Some consolidation before the next move
The best strategy for an investor would be to take a look at each stock in portfolio and decide whether to sell or not

After a long time large-cap stocks were able to make a comeback and that led the Nifty to a new highs, twice last week. But the chances that most small traders and investors were reeling under losses is high as, once again like at the start of 2018, last week mid- and small-cap witnessed sharp cuts on Thursday and those pains were not reflected in the Nifty. While the Nifty gained more than 2 per cent last week, the Nifty mid-cap index was in the red territory.

The biggest dilemma for retail investors is should they book profit and also losses on their mid-cap positions. The answer is not simple, given that in case of mid-cap stocks it’s the market capitalisation that binds them together but at the same time all stocks and companies have their own individual narratives and depending on which future price performance they would depend upon.

Now in such cases, best strategy for an investor would be to have a look at each stock in portfolio and decide whether to sell or not. For the stock that the investor is planning to hold, he/she should be ready to see a 25-30 per cent decline in stock price given that corrections of the bull market are brutal to mid-cap stocks. Thus sell the scrips where hope is the main reason behind upmove. Today there is no dearth of stocks, which are floating on hope and only hope.

If one is uncomfortable in selling individual, just sell 20 per cent across portfolio. Thus if the market crashes further one has the ability to buy at lower levels. As valuations are certainly not cheap, it’s time investor should take some profit off the table.

As far as news flows is concerned, it was largely positive in case of macros. On top of that, the government said it would not borrow as much as was being anticipated at the start of year. This gave a relief to bond markets as yields came down and the rupee after a scare stabilised in just one single session.

As far as earning season is concerned, it’s largely on expected line though some FMCG companies were able to positively surprise both in terms of volumes growth and bottom line numbers. The guidance that came from companies, which operate largely in rural areas, indicated that the rural demand is good and that’s probably much bullish indication on the fundamental front.

As far as news flow from international market is concerned, it was slightly negative from Indian perspective – oil prices inched up and what’s more troublesome is that shale gas production in the US has still not seen the rise it should have for the oil prices to correct. Also numbers that came from China are indicating that commodity prices might stay firm, which essentially could be good news for some indices but surely not for companies, which use them as raw material.

Coming to oscillators charts, most continue to stay in the buy mode and inch up further in the positive territory. The moving average convergence divergence (MACD) on daily charts is in the buy mode as it moves upward in the positive territory. On the weekly charts, average and trigger line that had been moving close to each other for a long time are making another attempt to give a clear buy signal buy signal as they diverge a bit from each other.

The 12-day rate of change (RoC) is placed in the buy mode as it continue to move upward in the positive territory and all the divergence that was visible in last couple of trading session has been taken care off. The extreme short-term indicators that had been moving in sideway direction in the overbought territory for a long time have once again moved upward in that zone indicating continuation trend.

As far as short support and resistance levels are concerned, first resistance to the Nifty comes at 11,050 after which another round of short squeeze will take it towards 11,200. As far as the support level is concerned, the low of 10,782 formed on last would be first short-term support level, which if broken by the Nifty would push another round of short position getting built and take it towards, 10,622, which is the support level that the Nifty should not break for the current trend to come under serious threat. What traders need to look as what is leading the correction? If it’s the banking stocks than probably the correction may last for a day or two, but if it’s being led by metal and IT then it might be last even lesser period of time. But if there is weakness all around than traders need to watch for because that would mean a correction, which will impact broader market even more.

rajivnagpal@mydigitalfc.com