Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : The benchmark index closed below 200-DMA and prior swing low. It has broken all the important supports. The 200-EMA has turned downside, which is a long-term bearish sign. The 447-points decline in the last five days was followed by a global sell-off and continuous FII selling. The breadth is becoming much more negative for now. With the formation of two significant lower highs and lower lows, the market entered into a clear downtrend. The downward channel support is placed around 11,500-level. After almost four per cent fall, Nifty must take the support at 11,500-11,600 zone. In any case, if it fails to hold the channel support, the fall will become much more severe. The RSI is also moving in a downward channel. The hidden divergence is that Nifty formed a lower swing low but RSI has not formed yet. The hammer kind of pattern in Nifty is indicating some sort of rebound in the market. If the pullback sustains above 11,810-level, we can expect more consolidation between 11,600 and 11,975. Thursday's low of 11,536 is crucial now. As long as it is protected, it is better to avoid fresh short positions in the market. We venture small and long positions with a strict stop-loss of 11,536. In a nutshell, Nifty opened with a gap down and formed a bullish candle at the end of the day. However, avoid catching the falling knife! Buy only when a clear bullish close above the prior day's high. Near term support is at 11,530-level. Move below 11,530 will continue a negative trend whereas, a move above 200-DMA will result into a range-bound of positive movement.
NIFTY DERIVATIVES: Nifty futures lost 446.75 points or 3.67 per cent since the last weekly expiry. The sharp decline in the market along with global sell-off was triggered by Coronavirus. The rollovers were seen at 66.15 per cent, which is above the three-month average that indicates the trend to continue. The open interest wise Put-Call Ratio (PCR) is at 0.68 for the next weekly expiry. At the same time, the volume-wise PCR is at 0.75. Both are indicating that a swing low is formed. The possibility of a pullback is high for now. However, March monthly series PCR is at 1.42, indicating that the bearish trend is intact. For the next week, the highest call open interest is at 12,000-strike, followed by 11,700-strike. The total call open interest is at 1,26,98,100. Shorts were built up from 11,450 to 11,850 strikes. On the put side, the maximum open interest is seen at 11,500-strike, followed by 11,600-strike. The total put open interest is at 95,09,925. The 11,450-11,850 strikes have witnessed a long built up. As the volatility increased, India VIX rose from 13.70 to 17.76. At the same time, Nifty implied that the volatility also increased from 13.91 to 16.17. The current derivative data suggest that Max Pain is at 11,700.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
TITAN COMPANY LTD. ...................... BUY ...................... CMP Rs. 1279.05
BSE Code ...... 500114 Target 1 .... Rs. 1340 | Target 2 .... Rs.1355 | Stoploss.... Rs. 1235
✓ Current Observation: Titan is trading just one per cent away from the prior pivot level. After forming a doji candle, it is strongly closing above the doji candle high, which is an indication of the trend reversal to the upside. Interestingly, the stock never closed below the prior swing low. ✓ Currently, the stock is trading above all the short and longterm moving averages. It took a support of 50-week average several times and bounced back. Since November 2019, 50-week average worked as a strong support. It also moved above 20-DMA with an above average volume.
✓ The RSI is clearly moving in a higher high and a higher low fashion. The MACD histogram suggests that the momentum is picking up on the upside on a weekly chart.
✓ The stock also meets majority of the CANSLIM parametres. Its price relative strength is at 80 and EPS strength is 83. Consistent growth in sales and earnings makes the stock attractive fundamentally. The return on equity is at 22 per cent.
✓ Buy this stock at Rs 1,279.05 with a stop-loss of 1,235. The target is placed at Rs 1,340- Rs 1,355.
REVIEW OF STOCK STRATEGY
We had recommended buying the stock of Power Finance Corporation Ltd at Rs 132.25 in Issue No. 18 (dated February 24, 2020). Post our recommendation, the stock did not sustain at higher levels as a selling pressure emerged in the market. The scrip saw low volumes and at present, it is hovering around 20-day EMA. However, we can expect to see smart up moves if it closes above the level of Rs 128. Our suggestion would be to hold your position in the counter till next week. As we had suggested in our stock strategy, apply Rs 122 as a stop-loss for this stock on a closing basis.
