Is it time to sell auto stocks and buy IT counters? What charts say

Nifty IT Index

The Nifty IT Index is currently priced at 33,613.05, indicating a bullish trend in the near term. Given this upward momentum, the best trading strategy for traders would be to buy the index either at the current market price or on dips. 

The expected resistance targets for the index are 34,000, 34,300, and 35,000. These levels will act as near-term resistance points, providing opportunities for profit-taking. The positive momentum in the index is supported by key technical indicators such as the MACD, Stochastic, and RSI, all of which are signalling strength. 

The MACD is showing a positive, suggesting an upward momentum. Similarly, the Stochastic oscillator indicates that the index is in a favourable buying zone, and the RSI points towards a strengthening trend. These technical indicators collectively reinforce the bullish outlook for the Nifty IT Index. 

For momentum traders, the strategy should be to buy the index and its constituent stocks either at the current market price or on dips. It's crucial to manage risk effectively; therefore, a stop-loss should be placed below 33,000 on a closing basis. This stop-loss level is strategically set to prevent significant losses should the market reverse its trend. 

In summary, the Nifty IT Index shows strong bullish signs, with key technical indicators supporting further upward movement. 

Traders should look to buy at current levels or on dips, aiming for the resistance targets of 34,000, 34,300, and 35,000. With a disciplined approach and a well-placed stop-loss, traders can capitalise on the current positive momentum in the index.

Nifty Auto Index

The Nifty Auto Index is currently trading at 23,324.10, indicating an overextended condition in the near term. This overstretched scenario suggests that both the index and its constituent stocks are in an overbought zone. 

Consequently, the best trading strategy would be to sell either at the current market price or on any further rise. This approach is reinforced by technical indicators such as the Stochastic and RSI, which are showing negative divergence on the charts. 

Negative divergence in these indicators typically signals a potential reversal or a period of consolidation, suggesting that the upward momentum may be losing steam. The Stochastic oscillator, which measures the momentum of price movements, is indicating that the index is in an overbought condition, increasing the likelihood of a price pullback. 

Similarly, the RSI is also pointing towards a potential downturn, reinforcing the sell strategy. Support levels on the charts are expected around 22,900 and 22,500. These levels can act as potential targets for short positions or areas where the index might find some buying interest. 

Traders should watch these support levels closely, as they could provide opportunities to either cover short positions or consider fresh entries if the index stabilises. In summary, the Nifty Auto Index appears overbought in the near term, with technical indicators suggesting a potential pullback. 

The recommended strategy is to sell at the current market price or on any rise, targeting support levels around 22,900 and 22,500. This approach allows traders to capitalise on the expected downward correction while managing risk effectively.

(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.)