up to it. Positive run ups during the lead period have had corrections or consolidations in the subsequent fortnight, while declines during the lead up were followed by upswings especially so in the last five years. In the eve of last elections, the first 10 days of December saw declines helping the subsequent push higher in the next 10 days followed by consolidation in the rest of december as well as till the beginning of March. Now we are entering the second half of December red hot, and if history repeats, we are likely to see a decline in the rest of December, followed by a consolidation period, before election vibes bring in more traction.
2) Given the fact that 90% of the top 500 stocks are above 200-DMAs and Nifty is trading 10-11% higher than 200-EMA, do you think we are in an overbought zone?
The 200 day moving average is a long term benchmark, and a 10% distance only suggests that the gains are not yet off the charts. Moreover, being overbought is a relative term, especially in a bull market, when stocks remain in highly overbought levels for sustained periods. This is the case now as well, and overbought conditions prevail even in weekly periodicities. However, negative divergences have also started to show, suggesting that a swing lower or a consolidation is highly likely in the next fortnight.
3) Nifty IT has been the biggest beneficiary of the rally and was up 4% in Friday’s session. How does the trajectory look like when you look at the charts?
Friday’s session arguably saw the largest single day rise in the IT index, this year, and despite it being a clean break beyond recent peaks, we are sceptical regarding the continuity without a correction. That said, IT index has been a favourite for us in the second half of this year, and the long consolidation period that has preceded the present move encourages us to keep all the long plays on the index constituents.
4) Given so much is happening on the bluechip side given FII flow, do you think that smaller stocks could now underperform?
To see if there is any relative attractiveness from a size point of view, we may look at the recent rise since late October, which has been surprising in terms of steepness as well as how broad based the rise has been. While Nifty registered a gain of approximately 14%, mid and small cap indices had risen around 22 and 24% respectively. This suggests that the smaller cap companies had already become buoyant and travelled quite far when compared to the blue chip companies, as it is usually the case with most bull markets. Thus, given how broad based the ongoing rally has been, and the return of FIIs lending positivity, we could still see speculative capital chasing smaller stocks, but given how far the theme has stretched so long, fresh entry is very likely to be stock specific.
5) Within the Nifty 500 pack, IRFC was the top gainer with an upside of 26% in the week. What would be your trading strategy in the week ahead?
Two days of close above recent record peak encourages us to weigh the prospects for continuation of ongoing uptrend, However, a gravestone doji formed on Friday reflects exhaustion and a potential reversal. Towards this end, we will watch if Monday completes an evening star candles stick pattern which will serve to initiate a reversal. This prompts to either wait out one day before fresh entry and have 91 as trailing SL on closing basis for existing positions.
6) Share your top trading ideas for the new week.
KRBL (CMP: 360)
View : Buy
Targets : 387 – 410
Stoploss : 340
The stock has been on a decline since September 2023 and has formed a reversal pattern near the horizontal support zone of 340. We have also seen an MACD histogram exhaustion this week which is pointing towards a potential pull back in the near term. The stock is trading above its respective 100 and 200 week simple moving averages confirming positivity. We expect the stock to move towards 387 and 410 in the next few weeks. All longs may be protected with stoploss placed below 340 levels.
BAJAJCON (CMP: 220)
View : Buy
Targets : 238 – 245
Stoploss : 210
The stock has been in a profit booking mode since August 2023 and has been moving within a downward sloping trend channel since then. It has bounced off the weekly channel support of 214 and has made a Long legged Pinbar Doji candlestick indicating indecision and possibility of a reversal in the near term. The MACD histogram has shown signs of exhaustion at lower levels too in the weekly timeframe. We expect a bounce back which could take the stock towards 238 and 245 in the next few weeks. All longs may be protected with stoploss placed below 210 levels.
First published in Economic Times
