Heads up! Mid and small-cap indices are approaching overbought zone: Aditya Agarwala of YES SECURITIES

Market Outlook

With technical indicator RSI near 80, it is time for traders to turn cautious while making fresh entries in the broader market, says Agarwala

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Following the constant outperformance, both midcap and smallcap indices are approaching overbought territory i.e. RSI nearing 80 levels which previously has acted as a reversal zone, Aditya Agarwala, Senior Technical Analyst, YES SECURITIES said in an interview with Moneycontrol’s Kshitij Anand. Edited excerpts:

Q) We hit a record high on Monday and since then the Nifty50 was consolidating. It closed lower for the week. What led to the price action?

A) Indian Benchmark Indices ended the week lower led by profit booking after briefly hitting a new all-time high on Monday. Indices have been witnessing minor booking every time after hitting record highs this year as concerns of economic recovery, new variants of Covid-19, and overvaluation keep market participants jittery.

Having said that, charts do not suggest any major weakness or correction in the Nifty50. It is going through a routine consolidation phase and could continue to oscillate in a range with 15,400 acting as a key demand zone.

Q) Smallcap & midcap indices outperformed benchmark indices. What is fuelling optimism in the broader market?

A) Broader markets resumed their outperformance with the midcap index gaining 0.47% while smallcap Index adding 2% last week.

However, following the constant outperformance, both midcap and smallcap indices are approaching overbought territory i.e. RSI nearing 80 levels which previously has acted as a reversal zone.

A larger time frame chart suggests that the uptrend could enter a consolidation phase or a minor corrective wave; therefore, market participants should be little cautious entering markets specially the broader market space at current levels.

Q) Last 10 years data suggests that bulls dominated the price action on D-Street in at least 6 out of the last 10 years. What are your estimates for the month of July, and important levels, events which investors/traders should watch out for?

A) Trade on D-street for the month of July has kick-started on a cautious and muted note following a flat close in the June month.

Further, Nifty-50 Index is stuck in a narrow range at the moment oscillating between 15,400 on the downside with intermediate support at 15,580 and 15,950 on the upside which has been acting as a stiff resistance.

A close beyond this narrow range would trigger the next trending move in the direction of the breakout. A close above 15,950 would gradually take the Index to levels of 16,100-16,200.

Q) Sectorally, power and telecom indices led the fall in the week gone by. What led to the price action?

A) BSE power Index witnessed significant corrections as traders continued to book profits following a massive rally in this sector which had taken the index to extreme overbought levels and a correction was due. A move below 2665 could extend the corrections to levels of 2575-2500.

BSE Telecom is going through a consolidation phase though profit booking was witnessed following weak results from Vodafone Idea. Further, it has a strong support zone at 1300 levels and a close beyond 1500 which is the upper band of the consolidation that would resume the uptrend in the Index.

Q) Your 3-5 trading ideas for the July series (time horizon 3-4 weeks)

A) Here is our recommendations –

Fine Organic Industries: Buy| LTP: Rs 2944| Target: Rs 3200| Stop Loss: Rs 2800| Upside 8%

The stock has broken out from a narrow consolidation phase after taking support at the cluster of previous supports placed at 2800.

Further, volumes have been good in the recent up moves confirming bullishness. RSI turning up from the lower end of the bull territory i.e. 40-level is a sign of strength.

Kaveri Seed Company: Buy| LTP: Rs 765| Target: Rs 870| Stop Loss: Rs 700| Upside 13%

The stock has resumed uptrend after taking support at the neckline of the cup and handle breakout, further, volumes have been good in the pullback candles confirming the bullishness.

The Relative Strength Index or the RSI has also turned upwards after forming a positive reversal suggesting bullishness.

Godrej Consumer Products: Buy| LTP: Rs 891| Target: Rs 960| Stop Loss: Rs 855| Upside 7%

The stock has turned upwards after taking support at the trendline. Further, a trade above Rs 908 levels can take the stock to levels of Rs 960.

Technical Indicator, RSI has turned north after forming a positive reversal which confirms the bullishness intact.

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