A market top will be confirmed if Nifty50 trades below 18000: Aditya Agarwala of YES SECURITIES

A breakdown and sustained trade below this key support (18000) may confirm an intermediate top formation causing price and time correction in the forthcoming sessions, Aditya Agarwala, Senior Technical Analyst, YES SECURITIES – said in an interview with Zeebiz’s Kshitij Anand. Edited excerpts:  

Q) D-Street hit a rough patch as both Sensex, and Nifty retreat after touching record highs. What led to the price action?

A) Bears finally made their way into the D-street after staying on the sidelines for weeks causing benchmark Indices to retreat from record highs led by strong profit booking action as several stocks had witnessed a parabolic rise recently.

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This corrective price action in the week gone by could be attributed to the fact that stock prices had witnessed an unexpected and sharp ascend in the previous sessions taking them to an extreme overbought territory leaving little room for incremental upside.

Moreover, minor disappointment in the quarterly results especially in companies where raw material prices have risen significantly where brutally punished. This led to a cascading effect in other stocks as well dragging them sharply lower.  

Q) The next big question which investors would have – have we hit a top? If not, any signs which investors should watch out for?

A) The corrective price action we witnessed so far in the Indian markets previous week is part of normal profit booking within a larger ongoing uptrend.

However, this corrective wave can extend further if bears push the headline Index Nifty-50 below the key psychological mark of 18,000 triggering a deeper correction to levels of 17,500.

Therefore, market participants should closely watch the Index movement around the 18,000 levels in the coming week.

A breakdown and sustained trade below this key support (18000) may confirm an intermediate top formation causing price and time correction in the forthcoming sessions.

On the flip side, if bulls manage to keep the index above 18,000 and take it beyond its immediate hurdle of 18,300 uptrends can resume taking it back to levels of 18,450-18,600.  

Q) The momentum on D-Street slows down ahead of Diwali. Do you think bulls could bounce back and take the market to record highs? Key levels to watch out for on Nifty and Nifty Bank?  

A) The momentum on D-Street certainly has slowed down just ahead of Diwali raising concerns in the minds of market participants whether a top has been made for the year.

However, in the coming week, a short-covering rally cannot be ruled out as Nifty-50 Index is sitting at oversold territory on shorter time frame charts and along with that RSI indicator has made a positive divergence suggesting that the ongoing downtrend is losing momentum.

However, bulls need to push the Index beyond 18,300 levels to take it back near its recent peak of 18,600 with an intermediate hurdle at 18,450. Therefore, bulls will have to negate 2 key hurdles at 18,300-18,450 to push the Index to new highs.

Nifty Bank on the other hand has been an outperformer in the past two weeks hitting a fresh all time high of 40,587. Price action continues to remain strong and Index is on course to test levels of 41,000-42,000 in the coming session with 39,000 as a key support area.

Any decline or an intermediate throwback to support levels of 39,000 can be used an opportunity to go long in the Index and banking stocks with a target of 41,000-42,000.    

Q) Sectorally, banking and financial service managed to outperform. What led to the price action – is it because of commentary from Moody’s and privatization hopes? Nifty Realty takes a hit after a strong rally seen in previous weeks.

A) The Nifty Bank has a lot of catching up to do as it had been underperforming the Nifty Index for some time, therefore, the outperformance in the previous week was on the cards and doesn’t come as a shock.

Moreover, with economic activity picking up pace ahead of the festivals and formation of bad bank things look positive for the entire sector. Banks both in the Private and PSU space could continue its upward journey in the coming week.

However, what came under some serious selling pressure was the Nifty Realty Index, after recent outperformance, Index was sitting at overbought levels and key resistances between 540-550 levels.

However, this intermediate corrective phase in the realty Index doesn’t change the larger trend which is intact and still bullish. Following this correction, Nifty Realty Index will resume its uptrend to test levels of 600-630    

Q) How can investors limit the downside? We know that VIX has gone up, and there is a possibility of further consolidation. Should investors focus on avoiding leverage, maintaining stop loss etc. What are the other measures?

A) Market participants be it traders or investors should periodically keep a tab on their stock positions in order to limit the downside in the event of a downtrend or reversal of an uptrend.

The best available tool to limit downside risk is to place proper stop losses once a trade is entered and it is equally important to keep trailing these stop losses from time to time to lock in the gains.

Further, with VIX approaching the 18 mark it is even more important now to keep proper stop losses in place as a sustained move beyond the 18 mark on the VIX may trigger higher volatility and further corrections.

An alternate approach could be to look at options which is an excellent hedging tool, however, needs the expertise to exercise them effectively, otherwise, it may turn out to be futile and losses can mount instead of getting arrested.

Over and above all these avoiding leverage positions is of paramount importance during times of high volatility and indecisive market trend.

Q) You top 3-5 trading ideas for the expiry week with a holding period of 3-4 weeks?

A) Here is a list of trading ideas: 

 Bandhan Bank: Buy| LTP: Rs 323| Target: Rs 350| Stop Loss: Rs 307| Upside 8%

The stock is on the verge of a breakout from a bullish Flag pattern neckline placed at 332. A successful breakout on volumes will resume the uptrend taking the stock higher to levels of 350. Further, the RSI indicator is also confirming the bullishness.

Asian Paints: Buy| LTP: Rs 2984| Target: Rs 3160| Stop Loss: Rs 2880| Upside 6%

The stock has tested its previous peak which is acted as a support and turned upwards suggesting a short covering is on the card. Further, RSI has turned higher from the previous reversal zone of 25 confirming bullishness building up.  

L&T Finance Holding FUT: Sell| LTP: Rs 85| Target: Rs 80| Stop Loss: Rs 87.50| Downside 6%

The stock has broken down from a bearish flag pattern resuming a downtrend. Further, volumes have been high in the recent corrections confirming weakness in the stock. RSI turning below 40 levels is a confirmation of the same.  

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)