By Jay Thakkar
The market is likely to trade within a range in the near term, but if the Nifty is able to sustain above 10,850 levels, it could have a sharp positive impact on the market ahead, according to technical analysts. Sectorally, FMCG, IT, pharma and automobile shares are expected to outperform in near term, while metal, realty and infra stocks are expected to underperform in the coming weeks.
Where are we? The Nifty has formed an inside bar pattern on the weekly charts which indicates that the market is quite indecisive. The range got narrower in June wherein the midcaps and small caps were hammered right from the beginning and few large caps from oil and gas and financial sectors were hammered towards the end. The only sector that outperformed and seems to have bottomed out is the Nifty Pharma Index. The Nifty seems to be forming a triangular pattern on the weekly charts.
What is in store? The Nifty has either completed a wave 4 correction or its still going on and the same will be confirmed only upon a breakout or a breakdown from this range of 10,930-10,400 levels, and whichever side it breaks, it will see some follow-up action. Hence, currently the index is in a no-trade zone. Now, if the Index breaks 10,930 levels on the upside, then it will confirm the wave 5 up wherein new life-time highs will be achieved. The medium target above 10,930 comes to 11,400 levels. However, if the Index is unable to provide a breakout above 10,930 and if it breaks 10,400 then it will be a continuation of wave 4, which means more consolidation before fresh highs.
What could investors do? Based on the above observations, we think the Index is still likely to trade within a range in a triangular form before a breakout in its wave 5 up. The ideal strategy in this kind of a situation is to buy on dips till the lower end of the range isnt broken and buy above the breakout of the triangular pattern i.e. above 10,930 levels for fresh life highs. So, till there isnt a breakout from the range, traders should trade this range. The Nifty Pharma Index has bottomed out and we recommend buying pharma stocks for a potential upside in the medium to long run. Stock like Lupin, Sun Pharma and Glenmark have the best of the chart patterns. On medium to long term, we are in a bull market, hence the investors shouldnt panic from this kind of a fall in midcap and smallcap stocks. Once this consolidation is over, there will again be a good buying opportunity.
The author is AVP- Technical and derivatives research, Anand Rathi Share and Stock Brokers
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