We are currently at a level of 19646 on the Nifty as per the closing on 28 July 2023. Irrespective of the actual index level, we are in a firm bull market ever since the indices crossed their previous major peak of 18887 posted on Dec 22. This happened in June 2023. Since then we have had a new swing high of 19991 ( touching distance of 20000) and have seen some retracement.
Technically our markets were in consolidation in the form of expanding triangle formation since September 2021 and this lasted till October 2022. This effectively took out the excesses seen in the previous post-Covid fast bull run from 7500 to 18600.
The Nifty index posted a double bottom at 16700-16800 in September 2022 and March 2023 and this pattern was confirmed on a breakout above intervening peak at 18877. The target for this double bottom pattern visible on weekly charts is 20900. We are still some distance away from these targets as of now.
The more interesting part of the market is the strength seen in the small and midcaps space. I do not want to go into too much detail about the levels etc, but in essence, we have moved up sharply on these indices ever since May 2023, once the previous resistance zones were crossed. The rally has been relentless and even in the face of correction in Nifty, we have not seen major weakness in small and midcaps space.
Going ahead, we might see some cooling off in small and midcap space once the rally reaches exhaustion and reverses.
It is after a long long time that a really strong rally in small and midcap space has been seen for such a long time and with such ferocity. This period reminds me of the rally before the January 2018 top in the markets. The psychology surrounding the markets also seems similar with a lot of stocks giving parabolic moves. There is an element of seller’s regret, wherein anyone who sells anything sees the price of the sold stock go up and make the investor look foolish. This was also a feature of the previous major bull run in small and midcaps seen in 2017 and before.
The key learning from previous rallies was to avoid getting into poor-quality companies. If and when the correction sets in these very stocks will correct the most and at times even exit will be difficult. In this day and age of social media dominance with media like Whatsapp and Twitter, the whisper stocks operators are having a field day and investors need to guard against getting greedy and landing up with poor-quality companies.
There are still a lot of opportunities in the large-cap and high-quality mid and small-cap spaces and one has to be on the lookout for proper entry levels.
Sector rotation has been a feature of our markets for the past few months and quarters and as of now the fancied sectors seem to be defence, railways, public sector enterprises, power sector etc. Of late a lot of other sectors are also showing a good amount of strength and this gives a feeling of a broad-based rally in the markets. In such a scenario the stock and sector selection is a key to making outsized returns and investors need to focus on these aspects.
We at HITPICKS have had a good run in most of our picks. We have been careful in selecting breakout stocks that have good fundamentals and that strategy has paid good dividends. Going ahead too, our endeavour will be to keep picking good companies with strong technical setups for outsized returns. We have been allowing some of our winners to run beyond the earlier-mentioned targets because we see further upsides beyond our previously mentioned targets too. So the idea has been to allow the winners to run and make the most of the calls that have gone right. Wherever we feel that the run-up has been extended, or we are expecting consolidation/correction after sustained rallies, we have been advising booking profits. I hope everyone has been making the best out of our calls, and may the good times continue.
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