Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty is consolidating after touching an important support of 11,000. The price action of the last three days is within the limits of Monday bar. On Thursday, even though it moved above the prior bar high, it did not sustain and closed near the day’s low point. As weekly derivative settlement was on the cards, the volatility within the range was very high. Now, Monday’s high of 11,433 has become an important resistance point. If there is any move above this level, then Nifty may attempt to fill the gap. On the upside, 11,433-11,536 will be a resistance zone. We cannot forecast behind this zone for now. It is difficult to move above the level as sentiments are at rock bottom. On an hourly chart, Nifty has broken out the bottom on Thursday morning but did not successfully close above 11,356. In a very short-term, this level will act as a resistance. In short, any close above the prior bar high, which is an indication of Nifty, is trying to fill the gap area. In any case, if Nifty closes below 11,244, which is Thursday’s low, it will be an indication of the continuation of downtrend. However, a close below 11,000 level will have severe repercussions on the market. In current conditions, the indicators may sustain in oversold conditions for longer than expected period. Unless stronger positive divergences appears and confirms the breakout, it is better not to venture for a long position.
NIFTY DERIVATIVES: Nifty futures lost 386.45 points or 3.32 per cent since the last weekly expiry, except on Tuesday; otherwise, it closed in negative on all days. Currently, Nifty is consolidating after more than 400 points fall in just one day. The open interest increased on a flat closing day. Nifty futures have actually traded in a discount for the past one week. The open interest is increased by 7.36 per cent. The rollovers were seen at 9.4 per cent in the first week of March series. For the next week, the Put-Call Ratio (PCR) is at 0.87 but, for March monthly series, the PCR is much higher, which is at 1.31. Even the 10,000 put open interest is also high on the monthly series and is indicating that the ‘out of the money’ betting is going on. For the next weekly expiry, the highest call open interest is at 11,400 strikes, followed by 11,500 strikes. On the put side, the highest put open interest is at 11,000 strikes. The total call open interest is at 87,42,375 and the total put open interest is at 76,18,425. From 11,000 to 11,500 strike calls and 11,050 to 11,450 puts, have the shorts built up. This means that next week, the volatility will increase as high as possible. The above normal implied volatility indicates forthcoming choppiness in the market. The money calls have an average of 20 IV and the puts have more than 25 IV. This high IV at some point of time will collapse to a mean level of 13.9. Generally, in this scenario, the option premiums will also collapse. Option writers will benefit out of this scenario. Besides, India VIX rose from 17.77 to 23.25. This is an indication that high volatility will prevail for some time and the risk-reward ratio will not be favourable for intraday traders. Apply the volatile strategies like strangles and straddles to win the market condition.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
DABUR INDIA .................................. BUY ....................... CMP Rs. 517.90
BSE Code ...... 500096 Target 1 .... Rs. 550 | Target 2 .... Rs. 565 | Stoploss.... Rs.488
✓ Current Observation: Dabur is trading strong in a weak market condition. After a five-week base formation, it reached to a new lifetime high. The stock is trading in higher highs and higher lows fashion since May 2018 but it has never formed a lower low on a weekly basis over a decade.
✓ As the price is trading above the prior pivot, all the moving averages are trending up. The 50-DMA is working as a support several times. The 14 period RSI is also moving in an up trending fashion by forming higher highs and higher lows and it is in a super bullish zone.
✓ The MACD is also above the zero line and signal line. The histogram also suggests that the bullish momentum is picking up. The directional index ADX is also at a decent level of 24.44 on a weekly chart. The +DI is above the –DI and is indicating that the bullish strength is more in the stock.
✓ The stock is also meeting all the CANSLIM criteria. Its price relative strength is at 86 and EPS is at 75. The good buyer's demand shows an institutional interest in the stock. The Return on Equity (ROE) is as high as 32 per cent. Consistent sales and EPS growth makes the stock fundamentally attractive.
✓ Buy this stock at Rs 517.90 with a stop-loss of Rs 488. The short-term target is placed at Rs 550-Rs 565.
REVIEW OF STOCK STRATEGY
We had recommended for buying the stock of Titan Company Ltd at Rs 1,279.05 in issue no. 19 (dated March 2, 2020). Post our recommendation, the stock did not sustain at higher levels and on intraday basis, it slipped below the stop-loss level but on closing basis, it has managed to close above the stop-loss level. Currently, the stock is hovering around 50-day EMA. However, we can expect to see smart up moves if it closes above Rs 1,270-level. We would advise our readers to hold this stock with a stop-loss of Rs 1,235 on closing basis, as the stock is likely to move higher from the current levels.
