As for the market setup, 15,700 is what we managed to hold. Is the risk reward favorable to the upside or downside for the next week?
The current pattern of the indices indicates consolidation at the 15700 mark. Over the past three months the market has taken a long time to break below this 15700-15750 support zone, when a support is broken it changes of behavior, then it becomes a resistance. If we see this week, there have been two attempts towards the 15700 mark; a roughly three trading sessions back, from there the Nifty pulled back, then there was a second attempt ending on Friday.
The more consolidation the better as with every new attempt at a break of the 15700 mark it could be a more durable break.
The good part of the market so far is that there are new sectors emerging, so we are no longer dependent on the banking index or the Bank Nifty to try to take the lead.
There is money moving into auto stocks and the auto index and many other sectors have seen good short covering as well as buying. So, the breadth of the market is improving significantly, but I think on the index front in particular, we would take a bit longer to break through 15700 convincingly.
If one is looking for a bounce trade, then metals will be a choice as metals have been found to be one of the worst performing counters. But going forward and keeping the expiration in mind, would you like to step into one of these metal counters for a bounce?
I think the answer to that question would likely lie in how the next index trend will form. Assuming we break through 15700 and do so within a few trading sessions and assuming the index jumps significantly higher, there could be a stronger cycle of short coverage.
Metals, IT and even Cement stocks are the highest pockets where we have seen high open interest building up on the short side.
If there is a rally case in the indices, there could be more short cover online and with next week’s expiry, even shorts would not want to roll over positions until the next expiry. So there would be frenetic coverage that could probably happen in that space. So I think the answer to that probably kind of lies in how the trends are shaping up across the world and possibly on the indices. So while buying maybe a few more percentage points on metal stocks, even from current levels, I think that’s still not a bad bet because then it would be more a confirmation trade than an anticipation trade.
What is your view on the dollar index as it has held above the 100 mark and near that 105 breakout zone. Expect a breakout on that front or do you think that it is somewhat exaggerated at the moment?
I think the dollar index is entering a phase where the momentum is slowing considerably. In the past month, there have been two tests for the dollar index at that 105 mark.
One was at the start of the first half of May, where the dollar index was back towards that 104-105 mark. Then it retested lower and came back to break above that 105 mark.
In both of these attempts, the relative strength index actually hit a lower high for itself, which means that even though the dollar index is trending up, the acceleration or momentum is slowing down, which is clearly the first sign that he would likely see an imminent reversal returning to this index as well.
Just to put things into perspective, the same thing happened for crude when crude was trading at $120-125 about a month ago.
Even when Crude Oil was rising, the momentum would slow down, and then all of a sudden, within a month and a half, Crude was back down to 110.
I feel something very similar for the dollar index, of course it could be more elongated given the extent of the dominance of the dollar index factors as many global currencies like the yen etc . continue to depreciate or fall.
So there could be more time for the dollar index to take, but eventually the index should cool off from current levels. It is possible that over the next couple of months the dollar index will trade down at least 3-4 points from current levels. So it’s closer to 100-101 that the next range could emerge for the dollar index.
The other key market indicator has been crude as it has been very sticky around that $110 in the barrel market. Do you expect it to stay around this level, is this a very strong support level?
It’s not strong support per se, but it’s a base in the making for crude oil, so Brent prices have been hovering between these $110 and $125 a barrel over the past couple of years. last three months.
There was one exceptional case in February where crude jumped up to 140 but when looking at it largely as a 125-110 range had been the range for crude.
It’s now back to the lower end of the range and with that recent high crude had broken through the 125 mark there was a weaker acceleration in crude oil price momentum so that was an indicator Very important.
Even the charts right now show the energy ETF SPDR which has had a very large unwind and is clearly an indication or an early indication that the trends have reversed for crude.
I think it should only be a matter of time for crude oil prices to get back below $100. If you look at Brent crude futures over the next three months, the six months ending in 2022, and the start of 2023, they are actually trading below the sub-100 level.
So it could be a more gradual downturn in crude oil prices, but if it’s catalyzed by some sort of event out of Russia and Ukraine, I think the drop could be much steeper for the crude oil prices, but the trajectory is on the downside.
The past week has seen the PSU Bank Index perform relatively well against Bank Nifty. Going forward will you be a buyer in any of these PSU banking spaces because the AGM has been held and we have seen some good movement coming to this counter and even this week twins as well as twins Bajaj supported the markets. What kind of movement do you expect in PSU names?
Looking at the PSU banking index and the composition of the internals breakdown, we can see that it’s not the large-cap PSU names that have done quite well, but it’s the mid-cap names like the Central Bank of India, which performed rather well. this week.
So yes, PSU banking stocks have outperformed the Bank Nifty benchmark, but for the banking index to rise higher, we would need the sustenance of large-cap names.
So if the large caps start to participate that’s where there might be an extra degree of confidence in the market but however among the PSU bank names there is a stock that I think looks attractive for a more risky purchase, not in the very short term. some kind of trade but i think
at 150-153 looks very attractive to me on the charts.
It has moved back towards a multiple support base so I think if I were to initiate a trade from the PSU bank pack it would be Indian Bank at current levels and I would be looking for some kind of position target of 165-170.
What do you think is interesting for the coming week? I’m curious if there are any automobile names on your list, as you’ve been in the rally as far as M&Ms go. So, are automobile names also moving forward?
Yes, in fact, M&M is also one of my top picks for next week. Even though the stock closed at a new lifetime breakout high, I still believe the stock has the momentum relative to other auto names.
So I would like to follow the M&M trend even at current levels. Rs 1120 could be the next possible target for the stock in the short term and the stop loss for this trade could be maintained at Rs 1030.
The next headline I’m bullish on comes from the financial space which is
. It has a very interesting setup as the stock has shown a clear RSI divergence pattern on the hourly time frame, which generally indicates that there should be at least another 4-5% upside in the very near term.
I would also suggest a buy on LIC Housing and targets should be held at Rs 335 with the stop loss at Rs 312.
One of the other stocks I’ve been bullish on over the past month is
. The stock is trading closer to that 640-650 mark. It’s been trading above its 50-day moving average consistently over the past month and I think with the improving market texture many of these mid-cap names in stocks recently listed are those that could see a breakout, especially Paytm. So I would suggest a buy on the stock with Rs 700 as the target and the stop loss can be maintained at Rs 630.
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