Nifty IT Index
In the near term, the Nifty IT Index is expected to trade within a broader range of 42,800 to 41,600. A close above or below this range would likely trigger a decisive move in the respective direction.
Given this context, the best trading strategy for near-term traders is to book profits on the rise as the index approaches the upper end of its range.
By doing so, traders can capitalise on the recent gains and protect their profits amid potential volatility. Staying in cash during this period of consolidation could be a prudent move, as it allows traders to reassess the market dynamics and re-enter positions at more favourable levels. The consolidation phase might be characterised by underperformance, where the index could experience sideways movement or minor corrections.
The key support levels to watch are around 41,000, 40,300, and 39,800. These levels represent potential buying opportunities for traders looking to re-enter the market after the expected consolidation phase. A close below 41,600 would indicate a deeper pullback, where support at 41,000 would come into play, offering a potential entry point for bullish traders.
Nifty Auto Index
The Nifty Auto Index is currently facing significant resistance at the 26,000 level, struggling to break through this barrier on a closing basis. This inability to surpass the 26,000 mark indicates that the index is encountering selling pressure at higher levels, which could lead to a correction in the near term.
Given this scenario, the best trading strategy for near-term traders is to adopt a sell-on-rise approach, with a strict stop-loss placed at the 26,000 resistance level. By doing so, traders can manage their risk effectively while capitalising on potential downside movements. Technical indicators such as the Moving Average Convergence Divergence (MACD), Stochastic, and Relative Strength Index (RSI) are all signalling the likelihood of a near-term correction.
These indicators suggest that momentum is waning and that the index may experience a pullback before any further upward movement. The MACD, in particular, may be showing signs of bearish crossover, which is a common signal for potential price declines. Similarly, the Stochastic indicator entered overbought territory, indicating that the market could be due for a short-term correction.
The RSI supports the case for a possible pullback. Traders should look to sell the Nifty Auto Index and its constituents when prices rise toward the resistance level, aiming for the support targets at 25,400, 25,050, and 24,800. These targets represent potential levels where the index might find support during its correction phase. Selling on the rise allows traders to take advantage of any temporary price increases while positioning for a downside move.
(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: Aug 29 2024 | 6:31 AM IST
