For traders, Axis Bank can give a 5-6% bounce back; time to short Ashok Leyland: Rahul Sharma

“We are going with a long and a short approach. On the long side, we believe private banks should see a bounce back from these levels and on the shorting side, Ashok Leyland from the auto pack looks like a good candidate,” says Rahul Sharma, Director, Head- Technical & Derivative Research, JM Financial Services

What is happening with the market? It is very range-bound, not doing much and if at all, it is giving a tad bit of negative signal. Do you concur or is it more buying on dips for you?
The way it is headed, it seems like we are in for a stress test of this entire setup for the third time post the Ukraine-Russia crisis. We did that in September. We tested the 200-day EMA flow test, we did that in early February and now there is the third time that we are doing that in terms of checking the tolerance of whether the buying emerges at these levels or not.

Going by the overall structure it seems like 17,450-17,500 is a crucial demand area and if this level is honoured and not broken on a closing basis today and mind you this is the monthly expiry as well and we have the weekly closing coming up tomorrow as well. So if this level of 17,500-17,450 area does not get broken on a closing basis, we should be heading for a bounce back which can bring us right back into the consolidation zone of 17,800 to 18,000.

My reading is yes, we have seen a breakdown from 17,800 levels but if we talk of the derivatives part, like until yesterday we were quite oversold, the put call ratio hovering into heavily oversold territory and today we have seen some green shoots from the lower levels. Even on the daily charts, the bullish divergence is getting built up on the RSI for the Nifty which indicates that the momentum is not as fierce as what it was when we had this crash in late January, early February.

My reading is we should be more optimistic than pessimistic at 17,500. The risk rewards are more favourable for fresh long addition at these levels and one can expect a bounce back of a minimum 300 to 400 points from the 17,500 trajectory. We believe that only if 17,450 is broken on a closing basis, it will call for any further shorts or further weakness into the broader market.

Bank Nifty, which has been a pain point for the market, seems to have achieved all its downside targets and now the case is ripe for a bit of a bounce back from these levels. Some green shoots are visible in private banks. In fact, Axis Bank is one of the stock setups that we like. The stock has taken support at its long-term moving average which is the 200-day moving average and has not broken its yesterday's low in spite of what has happened in Bank Nifty today.

So, on a relative scale, we believe that there is some sort of green shoots emerging in the private banking space. HDFC Bank is another stock where we feel that on a relative comparison, this stock has outperformed by a big margin as compared to any of the other private banking names. So, if one has a three- to four-month kind of a positional view, HDFC Bank is the one to go for. If you are a trader, Axis Bank suits the bill and a 5-6% bounce back is very much on the cards in Axis Bank.

Anything from the auto space? You have a sell recommendation coming in Ashok Leyland. What is the rationale?
Yes, so it is that kind of a market where we are not expecting kind of a runaway rally for sure. There will be pockets of the market which will undergo corrections and one of them is Ashok Leyland. In fact, the stock has broken its 200-day EMA yesterday. The stock never performed on the upside. It has been a laggard in the auto space and we believe this fresh breakdown can bring the stock back towards the lows of Rs 135 it tested in December.

So, one can look to short Ashok Leyland. It is a trading target, Rs 135 is the working target that we have for a short term. It can be shorted with a stop loss placed at Rs 145 and we believe this is one of those counters which in spite of the overall sector which is auto being relatively robust, has seen an underperformance going through. That will now get converted into momentum on the downside and one can look to short it.

So, we are going with a long and a short approach. On the long side, we believe private banks should see a bounce back from these levels and on the shorting side, I think Ashok Leyland from the auto pack looks like a good candidate.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)