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    Chase the momentum and buy on rise next week: Kunal Bothra

    Synopsis

    Traders should buy GAIL and short Maruti next week, says the founder of kunalbothra.co.in.

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    Have you observed anything interesting in this selloff that we are witnessing in the markets this week compared to last week?
    I will try and distribute the reply in many verticals; a) on the Nifty price front and in terms of the built up open interest. By last time I mean start of March when the index had fallen from 12,000 levels to almost 7,500 and especially the last 1,000 points from 8,500 to 7,500. There was a good amount of short positions which were built into the index futures -- both on the Nifty as well as on the Bank Nifty.

    The levels are very similar and that is where you saw almost a V-shaped, 20% kind of rally in the Nifty. Now, when we are talking of the Nifty retesting that 8100 mark, apparently the open interest itself is at a multi month low. There are too many shorts in the system and that is why the extent of short covering which saw a week or two back, that kind of an extent of rally may not be seen because of the lack of shorts which were built into the system.

    Many of the stocks and sectors -- the erstwhile stronger ones and the likes of auto stocks, some metal names, Bank Nifty -- many of these stocks have come back and are hitting the previous swing lows, relative to where Nifty was at 7500 levels. There is an inherent weakness in many of these names. The pattern which is different from the last time when we were sub 8000 mark. The last time it was more of a basket selling but this time it is more of concentrated selling which is happening in individual names.

    Not all stocks in the same sector are going down. There are very few pockets of largecap names which are facing selling pressure. When you are in such a scenario, expecting a V-shaped recovery would be very difficult. Rather than buying on dips, the best strategy for any investor or trader would be to wait for the conclusive amount of data which shows a turnaround and then the markets recover. Only then there could be a good strategy. Don’t enter the market unless you have data points which indicate that a reversal has happened. Wait for that reversal. It may not be a V-shaped reversal, it could be more of a prolonged U-shaped reversal in stocks and index futures.

    I am assuming it is going to be an equally eventful week next week as well. What are your trading recommendations?
    Yes, it is going to be an interesting week, just three trading days for the markets. Trading could be on thinner volumes yet again. But as a strategy, try and chase momentum wherever the stocks are moving up higher. Try and buy those stocks rather than buying when the stocks dips lower. In that regard, I have picked up two stocks. One on the buy side and that is GAIL. The stock has recovered very well from the 65-66 levels to almost 80 plus where it closed on Friday.

    It is showing some very good momentum and good indicator price action as well. I would suggest a buy on GAIL, targets of Rs 88 and stop loss at Rs 75.

    Maruti is one stock which has shown signs of weakness, it is almost on the verge of breaking its previous swing lows that it did a couple of weeks back. It is a sell or a shorting candidate. Traders could look at a target of Rs 3,750. I would recommend a sell with a stop loss at Rs 4,200.
    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

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    8 Comments on this Story

    Rajiv Gupta167 days ago
    First let us get out of the medical emergency thereafter the ill effects of the outbreak on the real economy will be visible.
    The world economy was never shut down in this manner ever therefore nobody knows the impact.
    Everybody is trying to get out of the situation with minimum damage.
    Staying in cash is the only sensible strategy because you will need that medium of exchange.
    KC Madhavan168 days ago
    BHEL is now a sick company.It is difficult for it to recover.It will become a penny stock soon.
    KC Madhavan168 days ago
    bothra is operator's man.
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