Nifty FMCG In Overbought Zone; Should You Lock Gains To Skip Downside?

3 min read Last Updated : Jul 19 2024 | 6:30 AM IST

Nifty FMCG Index Analysis

The Nifty FMCG Index is currently in an overbought zone on the charts, despite the overall bullish trend. This positioning suggests that the index may be due for a period of profit booking in the near term.

With technical indicators showing signs of being overextended, the prudent trading strategy would be to book profits on the rise and wait for a pullback to more favorable levels for fresh investments. Support levels on the charts are anticipated around 60,900, 60,300, and 59,300.

Investors and traders should be cautious at these levels and consider locking in gains to avoid potential downside risks associated with the overbought conditions.

Fresh investments should be considered only when the index corrects to the aforementioned support levels, ensuring a better risk-reward ratio. By waiting for the pullback, traders can re-enter positions at more favorable prices, thereby maximizing potential gains while minimizing risk.

Nifty Auto Index Analysis

The Nifty Auto Index is currently exhibiting a bullish trend on the charts. However, in the near term, the index is trading within a range between 25,900 and 24,800.

A decisive close above or below this range will likely trigger a significant move in the corresponding direction. If the index breaks above 25,900, it will face resistance at 26,300 and 26,800. Conversely, a close below 24,800 will find support at 24,100 and 23,800.

Given this defined range, the best trading strategy for traders would be to wait for a clear breakout before making significant moves. This approach helps mitigate risks associated with premature entries and ensures that trades are made in alignment with the market direction.

However, for risk-tolerant traders, a strategy of buying near the support levels and selling near the resistance levels can be employed. This strategy leverages the predictability of the range-bound behavior, allowing for profitable trades within these defined limits. Implementing a strict stop-loss based on the range breakouts is essential to manage potential risks effectively.

Summary

Both the Nifty FMCG and Nifty Auto Indexes present unique trading opportunities and challenges. The Nifty FMCG Index, currently overbought, suggests that profit booking is imminent. Traders should look to lock in gains and wait for a pullback to support levels for fresh investments.

On the other hand, the Nifty Auto Index is trading within a defined range, offering opportunities for both cautious and risk-tolerant traders.

By waiting for a breakout or trading within the defined ranges, traders can capitalize on market movements while effectively managing risk. Monitoring key levels and adhering to strict stop-loss strategies will be crucial in navigating the near-term market conditions for both indices.

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(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.)

First Published: Jul 19 2024 | 6:28 AM IST