Market Participants Should Be Cautious As Indices Close To Topping Out, Say Analysts
From a very short perspective, as long as the Nifty stays about the 21,300 mark one can employ a 'buy the dip' strategy, Bala said.
Market participants must be cautious as the key indices are close to topping out after having reached a very critical resistance level, according to market analysts.
Markets are exhausted and have come to an important resistance level, and the banking index looks like it is topping out, said Jai Bala, founder and chief market technician at Cashthechaos. "None of the main indices have broken below the critical supports. Until that happens, you can tentatively continue to buy the dips."
Traders must be very conscious that the market is very close to topping out. If critical supports were taken out, the 'buy the dips' strategy would change to 'sell on rise' strategy, and "we are pretty close to it", Bala said.
From a very short perspective, as long as the Nifty stays above the 21,300 mark, one can employ a 'buy the dip' strategy, Bala said.
The markets are on the expensive side as they are trading at 22–23 times PE over the earnings, according to Vijay Chopra, managing director and chief executive officer of Enoch Ventures. "Markets will see a correction, but I won't say it will be a crash."
"It is always better to get out of overbought stocks and get into stocks that have good potential on a fundamental basis," Chopra said.
Benchmark stock indices closed higher for the second straight day on Tuesday after a volatile session led by index heavyweight Reliance Industries hitting a record high.
The Nifty 50 closed 73.85 points, or 0.34%, higher at 21,618.70, while the Sensex gained 0.38%, or 271.50 points, to end at 71,657.71.
Wait And Watch For Bank Nifty
Bala said that he will completely avoid longs in the banking index. "If you draw a trend line from the 2018 highs and connect it to the 2015 highs, all subsequent highs are hitting that trendline."
The critical level for the banks is at 46,920, and if it drops below this level, Bala said that he will start shorting banking stocks. "Avoid longs, and wait and watch for banks," he said.
There might be some correction in banking stocks in the short term, according to Enoch Ventures' Chopra. "Once the Reserve Bank of India starts softening the interest rates, then banks will show a great thumbs up."
Canara Bank Ltd., UCO Bank Ltd., Union Bank Ltd., and State Bank of India Ltd. are great buys during a correction, Chopra said.
The overall market sentiment for Bank Nifty remains in 'sell on rise' mode, Kunal Shah, senior technical and derivative analyst at LKP Securities, said. "The immediate hurdle for the index is at 47,500, where the highest open interest is concentrated on the call side."
