Feb 2, 2024
Buy on decline strategy recommended, Nifty resistance at 16400; these trades can help pocket returns
By Rahul Shah
Equity benchmark Index bounced back the first time in six weeks, aided by the surge in index heavyweight Reliance Industries, Auto and metal stocks. The five-week losing streak that ended on May 13 was the longest in two years. Sensex jumped 1,533 points or 3 per cent to close at 54,326. While the broader NSE Nifty settled 484 points or 3.20 per cent higher at 16,266. Sentiment boosted on account of impressive quarterly results, the hope of a good monsoon, improved macro data and positive commentary from the Finance Minister on Indian economic growth. Among the front of the global market, US markets fell 3% while the Asian market soared after the People’s Bank of China cut a key interest rate for long-term loans by a record amount. Moreover, the fall in US Bond Yield and Dollar Index from a 2-year high boosted market sentiment.
The excessive volatility in the market is broadly due to two reasons. One, the market has discounted severe monetary tightening by the Fed, which is likely to take the Fed funds rate to around 3 per cent in 2023. Two, the market has not fully discounted the probability of the US economy slipping into recession in 2023. Most of the countries hike interest rate as concern of higher inflation (US Inflation 40-year and UK Inflation 48-year high) while the People’s Bank of China cut five-year loan prime mortgage rate by 15bps to protect their economy on account of spiked in pandemic cases. China’s prime lending cut may be seen as short-term relief but supply chain issue may continue on account of the Russia-Ukraine war.
Traders caution approach in the market on account of weakness in the global markets as the S&P 500 fell as much as 3%, leaving it down more than 20% over five months (Technically indicating a bear market). US Fed minutes of meeting (Wednesday) and GDP number (Thursday) will be key focus this week. Higher-than-expected US jobless claims underlined the risks to economic growth as the Federal Reserve gears up for its most aggressive rate hiking cycle in decades. Market rout was no surprise in light of the central bank’s repeated caution that it will continue raising interest rates to cool the hottest inflation in decades. Rising oil prices and FIIs selling are a big threat in the domestic market. Buy on decline strategy and value buying for long term investment is advisable in the cloudy environment.
Among the major Index, Metal Index witnessed stocks witnessed smart rally on hope of improved global metal demand and hope of recovery in the Chinese economy. Moreover, base metal price LME gained 4-5% against the previous week close. Auto and FMCG stocks witnessed (Index gained 5% each) fresh buying on hope of improved local demand on ahead of a good monsoon. However, IT index slipped 3% due to the weakness of US Tech major Nasdaq Composite (down 3.5%)
Nifty has formed a double bottom. Immediate resistance is visible at 16400; a decisive breakout above 16400 may induce a rally towards 16600-16700. A move above the recent swing high of 16400 could lead to further upsides in the coming week. On the lower end, support is visible at 16000 level. The bears would gain more control once the recent intermediate low of 15735 is broken.
Canara Bank: SELLTarget: Rs 180 | Stop loss: Rs 205
Canara Bank has given a trendline breakdown on the daily scale. It is finding resistance at the 200 DEMA which is placed at 206 and witnessing selling pressure at higher levels. It has formed a bearish engulfing candle on the daily scale indicating weakness. RSI oscillator is also negatively placed on the daily and weekly scale. Considering the current chart structure, we advise traders to sell the stock for a down move towards 180 with a stop loss at 205·
TCS:SELLTarget: Rs 2950 | Stop loss: Rs 3430
TCS has given a breakdown of the major support which was placed at its 40-week support zone near 3400 level. It was a crucial level from where the stock had started the up move in the month of August 2021 to scale to the high of 4000 levels. We have seen that the level of 3400 had been respected multiple times and price reversed from the said levels to inch higher. However, in the current scenario, we have seen the breach of 3400 and it is sustaining at lower level. The momentum indicators on the weekly and monthly charts are showing signs of weakness which can take the prices lower. Considering the structure one can create a short TCS with a stop loss of 3430 and target of 2950.
(Rahul Shah is Senior Vice President, Group Advisory Leader-PCG, Broking & Distribution, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)
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