Markets at peak, now RBI policy holds the key

Nifty hit an all-time high yet again, moving towards its fifth consecutive positive week. Apart from Federal Reserve maintaining status quo on interest rate for now amid depreciating dollar and lower inflation, strong domestic cues kept the market optimism intact. Exuberant auto sales numbers, where not a single auto company posted a de-growth during the first quarter of FY18, buoyed the markets. The economy achieved a fiscal deficit of 80.8% in the first quarter of FY18. However, the output of core sectors slowed down to 0.4% in June, with infra sector growth slowing down to 19-month low. Moreover, better-than-expected corporate results—despite GST implementation—have restrained correction in the markets so far. Recently, RBI on August 02 has announced 25 bps cut in both repo rate and reverse repo rate to 6% and 5.75% respectively, which is also discounted in the markets. 

Considering the daily time frame, Nifty, after taking crucial support at the 9945 level, has bounced back with a bang to hit three consecutive positive closures. Thereby, Nifty broke its prior all-time high of 10115 made on July 27 and made a new high of 10137. In Tuesday's candle also, Nifty remained volatile and tried to retreat up to 38.2% retracement level of the three-day rally and bounced back to close in the green with rising volumes. However, the broader markets are lacking momentum and the daily moves are driven by handful of stocks that trigger news-based extreme upside momentum. The next 15-20 days would be driven by stock-specific movements amid ongoing corporate results and announcements. Going forward, we may see Nifty consolidating at high levels or going into correction mode next week. In case Nifty continues to hit all-time highs in a sluggish manner, we hold 10150-10300 as the next resistance levels. On the contrary, in case markets retreat from here, we hold 10050-10015 as immediate supports. 

On the weekly time frame, Nifty is in the midst of its fifth consecutive rally, that too in the overbought zone, with no immediate signal of a fall. On a monthly basis, after 5 consecutive rallies, Nifty witnessed a breather in June and started off with yet another positive rally from July. Hence, the August month looks positive, though we may see some correction after the current week. If not, then we may see the rally continuing for couple of weeks more on a closing basis.

In case of correction, we hold 9970-9945 as the immediate support level, followed by 9870-9790. However, if the rally continues, we hold 10500-10700 as the resistance levels above 10300. 

The markets are hitting highs, but the stocks are highly volatile. Hence, we suggest investors to maintain targets and stop losses strictly and act accordingly. Investors can add smaller quantities at every dip in the stocks that have hit their peaks along with the markets. 

 KRBL ............................... BUY ............................... CMP Rs454.60 

The stock of KRBL is currently trading at Rs454.60. Its 52-week high/low stand at Rs477.60/ Rs218.25, which were made on July 20, 2017 and November 9, 2016. Currently, the stock is trading in consolidation after a straight upward rally that breached its all-time high levels. The consolidation is in the form of a prolonged 'pennant' pattern and just witnessed a pattern breakout followed by a pullback in the recent daily candle with rising volumes. The 14-period RSI is also quoting at the 68 level, which suggests some more momentum in the coming sessions. During consolidation, the stock retreated up to 38.2% retracement level, which is also the resistance turned-support level and then bounced back. Recent weekly candle too saw a bounce from 23.6% retracement of the same rally. Thereby, we suggest a buy in the stock in the range of Rs467-470 for a target of Rs512, followed by Rs523 and a stop loss of Rs438. 

NMDC LTD ................................... BUY ......................... CMP Rs123.50 

The stock of NMDC is currently trading at Rs123.50. Its 52-week high and low stand at Rs152.50/ Rs98.75 made on March 2, 2017 and August 11, 2016. Considering the daily time frame, the stock has formed inverse 'head & shoulders' like pattern which has a breakout around Rs128-130 levels. 

Accordingly, the stock attempted a breakout in the previous candle with huge volumes and witnessed a pullback in the recent candle. If this continues, the stock may correct up to Rs125.50-124.75 levels and then give a fresh buying. The 14-period RSI is quoting at 66, which suggests momentum. 

On the weekly time frame, it is the fifth consecutive positive week for the stock, which is likely to continue if it breaks out of Rs126-128. We recommend a buy in the above range with a stop loss of Rs.120.