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Defence stocks are surging once again, posting double-digit gains and decisive breakouts that have captured investor attention. But with key heavyweights flashing overbought signals, is it time to exit or add more? Anand James, Chief Market Strategist at Geojit Investments Limited, analyses the technicals and advises investors to avoid chasing the rally and instead use a ‘buy-on-dips’ strategy to navigate this strong, well-entrenched bullish trend.

Edited excerpts from a chat:

Nifty ended in the green for the second consecutive week. Safe to say we are out of the woods yet and that the index can eye 25k in the week ahead?

We had gone in last week, favouring a push towards 24,400 or more. Friday saw a test of the same and a close not far from the same. Continuation patterns are aplenty, which favour an extension of the uptrend, aiming for 25,600. However, with oscillators overbought, we prefer to start the week on a cautious note, once in the 24,900-25,000 vicinity, before deciding on the 25,600 play. Be warned against a rough week ahead if we do not get to float above 24,900.

Nifty Smallcap 250 index is up 15% in the month so far. If the trajectory continues, then it could be the best month for the index in the last several years. How strong are the odds of a continued bull run in the smallcap world?

We favour a selective approach, as opposed to a broad-based bullish approach among small caps. Breadth remains robust with 50% of stocks near monthly highs, 10% at fresh all‑time highs, 95% above the 20‑DMA and 80% above the 50‑DMA, signalling strong participation across the universe. Importantly, momentum is supportive but not stretched. The average 14‑day RSI near 60, with nearly half the stocks still below that mark, indicates scope for further catch‑up rallies.

Technically, the Nifty Smallcap 250 index has broken out of a downward-sloping wedge and posted a decisive weekly close above the Supertrend at 16,385, confirming a trend reversal after a prolonged consolidation. If the index holds above this zone, 16,900 is a natural near‑term objective, followed by 17,400. However, given the sharp 15% monthly surge, short-term consolidation and stock level rotation are more likely than a straight-line rally. The broader uptrend stays intact above 15,770.

Defence stocks are stealing the limelight once again, with multiple counters recording double-digit gains in the week. What are the charts indicating? Time to book profits off the table or stay on the course?

The Nifty India Defence index has delivered a decisive breakout from a multi‑week consolidation, supported by strong weekly gains and a reclaim of all key short and medium‑term moving averages. Momentum indicators validate the move with RSI holding comfortably above 60 without entering extreme overbought territory, while MACD has turned decisively positive on both daily and weekly timeframes, signalling acceleration rather than fatigue. Nearly 80% of the constituents are trading close to their monthly highs, and all stocks are positioned above their 50 and 100‑day averages, underscoring a well‑entrenched uptrend.

That said, heavyweights such as HAL, BEL, Solar Industries and Mazagon Dock are approaching overbought levels on the daily charts, raising the likelihood of short‑term consolidation or profit booking. Encouragingly, their weekly structures remain constructive. The preferred strategy is to avoid chasing rallies and instead buy on dips to participate in the medium‑term bullish trend.

Gallantt Ispat and Shipping Corp were among the two biggest Nifty 500 gainers in the week. How to trade now?

Despite the sharp gains in recent days, Friday saw profit booking from the top, which explains the long wick. This, along with overbought signals from stochastics as well as RSI, rings caution for Monday’s trade. That said, the narrow range break move is still in its early stage, which encourages us to resort to a buy on dips approach with eyes on 272 as the downside marker.

Give us your top trades for the week.

TI (LTP: 470) | View: Buy | Target: 488 | SL: 459Tilaknagar Industries has shown a strong recovery on the weekly charts, breaking out above the recent consolidation zone with a decisive bullish candle. Prices are trading comfortably above key short and medium‑term moving averages, signalling improving trend strength. Momentum indicators support the move, with RSI holding above the mid 50 zone and gradually trending higher, indicating sustained buying interest without signs of excess. MACD is flattening after a prolonged corrective phase and is attempting a bullish crossover, suggesting a potential momentum expansion ahead.

From a price action perspective, the stock has respected higher supports and reclaimed the 460-470 zone, which now acts as a crucial base. Sustaining above this area keeps the upward bias intact and opens room for a move towards 488 in the near term. Any decisive break below 459 would weaken the setup and warrant a reassessment. Overall, the trend favours a buy‑on‑dips approach.

IGIL (LTP: 373) | View: Buy | Target: 390 | SL: 363

IGIL has delivered a sharp rebound after a prolonged consolidation, marked by a strong bullish weekly candle and a near 10% gain. The stock has decisively moved above its recent range and the supply zone near 360-370, indicating a potential trend reversal. Momentum indicators back the move, with RSI rising close to 60, suggesting improving strength without overstretch, while MACD has turned positive with a fresh bullish crossover, pointing to momentum acceleration.

From a structural perspective, IGIL appears to be forming a base after a lengthy decline, with higher lows taking shape over recent weeks. Sustaining above 370 would keep the bias positive and open the door for an upside move towards 390 in the near term. Any dip towards 363 should be closely watched, as a breach below this level would negate the bullish setup and warrant a reassessment.