By Anand James

Record peaks and Seasonality trends to challenge upsides

Seasonality is often a starting premise to gauge a month’s direction. Septembers are generally prone to profit booking especially if the two preceding months have had a rise of at least 0.5% each. However, a dragonfly candle formed in the monthly chart points to bulls having the upper hand as we enter September, having rejected several bear attempts, and broken free of their stranglehold, as is. Momentum indicators point to strength in trend, and could potentially pave the way for large gains. Beyond the seasonality threats, we also have a reluctant 50-day SMA whose lag of 3.25% is close to historical extremes which should call for intermittent drops or several flat days before large gains could be seen. With this in perspective, we will have our eyes on 25,365-25,800 as the nearest upside objective, while the downside marker may be placed near 24,800, a crack of which should see 24,440 as the first downside objective.

Internal tussle seen within Nifty Bank

ICICI Bank, IndusInd Bank, and Kotak Bank saw rising roll costs indicating more interest in paying more to add positions along with better rolls. In the same way, majors from the PSU segment saw falling roll costs along with a fall in rollover numbers. With a 14-month RSI in the overbought region and a reversal candle in the monthly time frame, the PSU Bank Index is indeed going to face headwinds this week. It does not necessitate shorts on the constituents as such, but private banks could indeed see more buying backed by gains in ICICI Bank, Axis Bank, IndusInd Bank and Kotak Bank. Despite three weeks of green candles, retracing over 38% of what Nifty Bank lost from July’s peak, MACD in weekly charts is yet to turn above the signal line. However, other faster oscillators are pointing to a continuation of strength, which we are inclined to pursue, aiming for 51,800-52,000, but the downside marker is placed at 51,100.

Sectoral Cues

Nifty Auto Index has formed a Hanging Man candle pattern in the monthly time frame which is bearish. Also, the MACD histogram has formed an exhaustion candle after 9 months which is also indicating weakness. With monthly RSI ruling above 85, we expect a pullback in the index in the coming weeks initially towards 23320 and thereafter towards 21150 levels. Four-wheeler makers like Tatamotors, M&M, Ashokley and others including Eicher Motors and Hero MotoCorp along with auto ancillary makers like Motherson, Bosch and Tiindia are expected to see profit booking.

It looks like the trend of the Nifty Financial Services index has turned around for the short term. A Supertrend break in the daily time frame is painting positivity in the short term with targets of 24000. Expect insurance stocks like SBI Life, HDFC Life, and ICICI Prudential to lead while Bajaj Finserv, Bajaj Finance, and Cholamandalam Finance to add strength to the upside.

(Disclaimer: Anand James is the Chief Market Strategist at Geojit Financial Services. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)