Chartist Talk: Nifty’s technical setup signals caution, but outlook bullish on these 4 stocks for next week, says Sudeep Shah of SBI Securities
According to Sudeep Shah, Head - Technical and Derivatives Research at SBI Securities, the technical setup paints a cautious picture for the Nifty 50 for the near term, with rallies likely to face resistance and selling emerging at higher levels.
Even the FII long-short ratio for index futures also reinforced the bearish outlook on Indian equities, but from a contrarian standpoint, such extreme bearish FII positioning could imply that the market is oversold in the short term. Any positive trigger could prompt short covering, potentially leading to a sharp rebound, he said in an interview to Moneycontrol.
He is bullish on Kajaria Ceramics, and Affle 3i. "Kajaria registered a breakout above a horizontal trendline on the daily chart, supported by robust volume, while Affle continues to trade above key moving averages, and technical indicators point to sustained bullish momentum.
Further, he believes Cummins India and Global Health continue to exhibit a strong bullish trend, even amid broader market weakness.
Considering the pressure at higher levels, do you expect the Nifty 50 to break below the 24,000 (50-week EMA) level in the coming week, despite a possible initial rebound?
The benchmark Nifty index extended its losing streak for the sixth consecutive week, marking its longest stretch of weekly declines since the COVID-19 market crash in 2020. This persistent weakness underscores the prevailing bearish sentiment in the market. What stands out technically is that for the fourth week in a row, the index has formed a bearish candle with a long upper shadow. This formation signals that every attempt at a rally is being met with strong selling pressure, indicating a lack of conviction among bulls and a clear dominance of bears at higher levels.
It is now comfortably trading below its 20-day, 50-day, and 100-day EMAs, all of which are sloping downward — a clear sign of sustained bearish momentum. Adding to the negative outlook, the RSI on the daily chart has entered a super bearish zone, as per RSI range shift principles.
Further confirmation comes from the MACD indicator, which remains in bearish territory. The MACD line is quoting below both its signal line and the zero line, reinforcing the downtrend and indicating that selling pressure continues to dominate. Overall, the technical setup paints a cautious picture for the near term, with rallies likely to face resistance and selling emerging at higher levels.
Talking about crucial levels, the zone of 24,200-24,150 will act as important support for the index as it is the confluence of the 200-day EMA level and 38.2% Fibonacci retracement level of its prior upward rally (21,743-25,669). If the index slips below the 24,150 level, then it is likely to extend its southward journey up to the 23,750 level. On the upside, the 100-day EMA zone of 24,570-24,600 will act as a crucial hurdle for the index.
Are FII positioning and option data also indicating a bearish sentiment for the market going forward?
Yes, current data suggests that FIIs are adopting a cautious and bearish stance. So far this month, FIIs have offloaded equities worth Rs 14,018.87 crore, reflecting a clear risk-off sentiment amid global uncertainties and domestic challenges.
Moreover, the FII long-short ratio for index futures has dropped to just 8.28% — one of the lowest levels seen recently. This indicates a strong tilt towards short positions, reinforcing the bearish outlook on Indian equities.
However, from a contrarian standpoint, such extreme bearish positioning could imply that the market is oversold in the short term. Any positive trigger — such as easing global concerns or supportive domestic developments — could prompt short covering, potentially leading to a sharp rebound.
Do you expect the Bank Nifty to find support near the previous swing high around 54,500, or could the decline extend towards the May lows?
The banking benchmark index Bank Nifty also ended the week on a negative note, reflecting continued weakness in the financial space. On the weekly chart, it formed a bearish candle, indicating persistent selling pressure. Over the last two sessions, the index has been hovering near its 100-day EMA.
Going forward, the 100-day EMA zone of 54,950–54,850 will be a critical support area. A sustained move below 54,850 could intensify the downtrend, opening the gates for a decline toward the next support zone of 54,000–53,900. On the upside, any recovery is likely to face resistance near 55,700–55,800, which now acts as a key hurdle for the bulls.
What are your top two stock picks for the next week in this bearish market environment?
The stock has been consistently outperforming frontline indices over the past few trading sessions. On Friday, it registered a breakout above a horizontal trendline on the daily chart, supported by robust volume — a key confirmation of bullish intent. Technically, the stock is trading above all major moving averages, and momentum indicators are aligned positively, reinforcing the strength of the ongoing uptrend. Given this setup, we recommend accumulating the stock in the Rs 1,310–1,300 range, with a stop-loss at Rs 1,250. On the upside, the stock has the potential to test Rs 1,410 in the near term.
The stock recently found support near its 100-day EMA and has since witnessed a sharp upward move, outperforming frontline indices. Currently, it is consolidating in a narrow range, forming a solid base around its 20-day EMA — a sign of strength and stability. It continues to trade above key moving averages, and technical indicators point to sustained bullish momentum. Given this setup, we recommend accumulating the stock in the Rs 1,970–1,950 zone, with a stop-loss at Rs 1,880. On the upside, the stock has the potential to test Rs 2,150 in the short term.
Do you observe a flag formation in the Nifty Auto index since mid-May? What is your technical interpretation of the pattern?
No, the current price action in the Nifty Auto index does not qualify as a flag formation. A flag is typically a short-term continuation pattern that forms over a brief period following a sharp move. In contrast, the Nifty Auto index has been consolidating within a broad range of 24,226–22,916 for the past 59 trading sessions — a duration that exceeds the typical timeframe for a flag.
Despite this prolonged consolidation, the index has shown notable resilience amid broader market weakness. It has outperformed frontline indices and avoided major corrections during recent declines. The ratio chart versus Nifty is at a 24-week high, underscoring its relative strength.
Technically, the index remains above its 100 and 200-day EMAs, suggesting a positive undertone. However, momentum indicators are currently flat, indicating a lack of strong directional bias. Going forward, a decisive breakout above the 24,000 mark could trigger a sharp rally, while the 200-day EMA zone of 23100–23,050 will serve as a key support area.
Despite the broader market correction, do you expect the bullish trend to continue in Cummins India and Global Health, given their relatively strong weekly chart structure?
Yes, both Cummins India and Global Health continue to exhibit a strong bullish trend, even amid broader market weakness. Their weekly charts reflect a well-defined upward trajectory supported by healthy volumes, indicating sustained buying interest.
Technically, both stocks are trading above key moving averages, and momentum indicators are aligned positively, reinforcing the strength of the ongoing uptrend. This suggests that, unless broader market conditions deteriorate significantly, the bullish momentum in these counters is likely to persist.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions
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