As far as the market setup is concerned 15,700 is what we have managed to hold on to. Is the risk reward favourable on the upside or the downside for next week?
The setup now for the indices indicates consolidation at the 15700 mark. Over the last three months the market took a lot of time to break below that 15700-15750 support zone, when a support gets breached it changes its behaviour and then it becomes resistance. If we see this week there were two attempts towards the 15700 mark; one just about three trading sessions back, from there the Nifty fizzled back lower and then there was a second attempt ending Friday.
The more there is consolidation it is better as with every new attempt towards a breakout of the 15700 mark it could be more of a lasting breakout.
The good part about the market so far is that there are new sectors which are emerging so we are no more dependent on the banking index or the Bank Nifty to try and take the lead from the front.
There is money moving to the auto stocks and the auto index and many other sectors have seen some good short covering as well as buying. So the market breadth is improving significantly but I believe on the index front specifically we would take some bit of more time to break past above 15700 convincingly.
If one is looking for a rebound trade then will metals be a pick because it was seen that metals were one of the most underperforming counters. But going forward and keeping expiry in view would you like to get into any of those metal counters for a rebound?
I would believe the answer to that would probably lie on how the next trend on the indices shapes up. Assuming if we cross above the 15700 mark and if we do that in a matter of a couple of trading sessions and assuming the index jumps significantly higher then there could be a stronger round of short covering.
Metals, IT and even cement stocks are the highest pockets where we have seen high open interest build up on the short side.
If there is any case of recovery in the indices then there could be more short covering in line and going with the next week expiry even shorts would not want to rollover the positions to the next expiry. So there would be a frantic covering which could probably happen into this space. So I think the answer to that probably lies somehow in how the trends shape up across the globe and possibly on the indices. So even if one buys maybe a couple of percentage points higher on the metal stocks even from the current levels I think it is still not a bad bet because then it would be more of a confirmation trade rather than more of an anticipation trade.
What is your take on the dollar index because that has been sustaining above that 100 mark and near that breakout zone of 105. Going ahead do you expect a breakout on that front or you believe that it is somewhat overdone for now?
I think the dollar index is getting into a phase where the momentum is slowing down significantly. Now over the last one month there have been two tests for the dollar index at this 105 mark.
One was in the early first half of May where the dollar index had come back towards that 104-105 mark. Then it retested lower and came back again to break past that 105 mark.
In both of those attempts the relative strength index has actually made a lower high for itself which means that even if the dollar index is trending up higher the acceleration or the momentum is slowing down which is clearly the first sign that it would probably see an impending reversal coming back into this index as well.
Just to put it in perspective the same thing happened for crude as well when crude was trading at 120-125 dollars just about a month back.
Even when the crude oil was going up higher the momentum was slowing down and then all of a sudden in a matter of one and a half month, crude was back lower to 110.
I am sensing something very similar to shape up for the dollar index, of course it could be more elongated given the extent of the dominance of the factors for the dollar index because many of the global currencies like yen etc are still depreciating or falling.
So there could be more time which the dollar index may take but eventually the index should cool off from the current levels. It is possible over the next one to two months we could see the dollar index trading lower by at least 3-4 points from the current levels. So closer to 100-101 is where the next range could emerge for the dollar index.
The other key indicator for the market has been crude as it has been very sticky around that 110 dollar to the barrel market. Do you expect it to stay around that level, is that a very strong support level?
It is not a strong support as such but it is a base being formed for crude oil so Brent crude prices hovered from those 110 to 125 dollars per barrel over the last two to three months.
There was an exceptional case in the month of the February when crude had jumped up to 140 but when you look at it largely as a range 125-110 had been the range for crude.
It has now come back to the lower end of the range and with this recent high the crude had made 125 odd mark there was a lower acceleration of momentum into crude oil prices so that was one very important indicator.
Even the charts are showcasing right now the SPDR energy ETF that has seen a very significant unwinding and that is clearly an indication or an early indication that the trends have reversed for crude.
I think it should now be just a matter of time where the crude oil prices come back below the 100 dollar mark. If you look at the futures for Brent crude over the next three months, six months ending 2022 and start of 2023 they are actually trading below sub 100 level.
So it could either be a more gradual cool off for crude oil prices but if it is catalysed by some sort of an event on Russia-Ukraine then I believe that the fall could be far more stronger for crude oil prices but the trajectory is on the downside.
The week gone by has seen that the PSU bank index did perform relatively well in comparison to Bank Nifty. Going forward will you be a buyer in any of those PSU bank space because AGM happened and post that we saw a good move coming upon that counter and even this week twins as well as Bajaj twins did support the markets. What kind of a move do you expect in the PSU names?
Looking at the PSU banking index and the composition of the breakout of the internals we can see that it is not the large cap PSU names which have done pretty well, but it is the midcap names like the Central Bank of India which have done pretty well this week.
So yes, the PSU banking stocks have outperformed the benchmark Bank Nifty but then for the banking index to move up higher we would need sustenance of large cap names.
So if the large caps start to participate that is where there could be an added degree of confidence in the market but however from the PSU banking names there is one stock which I believe looks attractive from a more risk reward buy, not a very short term kind of a trade but I think
at 150-153 looks very attractive to me on the charts.
It has come back towards a multiple support base so I think if I have to initiate a trade from the PSU banking pack it would be Indian Bank at current levels and would lookout for a 165-170 kind of a positional target.
What is looking interesting to you for the week ahead? I am curious to know whether there are any auto names on your list as you have been riding the rally when it comes to M&M. So any auto names going ahead as well?
Yes, in fact, M&M is also one of my top picks going forward for the next week as well. Even though the stock closed at the point at a fresh lifetime high breakout level I still believe that the stock has the momentum compared to the other auto names.
So I would want to ride the trend on M&M even at current levels. Rs 1120 could be the next possible target for the stock over the near term and the stop loss for this trade could be kept at Rs 1030 mark.
The next stock that I am bullish on is from the financial space which is
. It has a very interesting setup because the stock has shown a clear RSI divergence setup on the hourly timeframe and this generally indicates that there should be at least another 4-5% of an upside over the very near term.
I would suggest a buy on LIC Housing as well and the targets should be kept at Rs 335 with the stop loss at Rs 312.
One of the other stocks which I have been bullish on over the last one month is
. The stock is trading closer to that 640-650 mark. It has been trading above its 50-day moving average consistently over the last one month and I believe with the market texture improving many of these midcap names in the recently listed stocks are the ones which could see a breakout, specifically Paytm. So I would suggest a buy on the stock with Rs 700 as the target and the stop loss can be kept at Rs 630.
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