Technicals

WHAT LIES AHEAD : NEAR-TERM PICTURE 



SPOT NIFTY : Indian benchmark indices have reversed and continue to plummet from their peak levels after the strong double whammy patterns of bearish belt and bearish engulfing. The sharper descends with smaller one day breathers in-between provide cue to a bearish reversal more than just profit-booking for now. It was the same with the broader markets, where the Mid-cap and Small-cap indices have witnessed sharper leaps from their multiple resistance levels. 

On the sectoral level, banks tumbled the most with 2% losses, dragging the major indices down. The government’s merger plans kicked off with the proposal to merge Dena Bank and Vijaya Bank with Bank of Baroda, which resulted in tug-of-war between the banks where the ones with viable financial condition plunged sharply, while the others rose. Even the Auto index fell 1.7%, despite the robust sales numbers. The rising prices of raw materials like rubber, metals and escalating crude oil prices, along with higher interest rates and rupee depreciation has raised concerns over the sector’s earnings growth. On the other hand, only the Metal index was up by 1.7%, and it holds chances of resistance breakout after Trump imposed tariffs on Chinese metals and ended tariffs on Indian metal exports to the US. 

Technically, Nifty has prolonged its profit-booking session, where the prices have witnessed lower tops and lower bottoms from the record high levels. Recently, Nifty not only breached its crucial support at 11340-11300, but also breached its two major lows of 11250 and 11235, which we had mentioned as provisional trend reversal level. Nifty has formed a rounding top pattern with a breakdown on the daily time frame and breached 38.2% retracement of the prior upward rally from 10558 to 11760 on the weekly time frame. With the 50-day EMA support breakdown and oscillators inclined southwards, if Nifty falls further, we hold 11160-11115 as major supports for the Nifty, followed by 10935-10925 levels. However, Nifty may bounce back as it has rested at the support of 11235 level, plus falling volumes on the weekly time frame may give positive divergence to the prices. In that case, we hold 11340, followed by 11420-11485 as the resistance levels. 

LEGEND : 

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

STOCK STRATEGY 

MUTHOOT FINANCE.............. BUY............. CMP Rs 458.35 

BSE Code ...... 533398 
Target 1 .... Rs 495 
Target 2 .... Rs 511 
Stoploss ... 422 (CLS) 



✓ Current Observation: After a range pattern breakout, the stock gave a pullback of up to 50% retracement of the prior upward rally from Rs 390 to Rs 474, followed by a bounce-back on September 19. 

✓ The stock was trading in the range of Rs 370-460 since January 2018, where it formed two rounding bottoms. The stock gave a breakout on September 7 with three consecutive strong body bullish candles. Meanwhile, it also breached its major 50,100 and 200-day EMA levels. 

✓ Earlier, the stock had witnessed a multiple point downward sloping trendline breakout at around Rs 423 level on September 5 with a strong bullish candle on the same day. 

✓ The breakout was supported by volume spurts and 14-period RSI positive crossover at 43. Currently, RSI is quoting at 63, suggesting momentum. The level of Rs 422 is likely to act as a strong support for the stock, which is the 61.8% retracement of the aforesaid upside rally. This can be maintained as a stop loss. On the upside, the stock is likely to touch the levels of Rs 495-511. 

✓ Conclusion: We believe the stock is poised to head higher in the near term towards the level of Rs 495, followed by Rs 511. Traders can maintain a stop loss at Rs 422. 

REVIEW OF STOCK STRATEGY 

We had recommended to our readers buying the stock of Ambuja Cements Ltd at Rs 226.45 in issue no. 48 (dated September 17, 2018). Post our recommendation; the stock moved up a little up to the level of Rs 232, but it faced resistance and saw a small correction near our recommended level. Overall, the stock has consolidated, despite some more correction in the markets. With not much movement in the stock either ways amid lower volumes and oscillators lying near the 50 level, we advise our readers to hold the stock with the stop loss of Rs 216 mentioned earlier.