Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : The short covering rally did not continue for the second day. The Nifty formed a bearish shooting star pattern on the daily chart. It also tested the support area within the range, even though the price was in the range of 11,620- 11,780 (future level) for the last 17 trading sessions. As the market did not have any follow-up price action to the Wednesday’s rally and most of the gains were wiped out on Thursday. All the sectoral indices closed in the red with negative breadth in the overall market. The Smallcap index ended with a gain of just 1.4 point. The leading sector banking fell sharply on Thursday as 10 of 12 stocks in Bank Nifty ended with losses. The remaining two stocks also closed with less than rupee of gain. For the next one week, 11,685 will act as a critical point of control level. If Nifty trades above this level, there are chances to reach 11,825 or test the previous high. Otherwise, if it sustains below the 11685 level, there are chances of Nifty falling up to 11,400. But, before that, it may take a pause at 11,545 level. There are clear signs of distribution on the weekly chart, so it would be wise to wait and watch for a definitive breakout on either side. The breakout or breakdown may lead to euphoric moves and will increase the volatility. Even though the price has been moving sideways for the past 17 days, the leading indicator RSI is forming lower highs and lows with negative divergence. The MACD histogram also is suggesting that the downside momentum is picking up. As we close the April series within less than 200 point range, we may witness some stock-specific movements in the short run. On the monthly chart, the index is forming a small body candle with shooting star characteristics. Just another two trading sessions left in this month, and as mentioned above, if it closes below 11,685 on a monthly basis, it will not be a good sign for the market.
NIFTY DERIVATIVES: The April series ended with loss of just 37.10 loss after trading in 285-point range. It also formed a shooting star on Nifty spot monthly chart. As Nifty has not yet formed a lower low, there are no bearish confirmations on any time frame. The rollovers are on the higher side at 68.11 per cent when compared to the last month. The Put-Call ratio stands at 1.2. For the May 2 contract, the highest Call open interest is seen at 11800 strike, which added 11,48,250 contracts. The 11600 strike Put has the highest open interest with 11,32,650 contracts. Interestingly, no open interest was created for the May 23 weekly contracts for Nifty and Bank Nifty. May 23 is the mega event day as Lok Sabha election results will be declared. For May 30, the highest Call interest is at 12000 strike and Put interest is at 11500 strike. The 11400 to 12300 strikes of May 2 contracts witnessed short build-up. At the same time, 11400 to 12000 strike Puts have seen long build-up. As per the current derivative data, the max pain is at 11700. With these evidences, the range-bound action will continue for the next week with higher volatility. The rollovers are also suggesting the same.
STOCK STRATEGY
DR. REDDY'S LABORATORIES ....................... BUY ................ CMP Rs. 2930
BSE Code 500124
Target 1 .... Rs. 3100
Target 2 .... Rs. 3200
Stoploss ...Rs. 2775(CLS)
✓ Current Observation: Dr Reddy’s Laboratories closed above 38.2 per cent retracement. It also closed above the 12-week consolidation pattern and pivot level. The volumes picked up this week and were better than the preceding week.
✓ The stock is trading much above the 200 and 50 DMA. Also, the RSI has broken out of consolidation and has entered into the bullish zone. The price and RSI is shifting into new bullish territory. The MACD line is above the signal line for the last three weeks. As the price is making higher highs and higher lows on the weekly chart, it shows that it is in a clear uptrend.
✓ It is also meeting all the Mark Minervini’s trend setup rules as well as most of the CANSLIM criteria. Its price strength (RS) is as high as 89. The Master score is also at “B” and the buyers demand is “B+”. The number of institutions interested in this company rose by 6.95 per cent. Improving sales and EPS growth above 65 per cent since last three quarters is encouraging.
✓ BUY this stock at CMP with a stop loss of Rs 2775. The targets are Rs 3100 for the short term and Rs 3200 for the medium term.
REVIEW OF STOCK STRATEGY
We had recommended buying the stock of Tata Consultancy Services at Rs 2145.50 in issue no. 26 (dated April 22, 2019). The stock remained in the range as the benchmark indices witnessed correction. However, the stock has the potential to scale higher. We remain bullish on the stock as the stock has witnessed a decent breakout from 28-week cup and handle pattern. Hence, we would advise investors to hold this stock for the target of Rs 2275.