D-St on a high! 48 out of 50 Nifty stocks above 50 & 200 DMA; time to book profits?

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After a dream run of 2020 both Sensex and Nifty50 climbed fresh peak in the first week of January, and given the momentum we have seen, there is no stopping as every dip is getting bought into.

It is a broad-based rally unlike what we saw in January 2019 when Sensex and Nifty climbed fresh peak but that was at the back of few stocks. But, after March, the rally has been broad-based and swift.

Experts are of the view that after a steep rally of about 70 percent from the lows seen in benchmark indices some bit of consolidation cannot be ruled out.

“During the pre-COVID times our markets were at record highs but the benchmark indices did not portray the right picture of our markets. Only a few handfuls of heavyweight names drove markets at elevated levels but the broader market kept sulking for more than one and half years,” Sameet Chavan, Chief Analyst – Technical and Derivatives, Angel Broking Ltd told Moneycontrol.

“The real beauty of this marathon rally that we have been witnessing since last few months. Almost all pockets have contributed to it after surpassing their key moving averages (50 DEMA and 200 DSMA) and thus, makes it healthy for a longer run,” he said.

In terms of technicals parameters, 48 out of 50 Nifty stocks are trading well above their short term and long term moving averages i.e. 50-DMA, and 200-DMA. And, all 30 stocks in the S&P BSE Sensex are trading above their 50 & 200-DMA.

Only two stocks in the Nifty50 namely Hero MotoCorp and Britannia Industries are trading above the 200-DMA but below 50-DMA, as on data collated on 4th January.

Stocks that are trading above their 50 & 200-DMA include names like TCS, Bajaj Auto, Divi’s Laboratories, Maruti Suzuki, Nestle India, Asian Paints, HDFC, RIL, Kotak Mahindra Bank, and Shree Cement, etc. among others.

Note: The closing price is as of 4 Jan, 2021

What should investors do?

From a fundamental perspective to safeguard portfolio, it makes sense for investors to diversify their portfolio given the steep rise seen so far in the current financial year.

“From an investor perspective, in a boom phase, investing requires absolute care. Given that equity as an asset class has rallied continuously, one has to be cautious. At such times, adhering to asset allocation is of absolute importance,” S Naren, ED & CIO, ICICI Prudential Mutual Fund told Moneycontrol.

“Spread investments across equity, debt, gold, etc, rather than going overboard on any one particular asset class. This will ensure that whenever there is a correction, the portfolio is not adversely impacted. One can also achieve this by investing in asset allocation schemes,” he said.

From a technical perspective, a stock that is trading above both the 50-DMA and 200-DMA is considered strong or in a powerful uptrend, but the big question is where should one invest?

Momentum or the trend is usually the first few parameters that are analysed before a trades takes a call on the stocks either to buy or sell. When all the stocks in an index is trading above crucial moving averages and the trend is also strong, experts advise investors to look at Price and Volume components.

“Price and Volumes are two major components of Technical Analysis. Hence, when you have a cushion of stocks trading above their important moving averages, try to look out for the stocks that have formed a strong base on weekly /monthly charts and are now giving price and volume breakout on lower time frame charts,” says Chavan.

He further added that Axis Bank, HDFC LIFE, and Ultratech Cement look encouraging; but as a short-term trader one needs to understand, the market has already run up quite a lot, and anytime if you see a profit-taking, one should follow a proper risk/money management.

As the market hits fresh highs almost on a daily basis and it is tough to pinpoint resistance levels as most dips are getting bought – 14500 on the Nifty could be a crucial resistance level and support is placed at 13750, suggest experts.

“Since most of the stocks are trading above their important moving averages, there is a good amount of strength in the markets. A lot of value buying has been happening in recent times,” Likhita Chepa, Senior Research Analyst at CapitalVia Global Research Ltd told Moneycontrol.

“Traders should focus on stocks which are on the verge of a breakout. One can consider buying Nifty around 14,000 – 14,050 with a stop loss of 13,750 and target of 14,500 for the near term,” she said.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.