Nifty IT Index
The Nifty IT Index is currently displaying signs of nearing a critical resistance level, and the best trading strategy in this scenario would be to book profits on any further rise. This approach allows traders to lock in gains, especially since the index has already experienced a strong upward rally.
The immediate resistance level to watch is 43,200, and traders should consider placing a strict stop-loss at this level on a closing basis. A close above 43,200 could invalidate the current profit-booking strategy and may signal further upside potential, but caution is advised due to the current overbought conditions.
Support on the charts is expected around 42,200 and 42,000. These levels are significant as they represent potential buying opportunities once the index pulls back.
Given that the overall trend in the short term remains bullish, a pullback to these support levels could offer a favorable entry point for traders looking to re-enter the market after booking profits. Technical indicators, including momentum oscillators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), are highlighting a potential correction or underperformance in the near term.
However, this correction should be viewed as a healthy one within the context of the broader bullish trend. The correction may provide the necessary cooling off period before the index resumes its upward trajectory. Given the bullish nature of the short-term trend, it is advisable to avoid short selling at this stage.
Instead, the focus should be on booking profits in the index and its constituents as prices rise. After the expected pullback, traders can look to repurchase the index at the support levels of 42,200 and 42,000. This strategy allows for capital preservation during the correction phase while positioning for potential gains once the index stabilizes and resumes its upward trend.
In summary, the Nifty IT Index is likely to experience a correction in the near term, making profit booking on rises the preferred strategy. Traders should avoid short selling, instead waiting for a pullback to the support levels around 42,200 and 42,000 before considering re-entry. The overall bullish trend remains intact, and the correction should be viewed as an opportunity to accumulate the index and its constituents at lower levels.
Nifty Auto Index
The Nifty Auto Index is currently trading within a well-defined range, with resistance at 26,290 and support at 25,850. This range-bound movement indicates a period of consolidation, and a breakout above or below this range is likely to trigger a significant move in the direction of the breakout. For traders, the best strategy at this juncture is to wait for a definitive breakout before committing to a position.
This approach helps in avoiding false moves and ensures that trades are aligned with the broader market momentum. However, for those willing to take on more risk, there is an opportunity to consider short selling on any rise within this range. The near-term outlook suggests potential underperformance in the Nifty Auto Index, making short selling an appealing strategy if the index nears its resistance level of 26,290.
In such a case, a strict stop-loss should be placed just above the resistance level to manage risk effectively. On the downside, key support levels to watch are 25,600, 25,375, and 25,175. These levels are critical as they are likely to act as strong support, offering potential buying opportunities for short-term traders once the index approaches them.
Accumulating positions near these levels could be advantageous, especially if the index finds stability and begins to rebound from these support zones. The net strategy suggests that while near-term traders should ideally wait for a breakout, more aggressive traders might consider short positions as the index nears its resistance.
The stop-loss for such trades should be placed above 26,290 to protect against an unexpected breakout to the upside. On the flip side, if the index breaks below the support level of 25,850, it could signal further downside, making short positions more favorable. In summary, the Nifty Auto Index is currently in a consolidation phase, and traders are advised to wait for a breakout from the 25,850 – 26,290 range before taking a definitive position.
For risk-tolerant traders, short selling on rises could be a viable strategy, with a stop-loss above the resistance level. Support levels at 25,600, 25,375, and 25,175 are key areas to watch for potential accumulation if the index approaches these levels, as they are expected to provide strong support.
(Disclaimer: Ravi Nathani is an independent technical analyst. Views are his own. He does not hold any positions in the Indices mentioned above and this is not an offer or solicitation for the purchase or sale of any security. It should not be construed as a recommendation to purchase or sell such securities.)
First Published: Sep 05 2024 | 6:38 AM IST
