Evidence Of Discomfort At Higher Levels

Evidence Of Discomfort At Higher Levels

It is better to wait for a clear signal to take positions either way

The domestic equity market continued its positive move for the second week. The new week began with a gap up opening traded with a sense of nervousness. The RBI’s neutral monetary policy built positive momentum after a sharp decline of two weeks amid Omicron uncertainties and a subdued global market sentiment. The benchmark index, Nifty, gained 314.6 points or 1.83 per cent and settled at 17,511.3 during the previous week. The broader market indices Nifty Mid-Cap 100 and Small-Cap 100 indices outperformed 3 per cent and 3.9 per cent, respectively. 

Technically, the Nifty has formed a bullish weekly bar by closing above the previous week’s high. It retraced above the 38.2 per cent of the prior down move. In an increased daily range and volatility, it oscillated in 651.55 points’ range. Last week began with a strong bearish candle and later recovered 3.7 per cent in just three days. The weekly price structure is very bullish, but the daily chart contradicts the two consecutive indecisive candles at the swing high. It formed the Dragonfly Doji on Thursday, followed by an inside bar and a hanging man.

After a decline of 9 per cent from the lifetime high, we can consider this 4 per cent rally as a countertrend as long as it is below the 61.8 per cent retracement level of 17,908, which is also a downward channel’s resistance line. The index was sustaining above the 20 DMA for now. If the 20-day moving average enters the uptrend it would be a positive trend indication. It is also above the 20-weekly moving average of 17,433. As long as the Nifty stays above this weekly average, it will be a good sign for the market. The 50 DMA placed at 17,765 may act as the next resistance level, and it is in a downtrend.

It reclaimed above the 100 DMA after declining for the second time this month. The index has oscillated around this average for the last 11 trading sessions. All the distribution days expired. The three consecutive follow through days placed the Nifty in a comfortable place. In the current scenario, we need to watch the price behaviour. On a 75-minute chart, the Nifty moved in a very tight range and it traded in Thursday’s first two hours of range for 11 consecutive hours. After breaking out of this range at the Monday opening, it did not sustain and declined sharply with renewed profit booking.

Pattern-wise, Nifty met 90 per cent of the head and shoulders pattern target of 16,700. Generally, after completing the pattern targets, the price enters into a countertrend. This retracement should not exceed 61.8 per cent. In any case if the Nifty retraces 17,908, which is 61.8 per cent of the retracement level, it would reverse the intermediate downtrend into a decisive uptrend. The increased volatility in recent days is the inherent nature of the corrective phase. During this phase, the bounces or countertrends are used to sell opportunities by the institutions. That is exactly what is happening with the FIIs.The other characteristic of these corrective countertrends is that it consumes more time than declines. Since the October 19 top, the Nifty fell by 5.33 per cent in the first fall and 7.84 per cent in the second decline. These two declines happened in eight and nine sessions. But the rise of 3.3 per cent is in 10 sessions in the first countertrend and the current up move is already nine sessions old with a 4.18 per cent rise. The current countertrend is already nine days old. Generally, these will be limited to not more than three weeks. As of the prior price, corrections are limited to two weeks.

The next week’s price action may unveil the new down move. Market participants are hesitant to take aggressive positions as there is clear evidence of discomfort at higher levels. It is better to wait for a clear signal to take positions either way. Higher leveraged positions are not advisable now. As long as the Nifty trades above 17,300 or a prior day low, be with a positive bias. None of the sector indices are in a place to lead the market. The relative rotation graphs show that the sectors in the leading quadrant have also lost their momentum.

STOCK RECOMMENDATIONS

ANANT RAJ LTD ............BUY...............CMP Rs 79.15

BSE Code : 515055
Target 1 .... Rs 100
Target 2 ..... Rs 124
Stoploss....Rs 68(CLS)

Formerly known as Ananth Raj Industries, the company is a real estate developer and has the largest land bank. The company is in the process of building an array of special economic zones (SEZs), IT parks, hotels, and commercial complexes. It is uniquely poised to leverage the existing and ensuing explosion in real estate development in the National Capital Region by constantly enhancing its land bank portfolio. The stock is trading at the previous pivots. It has formed a 10-week consolidation with 26.68 per cent depth. It is trading above the key moving averages. It is about 10 per cent above the 50 DMA and 24 per cent above the 200 DMA. A massive volume was recorded in the last week. The relative price strength is good at 70, and the Mansfield relative strength indicator is at 1.73 indicates the out-performance compared to the broader market. The stock is trading above the VWAP and Anchored VWAP resistance. Elder impulse system and Pring's KST has given fresh buy signals. The weekly RSI took support at the 50 zone and bounced into the strong bullish zone. The weekly MACD has also given a fresh buy signal. ADX (28.79) shows a solid trend strength. In short, the stock is trading near the pivot and technically bullish. A move above Rs  81 is positive, and it can test Rs 100. Maintain a stop loss at Rs 68. Above Rs 100, it can test Rs 124 in the medium to long term.

MAX HEALTHCARE INSTITUTE LTD... .BUY ... CMP 398.75

BSE Code : 543220
Target 1 ..... Rs 440
Target 2 .... Rs 511
Stoploss....Rs 365 (CLS)

Max Healthcare Institute is the second-largest hospital chain in India. It operates 17 facilities and 3,400 beds. Almost 85 per cent of bed capacity is in metro cities. It has a presence in NCR Delhi, Haryana, Punjab, Uttarakhand and Maharashtra. Max Healthcare also operates the home care and pathology businesses. Technically, the stock has formed a 59 days’ cup pattern with a 20 per cent depth. It is trading at the pivot level. All the short and long-term averages are in an uptrend. The RSI (69.14) is in a strong bullish zone, and it moved above the prior swing highs. Today's higher volume indicates a stronger buyer interest. The +DMI is above -DMI and ADX. An uptick in ADX is an improvement in the trend strength. The Elder impulse system and Pring's KST shows a strong bullish signal. After listing, the present consolidation is longer and traded within the range. It is also above the Anchored VWAP resistance. The stock also meets the CANSLIM characteristics of investing. One can buy this stock above Rs 403 with a stop loss of Rs 365. The short-term target is Rs 440, and the medium target is Rs  511.

*LEGEND: • EMA - Exponential Moving Average. • MACD - Moving Average Convergence Divergence • RMI - Relative Momentum Index • ROC - Rate of Change • RSI - Relative Strength Index

(Closing price as of Dec 13, 2021)

Disclaimer : Above recommendations are based on various technical parameters and any fundamental input has not been considered for the recommendations. Follow strict stop loss for the recommendation.

 

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