Nifty closed in the green on August 23, taking cues from the pullback in most of the Asian markets.
At present, there is a huge divergence in the performance of the benchmark index and the mid and smallcap indices.
On August 3, Nifty broke out from a strong congestion zone by surpassing the crucial resistance of 16,000.
Nifty smallcap index found major top on the same day when Nifty registered bullish breakout. From the high of August 3, Nifty is 2 percent higher while the smallcap index has nosedived 10 percent.
So, the breadth of the market has deteriorated in the last two weeks.
Many small and midcap stocks have witnessed a correction of more than 20 percent from the monthly high.
While the Nifty is just a couple of percentages away from its all-time high of 16,700, the small and midcap indices are failing to sustain at higher levels.
The Nifty Smallcap index has breached its 50-day exponential moving average (EMA) for the first time since April 2020.
Last week, the Nifty Midcap index gave a bearish breakout from the head and shoulder pattern on the daily line charts which indicates more downside in the index.
The reason behind Nifty’s outperformance is – the support coming from select largecap IT, FMCG and telecom stocks.
These stocks and sectors can still outperform.
Therefore, it is advisable to stick to largecap stocks for short-term trading instead of anticipating bottoms in the smaller stocks.
There could be pullbacks in small stocks due to oversold conditions on short-term charts, but it would be wise to use those opportunities to lighten the commitments.
Nifty has not even violated its 10 and 20-day EMA supports which indicates that the trend of the benchmark index is still bullish on all timeframes.
Immediate support zone for the index is at 16,300-16,350, followed by 15,900-16,000 zone.
The primary trend of the Nifty is bullish till it holds above the 15,900 mark. Any level above 16,700 would further negate the possibility of a bearish trend reversal in the Nifty.
Here are three buy calls for the next 3-4 weeks:
Schaeffler India | LTP: Rs 6,989 | Target price: Rs 8,150 | Stop loss: Rs 6,400 | Upside: 17%
The flag pattern breakout is seen on the daily chart of the stock. It has broken out from the last five week’s price consolidation.
In July, it registered a multi-year breakout with a jump in volumes. The indicator and oscillator setup has been bullish on the weekly charts.
The short-term moving averages are placed above medium to long-term moving averages.
The Nifty MNC index looks very strong on short to medium-term charts. It has been forming higher tops and higher bottoms on the weekly and monthly charts.
L&T Technology Services | LTP: Rs 3,906 | Target price: Rs 4,350 | Stop loss: Rs 3,500 | Upside: 11%
Bullish flag pattern breakout is seen on the daily chart of the stock. It has been finding support at its 50-day EMA.
It has broken out from the last 14-day price consolidation. Price breakout is accompanied by rising volumes.
Indicators and oscillators have been showing strength in the current uptrend.
It is placed above medium to long-term moving averages, indicating a bullish trend on all timeframes.
Britannia Industries | LTP: Rs 3,860 | Target price: Rs 4,250 | Stop loss: Rs 3,635 | Upside: 10%
Last week, the stock broke out from the horizontal channel on the weekly chart with a significant jump in volumes.
It has broken out from the last 13-month price consolidation. The FMCG sector has also broken out from strong consolidation and the sector is expected to outperform in the coming days.
The indicator and oscillator setup has been bullish on the weekly charts. Short-term moving averages are placed above medium to long-term moving averages.
(The author is a technical research analyst at HDFC securities)
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