The Nifty IT index has plunged to fresh multi-year lows, triggering aggressive bottom-fishing. While technical patterns like a daily Morning Star and constructive weekly MACD indicators suggest early trend stabilization, derivatives data remains mixed. With nearly 60% of tech stocks still carrying week-on-week short additions, Anand James, Chief Market Strategist, Geojit Investments warns this could be a tactical short-covering rebound rather than a sustainable trend reversal.
Edited excerpts from a chat:
Following 4 consecutive weeks of gains, what levels is Nifty eyeing in the July series?
Despite the consecutive weeks of gains, Nifty has only reached the April’s highest closing figure from where a multi month downtrend had begun. Friday’s pull back is good in a way, because it keeps the uptrend from premature collapse, as the oscillators had begun to show signs of exhaustion. We see the near term base getting higher from 23800 to 24170 now, thus making 23800 a strong downside marker while we chase short term upsides with an eye on 24170. Expect whip saw moves to 24600, which may not be sustainable initially. However, a close above 24400 could render the trend stable for a 24800-24250 move.
Nifty IT index hit fresh multi-year lows in the week but displayed signs of bottom-fishing in previous 2 days. Is this bounce sustainable?
The Nifty IT index may have finally found near-term support after slipping to fresh multi-year lows, but the sustainability of the rebound remains uncertain. Technically, the setup has improved meaningfully. A Morning Star pattern on the daily chart, coupled with a weekly pin-bar doji after a prolonged decline, indicates strong bottom-fishing interest at lower levels. Momentum indicators are also turning constructive, with the weekly MACD nearing a bullish signal crossover, often an early sign of trend stabilization.
However, derivatives data presents a mixed picture. Nearly 60% of IT stocks witnessed short covering on Friday, supporting the sharp rebound, but a similar proportion still carries week-on-week short additions, suggesting that bears have not completely exited their positions. This indicates that the current move could still be a combination of bargain hunting and short-covering rather than a confirmed trend reversal.
Overall, the odds favour an extension of the recovery in the coming week, particularly if follow-through buying emerges. Yet, the durability of the bounce remains clouded as long as the index trades below the 28,200 zone, which is likely to act as a key resistance. A decisive close above this level would strengthen the case for a sustainable reversal; until then, the move is best viewed as a tactical rebound within a corrective trend.
PSU banks were among the biggest losers in the week. How would you go about trading the pack?
PSU Banks were among the weakest pockets of the market this week, and the technical as well as derivative setup suggests traders should continue to maintain a cautious bias. The PSU Bank index formed a bearish Marubozu candle on Friday, highlighting aggressive selling pressure, while the daily MACD generated a bearish signal crossover earlier in the week. More importantly, a failed weekly MACD crossover attempt indicates that bullish momentum lacked conviction and sellers have regained control.
The derivatives picture reinforces this weakness. Around 70% of PSU bank stock futures witnessed either short addition or long unwinding on Friday, while a similar proportion carried net short positions on a week-on-week basis. This suggests traders are not merely booking profits but are actively holding on to bearish bets, increasing the probability of further downside.
From a trading perspective, rallies should be viewed as opportunities to reduce longs or initiate selective shorts until the sector shows signs of stronger accumulation. Stocks such as Bank of Baroda, PNB, Indian Overseas Bank and Indian Bank appear particularly vulnerable and could continue to weigh on the index.
Unless the index quickly reclaims recent breakdown levels, the path of least resistance remains lower, with 8,250 emerging as the next key downside objective.
GE Vernova, Hitachi and Siemens Energy fell on Friday amid negative news flow around Chinese firms being allowed in India in the power equipment sector. Do you think that these stocks can bounce back and those who missed the rally can buy now?
Their turn lower follows an RSI negative divergence signal, suggesting that downtrend could have more legs. But as they all are near or at their respective 20 week SMA, we might expect some respite early next week However, they have all formed topping patterns, and favoured view sees them unlikely to get back to a sustainable uptrend right away.
Give us your top ideas of the week ahead.
SUMICHEM (LTP: 502)
View: Buy
Target: 540
SL: 480
Sumichem has delivered a strong bullish breakout after spending the past few weeks in a corrective phase. The stock witnessed a decisive daily Supertrend breakout, signaling a potential shift in the short-term trend from bearish to bullish. This move was further reinforced by a positive MACD signal crossover, indicating improving momentum and the possibility of sustained follow-through buying.
What stands out is the exceptional surge in volumes, with trading activity reaching multi-year highs. Such volume expansion accompanying a sharp price breakout often reflects strong institutional participation and lends greater credibility to the move.
The stock has also reclaimed the psychologically important 500 mark and closed near the day's highs, suggesting that buyers remained in control throughout the session. If the breakout sustains, the stock could target the 540 zone over the coming weeks.
That said, given the magnitude of the single-day rally, some consolidation or profit booking cannot be ruled out in the near term. Any pullback towards the 490 could attract fresh buying interest. As long as the stock holds above the breakout zone, the bias remains bullish with scope for further upside.
AZAD (LTP: 2149)
View: Buy
Target: 2255
SL: 2090
Azad Engineering is showing early signs of a bullish turnaround after a period of consolidation. The stock has attracted strong buying interest, as evident from a multi-session volume breakout, indicating renewed participation and strengthening conviction behind the recent move.
Momentum indicators are also turning supportive. The MACD is on the verge of a bullish signal crossover, suggesting that downside momentum is fading. Additionally, the RSI has crossed above its moving average, reflecting improving relative strength and a shift in momentum in favour of the bulls.
Price action has also seen the stock reclaim the 2,100 zone, which could act as an important support area in the near term. Sustaining above this level may pave the way for a move towards the 2,255-2,300 zone.
Overall, the near-term bias appears positive, with traders likely to focus on follow-through buying and the stock's ability to sustain above key support levels.
