How is the week ahead looking like considering we have started off the new F&O series with a bang?
It was a great week for the markets. Bank Nifty was the show stopper and that big underperformance, which everyone was talking about, saw some degree of catch up. There is still scope for Bank Nifty to try and cover up the underperformance.
Look at it this way: Nifty is significantly above its 200-day moving average, more than 9-10 per cent plus from its long term average but the Bank Nifty is just 0.5 per cent or 1 per cent below its 200-day moving average. If the index opens up on a higher note in the next week, it might first break above this 200-day moving average. A big underperformance is still there for the Bank Nifty and that is likely to be the talking point for the overall markets for the next couple of weeks. Last weekend, and particularly Friday, was very intriguing because on one hand you had the advance-decline ratio which was more skewed towards the declines but there were a lot of stocks which saw a strong volume buzzing, and that is where, I believe, a short term trader should be focusing on. You have to try and play momentum over here.
What happened with Vodafone Idea this week? With a 14 per cent surge, it took off the entire telecom space with it.
The stock again saw the thick of price action, volumes were at a multi-month high for Idea but this is not the first time that we have seen the stock performing this way.
The last time when the stock saw the stupendous rally from Rs 3.50-4.50 to Rs 12, there were many such and much bigger volume days. In my sense, what I could gain from reading the charts is that it is more due to the anticipation on what could happen on the AGR front. That is the only reason why stocks like Idea and Bharti Airtel managed to rally. There could be a tinge of short covering as well into these kinds of names.
What happens when a stock remains in a sideways to downward drift, shorts tend to accumulate positions into these names expecting that the stock may spiral down and may stay there for a sustained period of time but then all of a sudden when you see the stock moving up by 5-7 per cent on the anticipation of some kind of news flow, the shorts want to get out or exit their positions. So, that generally snowballs and results in stronger price action and of course, the volumes also tend to increase. That is the only reason which I can attribute to the stock price movement for Idea.
Now whether the stock sees a follow-through or not will depend on the market scenario. If the index continues to move up, then many of these stocks can see a leg up further on the upside. For Idea, Rs 8.50 to 12.50 is the range; it is not as if the stock has moved up way beyond those range levels. It still needs to confirm a lot of breakouts on the short to medium term charts but traders can try and play momentum into these kinds of names.
What are your views on Zee Entertainment and IndusInd Bank?
It is difficult to fathom, especially for IndusInd Bank. I have looked at the charts for IndusInd Bank as well as the RSIs which generally are an indicator of momentum. On the RSI, IndusInd Bank hit 93 levels. These are extremely overbought levels to initiate a fresh long and expect the stock to continue to move higher.
Something similar happened to a different asset class. To give you a correlation, when the gold on the dollar charts had hit 2100 kind of levels, the RSIs were at 93-94 and then you saw a very sharp correction coming in. At this point in time, one must be very cautious on stocks like IndusInd Bank or the ones which have very high RSI readings. Do not get overflowed by the kind of reactions the stock price is showing. Just because the stock is up 5-10 per cent, it does not mean that you have to try and buy all of these names.
You have to try and use those data points, and those data points on the RSI front for stocks like IndusInd Bank are not indicating a healthy picture. The stocks may continue to move up higher for a couple of days more but whenever the reversal or the retracement happens, those will be very sharp in nature for the stocks.
What are your top picks for the coming week?
I will bet on a couple of buy calls, and the first one is a banking name. I am looking at SBI as an interesting buy. The stock still looks like it is ready to move up higher to another level. Rs 240 could be the next leg of target for SBI. The stock closed at around Rs 224-225, so it becomes an attractive risk-reward as well. One can buy SBI with targets of Rs 240 and the stop loss could be kept at Rs 215.
The second would be a buy from the IT pack. Many of these IT stocks which have been lying a bit low for the August series should make a very strong and thumping comeback over the next couple of months. MindTree is where I believe that traders can look at for further upside from the current levels. The stock is trading at Rs 1,190-1,195 kind of levels and from the current juncture, it looks attractive for at least a 7-8 per cent upside from a short term trading view. So one can buy MindTree; targets could be kept at approximately Rs 1,250 and stop loss at Rs 1,145.