Technical

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY : Nifty has broken out decisively in this series after 20 weeks of consolidation. Nifty rose by 778 point or 7.2 per cent in this series. Last week’s indecisive candle did not get any bearish confirmation this week as the Nifty closed above the last week's close. On the weekly chart, the momentum indicators are not showing any weakness as of now. But on the daily chart, Nifty has formed a double top kind of pattern. At the same time, negative divergences are visible. The price has made a parallel high, but most of the indicators, including the RSI, have not reached to the prior highs. The CCI has also supported the same phenomenon. The momentum is fading as MACD histogram is declining since last 6 periods. So, now the challenge is, whether the Nifty will close above the parallel highs of 11,572 If yes, the rally will continue with small dips. But only in the instance of a close below the March 25 low of 11,311 that the market will give bearish signals. As long as it closes above this level, every dip is a buying opportunity. The Nifty had retraced almost 90 per cent of the Sept-Oct 2018 fall. Fundamentally, Nifty PE reached 28.36. Watch for March earnings growth. Any kind of disappointment will depress the sentiment. Technically, the market is looking very strong, but at some point of time, the fundamentals will take the driver’s seat.

NIFTY DERIVATIVES: The March derivative series saw the Nifty up by 7.2 per cent, with banks and the large-caps driving the rally. But the Nifty was unable to close above the March 22 high and formed a double top kind of pattern. The rollovers were just 59.87 per cent, which is above the three-month average. The Open Interest increased by just 1 per cent and the Put- Call Ratio (PCR) is as high as 1.67, which is clearly a bearish sign. For the April 4 weekly series, the highest call writing was seen in 11,700 strike and 11,600 strike. The Put Open Interest has seen highest level in 11,500 strike with 53,706 contracts. Approximately all the strikes up to 11,950 Calls long built-up was seen. At the same time, 11,000-12,000 strikes Put short built-up was visible. The highest Open Interest was also seen in Deep Out of the Money strike of 11,000, with 5,94,750 contracts. With the current derivatives data, the Max Pain level is at 11,500 for the next weekly option expiry. India VIX fell 2.32 per cent. The overall Open Interest for April series rose by 19.41 per cent. With the above derivatives data, next week the market may encounter resistance at 11,600 and support at 11,400.

LEGEND : EMA – Exponential Moving Average. MACD – Moving Average Convergence Divergence RSI – Relative Strength Index

STOCK STRATEGY

MERCK ............................. BUY .................................... CMP Rs. 3558.15

BSE Code ...... 500126 Target 1 .... Rs. 4000 | Target 2 .... Rs. 4300 | Stoploss ...Rs. 3370 (CLS)

✓Current Observation: Pharmaceutical MNC company Merck India is a leader in cardio-metabolic care business with its flagship brands Neurobion, Nasivion, Evion. Technically, today it has broken out of 30-week consolidation and an ascending triangle. This breakout was confirmed by the above 50-week average volumes. The stock is trading just above the pivot and all the short and long term moving averages. 

✓ In the December quarter, it recorded EPS growth of 2523 per cent and the company has consistently maintained growth of above 50 per cent every quarter. Its ROE is at the highest level of 55 per cent. The institutional participation has increased in the December quarter. The number of FIIs holding this stock rose by 13 to 70 and the number of mutual funds rose to 5. It is meeting all the CANSLIM criteria, except for the group rank.
✓ On the weekly chart, the MACD line turned just above the signal for the first time after September 2018. ADX (31.72) is above the +DI and -DI and +DI is above -DI. This shows technical strength in the stock. Interestingly, the RSI has broken out of inverse head and shoulders, which is a very bullish sign.
✓ Buy this stock at Rs. 3558.15 with a stop loss of Rs. 3370. The targets are open towards Rs. 4000-4300.

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Pidilite Industries Ltd at Rs 1171.05 in issue no. 22 (dated March 25, 2019). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 1240. We had given a ‘BOOK PROFIT’ message at the level of Rs 1232.90 through our SMS service on March 26, 2019. Thus, investors who had taken positions according to this strategy would have made decent profit.