The relative strength index is approaching an oversold territory, and if the Nifty manages to regain its 100-DMA of 17,840, which coincides with a 50 percent retracement of the previous rally from 16,748 to 18,888, then there can be a short-covering move in the market, believes Santosh Meena of Swastika Investmart.
On the upside, he feels, the 18,000–18,100 area will act as a supply zone, and the Nifty has to cross its 50-DMA of 18,200 for any meaningful strength.
“I think the first half of 2023 may be a time of consolidation, and the second half of 2023 may bring about a resurgence,” the Head of Research with more than 10 years of experience in the financial markets with expertise in technical and derivative analysis shares with Moneycontrol in an interview.
Long-term investors should begin building up portfolios of high-quality IT equities, but they shouldn’t be overly aggressive and should maintain perspective of 2-3 years, he advised.
Considering the severe correction, are the charts telling you that the worst is over and the Nifty50 can rebound in the monthly expiry week?
Technically, the Nifty has broken down multiple support levels effortlessly. First support was the 50-DMA (daily moving average) of around 18,150, then 18,070, which was a 38 percent retracement of the previous rally from 16,748 to 18,888. It was also upsloping trendline support drawn from the June low of 15,183.
It has closed below both its 20-week SMA and 100-DMA. However, the relative strength index (RSI) is approaching oversold territory, and if the Nifty manages to regain its 100-DMA of 17,840, which coincides with a 50 percent retracement of the previous rally from 16,748 to 18,888, then we can expect a short-covering move in the market.
On the upside, the 18,000–18,100 area will act as a supply zone, and Nifty has to cross its 50-DMA of 18,200 for any meaningful strength. On the downside, 17,640, 17,565, and 17,425 will be the next important support levels.
What is the overall Option data and indicators suggesting about the further market trend?
If we look at the derivative data, then a Put/Call ratio of 0.72 is showing an oversold reading, while FIIs are biased on the short side with 56 percent short positions in the index futures. The open interest (OI) distribution chart suggests 18,000 as a stiff resistance level, while 17,800 and 17,500 are immediate support levels.
On Friday’s trading session, FIIs bought 1,53,304 contracts of index Calls to play any bounce back; however, they also bought 1,22,799 contracts of index Puts to hedge themselves from the further sell-off. They also sold 1,40,837 contracts of index Calls and 73,091 contracts of index Puts to eat premiums if volatility cools off.
Do you expect the Bank Nifty to breach 40,000 in coming sessions?
Bank Nifty has fallen below its 50-DMA and major support level of 41,800, which is bad news for the bulls. 41,600, on the other hand, is a short-term gap support established on November 11. Below this, 40,800 will be the next major support level.
On the upside, the 50-DMA around 42,200 will act as an immediate hurdle; above this, we can expect a short-covering move towards 42,500-43,000 levels. There is now extremely little chance that the 40,000 level will be broken. The highest OI, according to OI distribution charts, is set at 43,000 Call strikes, but the second highest OI, at 42,000, presents an instant challenge. On the downside, the range between 41,500 and 41,000 is a solid support area, and 40,000 is a substantial base.
Do you think the IT index has big support at 28,000 mark in short term? Also are the IT stocks looking attractive enough to buy now?
The Nifty IT index has a strong immediate support at 28,000, but if things don’t settle down at this point, it can return to its major base at 26,200. The psychological level of 25,000, which is a 50 percent retracement of the rally from the bottom in March 2020 to the high in January 2022, is a significant support level if that level is broken.
Prior to dropping in 2022, the Nifty IT index did well in 2020 and 2021. For the Nifty IT index, I think the first half of 2023 may be a time of consolidation, and the second half of 2023 may bring about a resurgence.
Long-term investors should begin building up portfolios of high-quality IT equities, but they shouldn’t be overly aggressive and should maintain perspective of 2-3 years.
Do you see any possibility of India VIX moving beyond 20 mark in coming weeks?
India VIX experienced a significant recovery after reaching level 11. The India VIX historically turns around at level 11. It is still too early to predict whether it will surpass 20 mark.
On an immediate basis, a 100-DMA of 17 may operate as a key barrier to calm market volatility, while a 200-DMA of roughly 19 will serve as a critical barrier.
What do you prefer for 2023 – midcaps or largecaps?
While Nifty and BankNifty did their jobs to comfortably test new highs, midcap stocks underperformed in 2022 and the Nifty Midcap index failed to hit its all-time high. The overall market underperformed mostly due to increasing capital costs and inflation.
Short-term market volatility is possible, but midcap equities should do better as the market adjusts to reduce inflation and peak interest rates in the US.
Technically, the Nifty midcap index is encountering resistance at 33,000, and we once more witnessed a big fall from that level. However, it is near its 200-DMA and previous swing low around 29,800, where we can see calmness and fresh buying momentum.
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