A downside break of 10 day SMA, which kept protecting the trend for most of the days since the April’s rally began, sparked fears of major down move. But the 20 day SMA quickly came into support, swinging Nifty back into the upside trajectory. However, repeated swings kept disappointing both bulls and bears last week. We feel that such swings are characteristic to VIX floating in the 17 vicinity.
Small caps have started bubbling. Froth yet on small caps
Last week we had pointed out that SMIDs’ bounce of the previous week has not formed any froth in order to signal any bubble like situation. But last week, we found that SMIDs, especially the small caps have started to outperform, even on days of falls on the Nifty.
Reflecting this sentiments, we found that on 22nd of May, when Nifty fell sharply from open, pushing 72% of its constituents below their respective 10 day SMA, only about 25% of the small caps closed below this key benchmark. At close of Friday, 69.6% of small caps were trading above their respective 10 day SMA, while Nifty 50 had 50% of them, above the same. The figures for 20 day SMA were 84 and 70 for small cap and Nifty 50 respectively.
PSU Banking Index poised for reversal amid technical breakouts
The PSU Banking index has been in a profit-booking phase this week but has managed to hold above the Supertrend. Notably, it closed above the declining trendline resistance, while the MACD histogram on the daily chart indicates exhaustion at lower level signaling potential for a strong reversal.
Key banking stocks such as State Bank of India, Bank of Baroda, Punjab National Bank, Union Bank, and Canara Bank have either crossed their respective weekly Supertrend levels or are showing signs of diminishing short-term bearishness. This is further supported by the weekly SMIO close to moving above the zero line. From a derivative perspective, 57% of PSU Bank stocks saw long buildup on the last day of the week and 43% saw short covering on a week-on-week basis adding to the positive construct.
We expect State Bank of India, Bank of Baroda, Punjab National Bank, Union Bank and Canara bank to lead the recovery in the coming weeks.
IT stocks signal reversal with strong derivative support
The IT index has been trading within a widening wedge chart pattern since 2024 and has recently bounced off the rising trendline support, indicating a potential reversal. Despite a weak start to the week, buying resumed toward the end, and the weekly MACD has crossed above the signal line – reinforcing the bullish outlook.
From a derivatives perspective, 90% of IT stocks witnessed long build-up on the last trading day of the week, further strengthening the positive sentiment.
We expect TCS, Infosys, HCL Tech, Tech Mahindra, LTI Mindtree, and Persistent Systems to lead the upside in the coming weeks.
Nifty outlook
Friday’s rise found 24,950 discouraging the bulls yet again, but we are encouraged to enter the new week with more positivity than earlier. A morning star pattern in daily charts, that has now followed a parallel consolidation in hourly charts backed by repeated support offered by the 24,500 region, is suggestive of more gains to follow. This would mean that the nearest peak of 25,235 may be overcome, with sights on 25,460 as the nearest objective and 26,250 as an optimistic objective.
That said, inability to push beyond 24,950 would prompt us to pull back into risk off mode, with downside marker placed at 24,755. A collapse is not expected, but 24,500 will stand in the way of activating a 24,060 move.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
Disclaimer
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.