Veteran investor, trader and founder of Indiacharts, Rohit Srivastava, believes that it is time for Nifty to catch up with the broad market and head towards 20,000 as well in the coming days/weeks.

The midcap index on weekly charts is getting overbought with an RSI (relative strength index) reading of nearly 86, while Nifty is not so with an RSI reading of 68, says Rohit Srivastava in an interview with Moneycontrol.

Having almost three decades of experience, he believes that IT is poised for short-term outperformance. His ‘Strike’ analytics tool indicates a 4.90 percent one-month return for the Nifty IT index, positioning it as the second-best performing sector after midcaps.

Q: Do you expect the Nifty50 to march towards its record high in September or will it be a consolidative month for the market?

Nifty has witnessed five weeks of correction, the longest time correction period we have seen in the last two years. Last week Nifty closed positive after five weeks, probably marking the end of this correction period. In the meantime, the Nifty500 is already at a new all-time high on a closing basis.

So, I believe that it is time for Nifty to catch up with the broad market and head toward 20,000 as well in the coming days/weeks. This period of underperformance of largecaps relative to midcaps has some correcting to do. The midcap index on weekly charts is getting overbought with an RSI (relative strength index) reading of nearly 86, while Nifty is not so with an RSI reading of 68.

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RSI is a technical indicator that moves between 0-100, with readings above 70 entering the overbought range.

Q: Do you think the Nifty IT can break more than a year-long consolidation range in September?

Sectors that were underperforming over the last six months are coming on their own recently, and that includes Metals and IT. Metals and IT are likely to outperform in the short term as our ‘Strike’ analytics tool shows a 4.90 percent return for one month for the Nifty IT index, making it the next best-performing sector after midcaps. On a one-week basis, Metals take second place with a one-week return of 5.09 percent.

Q: Is it still a sell-on-rally market?

I do not think so, though we have only had one up day after expiration. My view would be further confirmed once Nifty gets past the 61.8 percent retracement mark at 19,700. After that, it would be clear that this is not a sell-on rally market.

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You feel this way due to the divergence between the broad market and Nifty during the second half of August but that might be about to change, and therefore we should not extrapolate the recent past into the future. September could be different.

Q: In your three-decade of journey, what is the most believable technical chart pattern and why?

Triangles are extremely high-probability events. If you can spot a triangle, especially an Elliott wave triangle, meaning one with five waves inside the pattern, then the odds are that it precedes the final rally in a market or is occurring at the end of the trend/consolidation. This tells us where we are and allows us to consider trades in that direction.

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After the fifth wave inside a triangle, you are almost certain that the previous phase is coming to an end and something new and trending will unfold.

Q: Considering the high volumes on the monthly expiry day (August 31) and the first day of September series, do you expect the Bank Nifty to go back towards 46,000 in the current month?

Bank Nifty and Nifty have been laggards, but this might also be because this sector was getting over-owned after the outstanding earnings performance seen at the end of the June quarter. So, I would only attribute it to profit booking by traders.

Longer term, the upward trend in banking remains intact. The 20-week average for Bank Nifty at 44,145 has been protected during the last two weeks. This should be an important support or pivot from where we can anticipate 46,000 for Bank Nifty again.

Q: Your take on the Nifty Auto that came back strongly after several weeks of consolidation?

The Nifty Auto index has resumed its upward trend and, on weekly charts, may head toward 16,482 near the upper Bollinger band, which is the next resistance. From a near-term perspective, this is wave v of the rally in the auto index from the March lows, and therefore, one has to be prepared for a more prolonged setback after the move up.

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The weekly RSI (relative strength index) at 76 does put it inside the overbought zone but we do not see any signs of a price reversal yet, so for now, ride the move higher.

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