The Markets bounce hard from its major support zone, examines Samay Shetti
Picking up from where it left off, Nifty 50 made its bottom on the third expiry day of June on the 16th, the following day it maintained the same range and the next week onwards, that is on Monday of 20th July embarked on a new rally which it has been continuing till the third weekend closing of July, on the 22nd where the market closed at 16719.
Through the second last week of June and the expiry week, the strong pullback retested the level of 17800 which was the previous support level and now resistance. The June series expired on the 30th of June which saw a huge intraday move of 170 points, where the sellers were in control for a while but soon the buyers became active towards the day end, and gave a close in a positive, just short of the 15800 mark.
The July series started with a bang with a 260 points intraday opportunities for both the buyers and the sellers. The following week, that is 4th onwards saw a breakout with momentum over the 15800 mark, as Nifty started moving towards its next minor resistance at 16200 having crossed over its 20 MA and 20 EMA on the 6th of July and has been trading over it since.
A minor reversal was seen after hitting the 16200 zone, for a week but a reversal was made too after touching the 15800 belt again. From there the markets have been seeing a rally which has again put it at another crucial resistance range of the 16800 zone. This level becomes crucial because this is the level from which the markets fell during which it made its bottom 15183. Currently positioned at 16719, over 1534 points above its 52-week low hit last month.
Sectoral view: The current rally has breathed fresh life in all the sectors and most stocks, both largecaps and midcaps across various sectors have taken a bounce from their supports. But with Nifty 50 standing at a precarious position right now, new positions are best avoided until the levels are lower from this point, near an older support level or after a strong breakout with momentum from the current position. Let us do a quick review of the various sectors and the shares within them.
Auto: Continuing its pullback from the 21st of June, Nifty Auto has taken a straight rally of over 1900 points in the last month, during which it broke its previous high of 12100 as it currently rests at 12600. The coming expiry week will be crucial for the Auto sector as it will determine whether it’s time to hold on to the stocks or book profits and wait for safer levels.
In this space, Tata Motors has just reached a major resistance at 460 and has seen a selling move as it touched its 200 MA. Maruti Suzuki, Eicher Motor, Hero Corp, too have come near its resistances with some selling pressure now visible. However, TVS Motors and Mahindra & Mahindra are flying in the open blue sky, having crossed over their previous peak. New positions in this sector must be purchased very cautiously with strict stop losses and small targets for swing traders. For investors, new potions must be taken only when the index gives a breakout or a breakdown from this point.
IT: The most ruthlessly bashed sector of them all on the decline had participated in the rally too in, where from its bottom, the Nifty IT index went up by 2130 points, that is 8.1% from its 52 week low of 26600. The rally has still not pushed the index enough to break its resistance at 28500. The Index is still above the 20 EMA and 20 MA, and it remains to be seen if the expiry week propels it over the range or not.
The risk-reward ratio in most of the prominent stocks in this sector is conducive for long positions as of now for both investors and swing traders. The opportunities to buy can be explored in stocks like Mindtree, Infosys, Tech Mahindra, TCS, Mphasis, Persistant, LTI, Tata Elexi, which have all moved from their support zones, the buying if at all done, must only be made so with a strict stop-loss on the support zones.
Realty: Nifty Realty Index has seen a ride along with the Nifty 50 since 17th June and has seen a 20% rise from its bottom at its 52-week low, upto the 22nd of July. The index currently has touched its 200 DEMA level and nears its 200 MA. in the event of a crossover, the realty sector stands to break its previous high.
In this space, DLF, Sobha and Prestige have reached a congestion zone and new positions can be explored only in the event of a correction or a breakout over its immediate resistance, while Brigade, Godrej Properties and GMR Infra can be explored for long positions as they provide a good risk reward ratio at current levels, the positions; however, if bought, it must only be done so with a strict stop-loss on its support zone.
FMCG: This is another sector that has seen a massive surge with Nifty 50 since 20th June. pushed on by ITC. The sector has broken its range of 7% held since April and gave a massive breakout above its 200 MA on the 1st of July. this index has given a strong bounce from its previous support of 36213 and now breached its previous high.
In this sector, Hindustan Uniliver, Britannia, Tata Consumer and Dabur have taken a bounce from their respective supports, and breached their 200 MA marks with strong momentum and have now entered their congestion zones while Emami approaches the 200 DEMA and ITC leads the pack having reached its pre-covid levels and breathing its psychological level of 300.
New positions are not recommended in this sector as the risk-reward ratio is highly unfavourable. The possibility of long positions can only be explored after clearing of congestion zones of the stocks or at a correction.
Sugar: The ever volatile sugar stocks did not participate much in the rally this month overall, but some stocks have seen a strong buying taking place. As of 22 July, Dhampur Sugar and Mawana Sugar have not moved much from their support levels, while from its recent bottom, stocks like Dalmia Sugar have surged by 27.64%, Dwarkesh Sugar by 32.5%, Balrampur Chini by 12% and EID Perry by 25.8% are continuing their rally.
New positions in this sector must be taken cautiously and if they are in holding, a trailing stop-loss must be followed.
Banks: The rally of Nifty was led ahead by Bank Nifty and since June 20 the index has seen a 15% surge during which it broke above its 200 DEMA and 200 MA and is currently trading above it.
One can expect Nifty and Bank Nifty to move in tandem, through Bank Nifty shows more volatility.
Like the bottom of Nifty was at 15183, Bank Nifty turned from the level of 32400. From this sector, both the private and public sector banks have seen a surge, while some are in good positions, others have hit their resistances and are seeing profit bookings. Among the stocks in this sector, the HDFC twins look to be in very good positions as they have both touched their 200 DEMA and are moving towards 200 MA. Axis Bank and Canara Bank too breached their 200 MA and have seen profit booking, Kotak bank is witnessing profit booking after touching its 200 MA, while ICICI Bank and SBI Bank are trading far above their 200 MA and are continuing their trend. Federal Bank has seen a massive rally and is now seeing a consolidation above its previous resistance. RBL Bank and IDFC First Bank did not participate much in the rally but have still given minor moves.
Ending note: Last month, the Markets were oversold, the stocks were on their strong support zones, and the rally was a good time to make and book profits as well as exit trapped shares at minimum or no losses. But now those dips have been bought and the Markets have attained a height. Any buying from these levels involves comparatively higher risk as the markets are poised on a resistance level. And most of the losses in the markets happen because of buying the resistances and selling the supports. So in this situation, one needs to be careful with their risk management strategies.
The resistance once breached and sustained becomes the new support and similarly, support once breached and sustained becomes the new resistance. So to take any kind of positions, whether short or long, some patience is necessary to at least make sure whether the current level is a support or a resistance which can only be known in the case of a Breakout or a Break-Down. Moreover, in any situation whatsoever must any trades or positions taken especially when the markets give a movement, be taken without a calculated stop-loss.
The writer is a Technical Analyst and Investment Consultant. Email: samaysshetti@gmail.com
