Technicals Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : In the T20 World Cup of 2007, it was Yuvraj Singh, who took Stuart Broad to knockers as he hit 6 sixes in a row! On Thursday, D-Street too witnessed a similar magical moment as the bulls knocked 6 sixes in a row i.e. they gained for the sixth straight session! 

On Thursday, Nifty surpassed its previous swing high that was registered on August 31. Along with this, it also managed to close above the 11,800 mark for the first time after February 25. The index opened the session with a gap up and the momentum continued till the afternoon session. However, in the second half of the trading session, the market participants preferred to take profits off the table, ahead of RBI Monetary policy. As a result, Nifty was off almost 75 points from the day’s high and closed near to its open level, which led to the formation of a Doji candlestick pattern but this Doji is in fact, a Gapping up Doji pattern. 

A Gapping up Doji is created when the open and close of the day is near to each other but the lower shadow remains above the prior day’s upper shadow, leaving a gap on the chart. Theoretically, this pattern is supposed to act as a bullish continuation pattern but if we analyse it closely, we can see that the difference between high and close is greater than the difference between low and close, which suggests that the bears have skin in the game. Besides, author Thomas N Bulkowski, in his extensive study, also found that after the formation of Gapping up Doji, price reverses the uptrend 57 per cent of the time. Hence, the next trading session is crucial and it’s an event day as RBI Monetary Policy is due on Friday. 

Going ahead, the index may turn a bit volatile or sideways in the near term as it will be difficult to maintain the momentum, given the big event lined up. Secondly, the broader indices i.e. the Mid-cap and Small-cap have underperformed in the last couple of trading sessions; this clearly indicates that the market participants are risk-averse at these levels. Also, the advance-decline ratio for the second straight day was titled in favour of the decliners.

We would advise the traders to maintain a strict trailing stop-loss at Thursday’s low (11,791) as any close below this, would result in a giving a foot in the door for the bears. The major support is seen around 11,620-11,630 levels. While on the upside, the level of 11,905-12,200 is a key resistance level. 

NIFTY DERIVATIVES : Nifty Futures gained 391 points or 3.41 per cent since the last weekly expiry. For the next weekly expiry, open interest wise put-call ratio (PCR) is at 1.08. For October monthly series, PCR is at 1.52. For the next weekly expiry, the highest call open interest is at 12,500 strike with 20,13,375 OI. On the put side, 11,600 strike has 12,76,650 open interest, which is the highest. The highest addition in the open interest was seen at 12,500 call of the next weekly expiry with 17,37,225 OI and on the put side, 11,800 put has seen the highest addition in open interest with 8,61,375 OI. For the next weekly expiry, the total call open interest is 1,34,63,925 and the put open interest is 1,45,32,225. For October monthly series, the highest call open interest is at 12,500 strikes with 20,01,225 OI, followed by 12,000 strikes with 19,95,525 OI. On the put side, the highest put open interest is at 10,500 strikes with 35,28,600 OI. The current derivative data suggest that the Max Pain is at 11,500 for the monthly expiry.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY 

BALRAMPUR CHINI MILLS LTD ................ BUY ........... CMP Rs 160.30 

BSE Code ...... 500038 | Target 1 .... Rs 174 | Target 2 .... Rs 179 | Stoploss.... Rs 150

✓ Current Observation: Balrampur Chini Mills Limited is an integrated sugar manufacturing company. The company is engaged in the manufacturing of sugar, ethanol and power. Its allied business consists of manufacturing and marketing of ethyl alcohol & ethanol, generation and selling of power as well as manufacturing & marketing of organic manure.
✓ The stock has formed a reversal hammer pattern as on the weekend of March 27, 2020 and thereafter, marked the sequence of higher tops and higher bottoms. After registering a high of Rs 165.40, the stock was trading in falling channel since the last 32 trading sessions. ✓ On Thursday, the stock has given a breakout of upper trendline of falling channel, which suggests a bullish momentum. Further, the breakout was supported by the above 50-day average volume, which indicates a strong buying interest by the market participants.
✓ All the moving averages are trending upside on the daily chart and they are in the desired sequence. The stock is meeting Daryl Guppy’s multiple moving averages set up rules as it is trading above both the short and long-term moving averages.
✓ The MACD is above the zero line and the signal line. The MACD histogram suggests bullish momentum. And most importantly, the MACD line crossed the prior swing highs.
✓ Considering the above factors, we recommend buying this stock with a stop-loss of Rs 150 on a closing basis for a target of Rs 174-Rs 179 in the short to medium-term. 

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Manappuram Finance Ltd at Rs 166.50 in issue no. 50 (dated October 05, 2020). Post our recommendation, the stock has been trading in a small range along with low volume. The stock is still trading above the short and long-term moving averages. The technical parameters of the stock still look promising. We would advise our readers to hold this stock with a stop-loss of Rs 156 on a closing basis, as the stock is likely to move higher from the current levels.