Nifty Auto to underperform, alerts analyst; should you sell on rise?

Nifty IT Index

The Nifty IT Index has reached a significant resistance level at 4,1650. This is a critical juncture for the index, as a break and sustained trade above this level could trigger further bullish momentum. If the index manages to break above 41,650, the next target or resistance level to watch would be around 42,550. Traders should closely monitor the 41,650 level, as trading above this threshold would indicate a continuation of the upward trend. However, given the strong rally in the near term, the best trading strategy at the current market price (CMP) would be to book profits on any further rise. A pullback is anticipated, with support levels on the charts expected around 40,850, 40,400, and 40,000.

These levels could serve as fresh buying opportunities for near-term traders, particularly as the index moves into an oversold zone, which is expected around 39,650. Traders should use these support levels to plan their re-entry into the market after booking profits at higher levels. The oversold zone around 39,650 presents a particularly attractive buying opportunity, as the index is likely to find strong support here, setting the stage for a potential rebound.

In summary, while the Nifty IT Index shows potential for further gains if it breaks above 41,650, the prudent approach would be to book profits on any rise and wait for a pullback to the support levels mentioned. This strategy allows traders to capitalise on the current momentum while positioning themselves for potential re-entry at more favorable prices as the index stabilizes.

Nifty Auto Index

The Nifty Auto Index is currently facing strong resistance at higher levels, particularly around the 25,600 mark. The index has repeatedly failed to close above this level, indicating a potential weakness and an inability to sustain upward momentum. Given this scenario, the best trading strategy for near-term traders would be to adopt a bearish stance. With a strict stop-loss set at 25,900 on a closing basis, traders should consider selling the index and its constituents.

The expectation is that the index will underperform in the near term, supported by technical indicators like the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD), both of which are signaling signs of weakness. The anticipated downside targets or support levels for the Nifty Auto Index are 24,300, 23,900, and 23,500. A critical level to monitor closely is 25,300. If the index closes below this level, it could trigger a fresh wave of bearish momentum, leading to further declines.

This would solidify the bearish outlook and provide an opportunity for traders to capitalize on the downtrend. In summary, the Nifty Auto Index appears poised for a potential decline, with resistance firmly in place at 25,600 and technical indicators pointing to underperformance. The recommended strategy is to sell on any rise, with a stop-loss at 25,900, and to keep a close eye on the 25,300 level as a trigger point for further bearish momentum.

(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.)