MC interview | Stock up on IT stocks, expect a positive breakout soon, says Ashish Kyal

The Nifty IT Index is trading at 29,550 levels and a Bollinger Band breakout can be seen above 30,900 levels on the weekly time frame, says Ash Kail, Founder, Wavesstrategy.com, in an interview with Wavesstrategy.com. Money control.

Chartered Market Technician recommends better stocking of IT stocks at current levels. “The Nifty IT index is already in a range for exactly one year and we expect a positive breakout soon,” he says.

In terms of stock ideas, Kyal believes that Bank of India and Persistent Systems are showing good breakout on volume and may outperform them this week. Excerpts from the interview:

Nifty has crossed 19,111 as per your prediction. Do you think the Nifty50 will touch 19,500 first and then perhaps take a pause for corrections and consolidations?

Nifty moved very much in line with Elliott wave forecast as we discussed in previous interview and crossed 19,111 level. We have been talking about the bullish outlook since March 27, when the Nifty crossed 17,350, and in subsequent interviews we have also talked about why June 2023 will see the Nifty reach its lifetime high. This shows that Elliott wave technique works very well even in Indian markets.

The overall momentum in the market remains intact. We are in wave (v) and since the momentum is strong, we are seeing extensions. Simply put, this means that a sustained wave pattern can trigger further upside targets. The Fibonacci target is approaching 19,360 levels under the Fibonacci extension of the current wave. There is also a Gann level of 19,391. These Gann levels work very well. The Gann low was at 18,838 and when prices solidly broke above that level after a few days of consolidation, it opened at 19,391. Therefore, 19,330 – 19,391 becomes an immediate obstacle for the current uptrend zone.

Since prices are at their peak, there are no price ranges or historical data. So, these Elliott wave, Fibonacci projection and Gann forecasting tools should be relied upon to understand the targets. Short-term indicators like the RSI (Relative Strength Index) are overbought hourly, so it is better to use the dips to buy while the support is near the 18,900 level.

Read also: This investment advisor says that mid-cap and small-cap stocks in these 3 sectors look quite attractive

What is your Elliott Wave reading on Bank Nifty?

Bank Nifty after making a top on May 30 consolidated or corrected till June 26. After that, the prices finished the 4th wave and started the 5th wave. It was also published Money control with Elliott wave charts on June 19 when Bank Nifty was just close to 43,600 levels and from there we have seen a rise to 44,750 levels.

Bank Nifty trend remains bullish while protecting support at 44,180 which is the gap zone. Bank Nifty’s upside target is close to 45,200 level, but short-term consolidation is possible to ease the overbought position. We are currently in wave (iii) of (v) and it is possible to start a two-day correction (v) in the form of doom wave (iv) which will start again to the upside.

So, dip buying is a better strategy for Bank Nifty to get good risk reward as long as 44000 levels remain intact.

Nifty IT broke 200-day EMA on daily charts after breakout of consolidation and 50-week EMA on weekly charts. Will it gain strong momentum soon or should it continue to sell in a rally?

Nifty IT is actually breaking around the 200 day EMA as it has become flat and prices are trading above and below it. During a sideways market, the moving average gives false signals, and in such cases it is better to use Bollinger Bands.

Read also: How HDFC and HDFC Bank increased the wealth of MF investors

Nifty IT is currently trading at 29,550 levels and a breakout of Bollinger Bands can be seen above 30,900 levels on weekly time frame. In the short-term, prices are already breaking out of the daily Bollinger bands on the daily chart, but a medium-term breakout needs to be above 30,900.

It is better to stock IT at current levels as we can see a strong outperformance from the midap IT space. And large cap stocks can also start leading from here. The Nifty IT index has been moving in a range for exactly one year now and we expect a positive breakout in this area soon.

Or is FMCG technically a portfolio industry?

FMCG has been one of the strongest sectors to take the lead in the current market rally. The sector is looking a little overheated, but there is no reason why stocks in the FMCG sector should not be in the portfolio.

Any correction or decline can be used to enter this sector, but as we have started seeing other sectors perform as well, there may be better risk reward opportunities in other sectors that are just making a breakout like Nifty Pharma.

According to your Elliott Wave analysis, do you expect continuation of the rally in Nifty Midcap?

Even before the Nifty index, the nimble mid-cap and small-cap sectors hit highs. The rally in this sector may continue from a medium-term perspective. Short-term profit booking is not out of the question, but corrections can be used to inject stock from mid-caps.

Read also: Can Nifty Retain Its Mojo in July F&O Series? Here’s what the rollover says

Note that when entering a secular bull market, mid-cap and small-cap stocks provide better rewards and a much higher risk adjustment.

I think India is just entering the next bull market and a short-term headwind or correction will provide an opportunity for investors who can buy and hold the stock throughout the bull trend rise!

Two stocks that can look for double-digit returns next week?

Indian Bank and Persistent Systems are showing good breakout on increasing volume and may be able to outperform during this week. Indian Bank’s support is near Rs 281 with an upside target of Rs 310. Buying on price may be a better strategy. For persistent systems, we can expect a move to Rs 5,300 or above with support at Rs 4,850.

Follow Ashish Kyal on Twitter – @kyalashish

Disclaimer: The opinions and investment advice expressed by investment experts at Moneycontrol.com are their own and not those of the site or its management. Moneycontrol.com recommends that users consult certified experts before making any investment decisions.

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