Bears likely to take charge of D-St if Nifty breaks below 16,500 in October series: Sujit Deodhar

“I would watch for the levels of 16600-16700 levels for going long on the index with a stop loss to be placed below 16500 levels on a closing basis as those levels will act as a strong support," says Sujit Deodhar, Head - Technical Analyst, Wellworth Share & Stock Broking Ltd.

In an interview with ETMarkets, Deodhar, said: “On the higher side, 17500 followed by 18000 would act as resistance. Any move below 16500 would be seen as a sign of weakness and then we might see a sell-off which could open room for the index to head towards 16150-16000” Edited excerpts:

You might want to call this a Fed effect. Indian market fell by about 2% in the week gone by. What led to the price action?
The Indian markets compared to the US markets and other global markets have outperformed from the past two months where the leadership was mainly seen from the Bank nifty.

But the sharp decline that we saw in the index was led mainly by the strengthening of the dollar index.

It can be seen on the Monthly charts of the dollar index that it made a double bottom formation at 89-90 levels and the target for the same was placed at 115-117 levels.

The level of 120 seems to be a strong resistance for the dollar index and in the short-term one can expect some profit booking there.

Post the September series expiry – where do you see markets moving in the October series?
We saw a bearish move on the index in the September series where the index corrected by around 4-4.5% compared to the previous month. It can be seen that the index corrected back to its 100-Day moving average placed around 16700 levels.

For the October series, I would watch for the levels of 16600-16700 levels for going long on the index with a stop loss to be placed below 16500 levels on a closing basis as those levels will act as strong support.

On the higher side, 17500 followed by 18000 would act as resistance. Any move below 16500 would be seen as a sign of weakness and then we might see a sell-off which could open room for the index to head towards 16150-16000.

The rupee took a hit in the week gone by. Where do you see the currency headed in the coming week?
USD-INR post breakout from 76.85 levels had a target of 80.80-81 levels which was achieved last week. On monthly charts, RSI (Relative Strength Index) is at 76.75 levels in the overbought zone.

It can observe that in the last two instances (August 2013 & October 2018) when the RSI value was at 78 levels on the monthly chart the USD-INR was corrected.

There is a consecutive nine-month green candle on monthly charts of USDINR (Jan 2022-Sept 2022) so some cooling off is likely to be seen in the coming week & month.

What is the texture of the market – buy on dips or sell on rally kind of market?
Right now, if we see the weekly charts of Nifty, the index has not broken its high of 18114 levels to confirm that it has started the higher top higher bottom series to form a view of buy on dips.

Though the broader markets and the market breadth have been strong in this up move from 15191-18096. So, from Bank nifty & midcaps perspective it can be observed that both the indices have taken out their previous swing tops & that’s the space where the approach of buy on dips can be done.

FIIs have also turned net sellers in the cash segment of Indian equity markets. Will the trend continue in October?
There have been many outperformers in the cash segment in the last 1-2 months though the FIIs have turned net sellers.

So, the trend of outperformance will continue in the October series too but there has to be right stock picking. To name a few stocks Liberty Shoes, Karur Vysya Bank, and Renuka Sugars have performed well in the past 1-2months.

Utilities, power, and metal fell the most (down over 5% in a week). What led to the price action?
These sectors had a strong upside leg post Covid if we see the long-term charts. It seems that they are into consolidation and any sell-off in these sectors offers buying opportunities.

A lot of stocks are trading at a 20-50% discount to their 52-week highs after the recent fall. What is the checklist one should follow while buying the dip?
Well, this recent correction offers a great buying opportunity in many blue chips as well as midcaps. But, one has to be smart enough to pick the right ones.

The basic thing that one should look at before entering the stock is to check whether the stock is trading above its 200-Day moving average & this could filter many out of the whole.

The significance it carries is that you are entering only those stocks where the trend is up & then the fall is assumed to be a correction & not a trend reversal.

In Technical analysis, there are many other indicators too which we follow & one can see those too to be more precise.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)