Kunal Bothra’s 2 top trading ideas for Monday morning

All the marginal dips or consolidation should be taken with a positive bias, market expert Kunal Bothra tells ET Now. DCM Shriram and HCL Tech are his picks for the traders. Edited excerpts:

There was a touch and go moment with 10900. There was a bit of a step back and then managed to surface around the10800 mark. Which way are we headed for the week ahead?

Looking at the charts I believe we are in a range now. After that big rally last week or the week before that, the markets are going through a process of sectoral churn. Two sectors which have done remarkably well were Nifty IT and Nifty Pharma. Most of the other stocks are bit of a or rather witnessing bit of a profit booking.

Nifty metal and the Bank Nifty were a bit soft last week. Nevertheless, the trend still remains intact on the Nifty. Till the time we do not breach key support levels on the downside, all these marginal dips or consolidation should be taken with a positive bias.

Eventually, if the sectoral churn and the health of the market improve, we should see the indices heading up higher. So, I maintain a positive stance till the time we breach 10700, a key short term support. Till then, the bias remains bullish.

What is your perspective on pharmaceuticals? Where is meat in the trade even in the week ahead?

The start of a fresh rally is led by a lot of pessimism, negativity and the prices move into their own trajectories. What we saw in the first half of last week was very interesting because all the stocks rallied on the back of couple of key pharma stocks.

Stocks like Dr Reddy, Lupin and Sun Pharma have broken their 200-day moving averages last week and that too by a good amount of margin on the back of strong volumes. That goes on to show that these stocks have started a decent momentum after years of correction and such a momentum and sharp price appreciation backed by stronger volumes is a sign of a change of trend.

A trader has to pick and choose stocks but I believe Sun Pharma, Aurobindo Pharma, Dr Reddy, Lupin are the four classic cases of trend reversal which I am spotting on the daily weekly charts. You should see these stocks riding on high momentum in the near medium term.

We have been talking about this correlation between Reliance and the index. Reliance moving up does not mean that the index does as well. Can you do a standalone analysis of Reliance Industries’ charts?

After four or five months of extreme sideways movement, there is an 8-10% range move now. It is seeing a pickup in momentum. When you see a stock breaking multi-year lows as it did in 2017 Feb after moving sideways for 9-10 years, then it has to be a very strong uptrend.

In every period of rise, you see the stocks consolidating which tend to be very positive. I would expect that the stock should not just start a short-term uptrend. But on the medium and long-term charts, those are multi-year breakouts for Reliance Industries. Historically. we have seen that if you break for example a nine-year kind of a range, you go into at least a three year-three and a half odd year kind of a uptrend. So far, it is just about one-one-and-a-half odd year of price uptrend which you have seen for Reliance and this trend should continue for next one year.

Metals have paused and they have actually underperformed in the week gone by. What is going on with metals? Do you expect some more pressure in the week ahead?

Yes, individual pockets of metal stocks are showing a renewed sense of weakness because in 7-10 days, we saw the indices rallying a good 3-4% odd but metal stocks were down 3% last week. Most of the metal stocks like Tata Steel and Vedanta are struggling to break their key averages. Every time you see any signs of weakness, these stocks come back and are susceptible to break the new lows. The tendency of these stocks for breaking new lows but unable to breach highs is a sudden change which you are seeing in the sector.

This weakness should continue because the Nifty metal index overall is heading towards a moving average breakdown and if we happen to see weakness for the next one or two weeks, you could go into a spiralling downtrend for metal stocks. So, one has to be very cautious in this sector from an investment point of view as of now.

Give me some trading ideas for Monday morning?

There are two stocks; the first is DCM Shriram, a midcap. After a bit of range- bound action, it is showing some very positive price action. Volumes have been very good last week overall and the stock in the Rs 305-310 range is a good bet.

I would place the target closer to Rs 335 on DCM Shriram, recommending a buy with a stop loss of Rs 292.

The second is HCL Tech. A lot of these largecap IT stocks have started to rally. HCL Tech is also trying to pick up a trend bouncing off from the 200-day moving averages. It is a buy with a target closer to Rs 985 and stop loss at Rs 925.