Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY : Nifty has lost about 660.85 points or 6.70 per cent during the last four trading sessions and out of these four trading sessions, Nifty had ended in red for three trading sessions. During the same period, Bank Nifty has lost nearly 9.5 per cent and as a result, Bank Nifty has relatively underperformed Nifty. Further, all the components of Bank Nifty ended in red. FIIs and DIIs were net sellers for the past three trading sessions i.e. from May 4 to May 6. They were net seller to the tune of Rs 2,927 crore and Rs 2,334 crore, respectively.

After a gap-down opening on the first trading session of the month, Nifty drifted further lower on Tuesday. However, the current corrective leg halted around 38.2 per cent retracement of the current upmove from 8,055 to 9,899 and Nifty formed a ‘high-wave’ like candle around this region. On Thursday, Nifty moved in a range of 102 points and this is the smallest of the prior six days as the price traded within the high low of prior bar. As a result, it had formed NR7+ID bar. This bar reflects a phase of contraction and as per Toby Carbel, the expanding range is followed by contraction and vice-versa. So, on Monday and Tuesday, we saw an expanding range and it has been followed by a contraction phase as we have seen the daily range getting narrower.

Going forward, the level of 8,972-9,000 is a crucial support area for Nifty as 50 per cent retracement level is placed in this zone. On the upside, the level of 9,350-9,450 is likely to act as a resistance zone. In the coming week, we expect the market to trade in the range of 9,000-9,450.

NIFTY DERIVATIVES: Nifty Futures lost 613.40 points or 6.23 per cent since the last weekly expiry. The open interest rose by 4.46 percent. It indicates that there is a short build-up in the market. As there is more call writing happening, the put-call ratio (PCR) for the next week is at 0.98. However, for May monthly series, the PCR is at 1.38.

For the next weekly expiry, highest call open interest is at 9,500 strike with 8,61,000 OI. On the put side, 9,000 strike has 9,19,350 open interest, which is the highest. The highest net addition in open interest was seen at 8,900 put of next weekly expiry with 5,53,875 OI and on the call side, 9,200 call has seen the highest net addition in open interest with 6,39,600 OI. For the next weekly expiry, the total call open interest is 64,06,200 and the put open interest is 63,04,950.

For May monthly series, the highest call open interest is at 10,000 strikes with 18,72,375 OI, followed by 9,500 strikes with 13,71,225 OI. On the put side, the highest put open interest is at 9,000 strikes with 25,05,075 OI. For the monthly series, 8,500, 8,000 and 7,500 strikes are seen with open interest above 15 lakh. This indicates that the traders are betting on market to test prior lows. Indian volatility index (VIX), a gauge for market’s short-term expectation of volatility, surged almost 17.47 per cent since the last Thursday. The current derivative data suggests that the Max Pain is at 9,500. 

STOCK STRATEGY

TECHNICAL RECOMMENDATION

DEEPAK NITRITE LTD. ..........................BUY ..........................CMP Rs 552.90 

BSE Code ...... 506401 | Target 1 ....Rs 600  | Target 2 .... Rs 610   | Stoploss.... Rs 505

✓ Current Observation: Deepak Nitrite Limited is a chemical manufacturing company. The company offers sodium nitrite, 2-ethylhexyl nitrate and optical brightening agent (OBA). The company's segments include bulk chemicals and commodities (BCC), fine and speciality chemicals (FSC) and fluorescent whitening agent (FWA).
✓ Recently, the stock has taken support near the rising trendline formed by connecting swing lows from March 23, 2020 and thereafter, surged above its previous all-time high level. As the stock is trading at an all-time high level, it is above all the short and long-term moving averages. The stock is meeting Mark Minervini’s trend template. It is trading above 40, 30 and 10 weekly averages and all of them are trending up. At the same time, they are in a desired sequence.
✓ The leading indicator, 14-period daily RSI, is currently quoting at 68.10 and the daily and weekly MACD stays bullish as it is trading above its zero line and signal line. Moreover, the weekly ADX is very strong at 32.91. The -DI is below +DI and ADX is above -DI and +DI. This shows a technical strength in the stock.
✓ Hence, we recommend buying this stock at Rs 552.90 with a stop-loss of Rs 505. The short-term target is placed at Rs 600, followed by Rs 610.

REVIEW OF STOCK STRATEGY
We had recommended buying the stock of Petronet LNG Ltd at Rs 243.25 in issue no. 28 (dated May 4, 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 managed to close above the stop-loss level. Currently, the stock is hovering around the 61.8 retracement level of its prior downward move (Rs 271-Rs 170.40). However, we can expect to see smart upmoves, if it closes above the level of Rs 237. We would advise our readers to hold this stock with a stop-loss of Rs 225 on closing basis, as the stock is likely to move higher from the current levels.