Traders shall play on both sides to make most of volatility: Kunal Shah

Domestic equity markets will continue to remain weak in the near term as long as Nifty50 remains below 18,000 levels, said Kunal Shah, Senior Technical & Derivatives Analyst at LKP Securities. Traders should play on both the sides, long and short, to make the best of volatility, he added. Read the edited excerpts.

The Nifty50 index ended the week in the negative zone after hitting 18,000-levels. What were the key reasons behind this pullback and what is your for the index in near term?
The index after a sharp rally from 15,200 to18,000 is witnessing signs of profit booking at the higher levels. The Indian stock market is in a strong bull run and every bull run has sharp profit booking during its journey which we are witnessing currently. The undertone remains bearish in the short term as long as we stay below the level of 18,000.

Nifty Bank scaled lifetime peaks during the week and outperformed Nifty50. What is your take on it? Do you have any signs of strength for the index? Which banking stocks should one watch in the near term?
The Banking index was one of the outperforming index in the recent rally and is now showing signs of resistance at the higher. The index is likely to consolidate in the range of 40,000-42,000 in the upcoming week and a break on either side will decide the clear trend. The short term outlook remains weak with a sell on rise approach as long as it stays below the level of 42,000.

On a technical front, what are the key support and resistance levels for the Nifty and Bank Nifty and what should be investors' strategy to make best of it?
Nifty support stands at 17,200 and resistance at 17,800. Bank Nifty support stands at 40,000 and resistance at 42,000. Traders should play on both sides in this volatile market.

What is your take on midcap and smallcap stocks? Do you see pain coming in them? Please suggest some picks from these sectors.
Midcap and small cap indices were the ones in the last one month where the majority of the buying action was witnessed. The index is in a strong uptrend and one should have a buy on dip approach. For stock specific action one can focus on stocks such as Karnataka Bank, Sumitomo Chemicals where good price action was seen throughout the week.

After a short-lived comeback, IT stocks again fell out of favour. Do you see more pain in IT counters? Why or Why not? What stocks should one trade in the near term?
The IT sector is trading near its 52-week low and is in a strong downtrend with lower high and lower low formations intact. The outlook is weak in the near term and there is more pain left in the sector due to the weak outlook of NASDAQ. The American markets are facing their own challenges and we being a major exporter to the US markets is going to dent the profitability of Indian companies as well.

Realty pack has been another major losing sector. What is hurting them? Do you think interest rate hikes are denting the demand for the housing sector, which may block its road to recovery?
The realty sector is facing times because of the rising interest rate cost due to the inflation concern. However the Indian markets are still in the comfortable zone and have a good margin of safety from the current levels. The interest rate if it rises further in the September end RBI policy will lead to selling pressure going forward.

With the much awaited festive season, auto stocks have signalled some strength before the mega launches. What are your top picks from the Auto pack? Do you think passenger vehicle stocks will lead the rally?
Auto sector has been an outperforming sector in the current year and the momentum is likely to continue ahead of the festive season. The technical trend remains very strong with all the momentum indicators trading in a strong buying zone. Yes passenger stock will continue to lead the rally and we are bullish on Mahindra & Mahindra and Maruti Suzuki India in the near term.