Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty has lost 73.50 points or 0.67 per cent from last Thursday’s closing to this Thursday. In the same period, Bank Nifty dipped by 5.75 per cent. Further, out of the five trading sessions, Nifty ended in green in three of them. Despite over 1 per cent gain in Nifty, the market breadth on Thursday was in favour of bears as the decliners outnumbered the advancers.
On Tuesday, Nifty breached the range of 10,676-10,848 on the lower side, but on Thursday, the index gained almost 145 points from the day’s low and with this upside move, the index has climbed back into a tight consolidation range.
On Thursday, Nifty formed an inside day candlestick pattern on the daily timeframe. Interestingly, since the last three trading sessions, the 20-DMA is acting as strong support and the index has formed almost three identical lows near 20-DMA. Also, on a lower timeframe, i.e. 60 minutes, the index has formed Adam & Adam double bottom pattern. Furthermore, the RSI on the 60-minute timeframe turned upside exactly from the 40 level, which suggests a bullish momentum as per RSI range shift rules.
Going ahead, the index needs to sustain above the zone of 10,795-10,830 for a further bullish momentum as it is the confluence of the neckline of double bottom pattern and downward sloping trendline resistance. On the downside, the zone of 10,570-10,540 is likely to act as strong support as the 20-DMA and 50 per cent retracement level of its prior upward rally (10,194.50-10,894.05) are placed in this region. In the coming session, we expect the index to consolidate in the broad range of 10,540-10,830 and a decisive breach on either side may result in a trending move.
NIFTY DERIVATIVES: Nifty Futures lost 125.65 points or 1.16 per cent since the last weekly expiry.
For the next weekly expiry, an open interest wise put-call ratio (PCR) is at 1.1. For July monthly series, PCR is at 1.52. For the next weekly expiry, the highest call open interest is at 11,000 strike with 13,16,775 OI. On the put side, 10,500 strike has 13,76,250 open interest, which is the highest. The highest addition in open interest was seen at 10,500 put of the next weekly expiry with 9,10,200 OI and on the call side, 11,500 call has seen the highest addition in open interest with 7,03,575 OI. For the next weekly expiry, the total call open interest is 98,12,400 and the put open interest is 1,08,24,225.
For July monthly series, the highest call open interest is at 11,000 strikes with 25,67,100 OI, followed by 11,500 strikes with 2,55,78,00 OI. On the put side, the highest put open interest is at 10,000 strikes with 34,52,625 OI. The current derivative data suggests that the Max Pain is at 10,600 for the monthly expiry.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
MUTHOOT FINANCE LTD................... BUY ......................... CMP Rs 1,132.10
BSE Code ...... 533398 | Target 1 .... Rs 1,200 | Target 2 .... Rs 1,235 | Stoploss.... Rs 1,070
✓Current Observation: Muthoot Finance Limited is a gold financing company. The company is a non-banking financial company (NBFC), which is engaged in providing loans (financing) against the collateral of gold jewellery. The company provides personal and business loans (secured by gold jewellery), primarily to individuals, having no access to formal credit for a reasonable tenure to meet their short-term working capital requirements.
✓Technically, the stock has formed a reversal bearish pin bar candlestick pattern as on June 19, 2020 and thereafter, witnessed minor correction. During this corrective phase, the volume was mostly below 50-day average volume, which suggests its routine decline after a robust move.
✓The correction is halted near 23.6 per cent retracement level of its prior upward rally (Rs 476.80-Rs 1,284) and coincides with the 20-day EMA level. The stock is meeting Daryl Guppy’s multiple moving averages set-up rules as it is trading above both the short and long-term moving averages. The positive crossover on 14-period RSI and stochastic supports the overall bullish price structure.
✓Considering the above factors, we recommend buying the stock with a stop-loss of Rs 1,070 for a target of Rs 1,200, followed by Rs 1,235.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Nilkamal Ltd at Rs 1,218.45 in issue no. 38 (dated July 13, 2020). Post our recommendation, the stock has been witnessing a consolidation along with low volume. The stock is still trading above the short and medium-term moving averages. The technical parameters of the stock still look promising. We would advise our readers to hold this stock with a stop-loss of Rs 1,140 on a closing basis, as the stock is likely to move higher from the current levels.