Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : You must have heard the phrase, ‘records are meant to be broken’. Likewise, Nifty on Thursday broke a few records. The first record is that it registered the biggest single-day drop in over four months. Second, the losing streak as the current losing extends to the sixth straight session; it becomes one of the longest losing streaks after February 2020.

Let’s look at the internal trend of the markets i.e. from last Thursday’s close to this Thursday, only one stock in Nifty50 is in the positive territory. In Bank Nifty, all 12 stocks stayed in red, and in Nifty500, only 4 per cent of the stocks managed to close in green. Further, 126 stocks out of 138, which traded in F&O are trading below its 20-DMA.

In the last six trading sessions, Nifty has lost nearly 7 per cent, and now, it has reached in close vicinity of an important moving average i.e. 200-DMA (10,761.38). It has retraced 78.6 per cent of the upmove, which began from the low of 11,562.90 to the high of 11,794.25. The way bears are knocking down the support one by one with the rising India VIX, it’s a cause of worry for the market participants.

Going forward, it’s important to monitor the price action around the 200-DMA as in case the bears take this out then, the index might head towards the level of 10,550-10,640 in the near term. So, now, the onus is on the long-term moving average to help revive the bulls as a slide below this level would only amplify a panic in the market.

The 14-period RSI has breached its important level of 40 and is currently, placed at 30. On the directional index, the bearish strength is higher than the bullish strength as +DI is much below the -DI. Also, the –DI is in a rising trajectory. Further, the ADX is also rising. Meanwhile, the MACD histogram further increases, which is a cause of worry.

Overall, now, the onus is on the 200-DMA, which is placed at 10,761.38. If bulls manage to defend it, expect a pullback up to the levels of 10,980, or else, 10,640-10,550 is the next destination.

NIFTY DERIVATIVES : Nifty Futures has lost 773.80 points or 6.68 per cent in September monthly series. In the last five trading sessions, Nifty Futures has added three distribution days as the index fell more than 0.2 per cent from its previous day’s close along with relatively higher volume. For the next weekly expiry, an open interest wise put-call ratio (PCR) is at 0.57. For October monthly series, PCR is at 1.23. For the next weekly expiry, the highest call open interest is at 12,000 strike with 27,12,750 OI. On the put side, 11,000 strike has 12,77,850 open interest, which is the highest. The highest addition in the open interest was seen at 12,000 call of the next weekly expiry with 20,54,475 OI while on the put side, 10,900 put has seen the highest addition in open interest with 6,39,300 OI. For the next weekly expiry, the total call open interest is 2,13,39,450 and the put open interest is 1,21,22,550.For October monthly series, the highest call open interest is at 11,500 strikes with 17,13,825 OI, followed by 12,000 strikes with 14,49,225 OI. On the put side, the highest put open interest is at 10,500 strikes with 30,48,600 OI. The current derivative data suggest that the Max Pain is at 11,200 for the monthly expiry.

TECHNICAL RECOMMENDATION

STOCK STRATEGY

RELIANCE INDUSTRIES LIMITED ............... BUY .......... CMP Rs 2181.15 

BSE Code ...... 500325 | Target 1 .... Rs 2300 | Target 2 .... Rs 2360 | Stoploss.... Rs 2150

✓ Current Observation: Reliance Industries Limited (RIL) is India’s largest private sector company. The activities of the company span across hydrocarbon exploration & production, petroleum refining, and marketing, petrochemicals, retail & digital services. RIL is the topmost ranked company from India to feature in Fortune’s Global 500 list of ‘world’s largest companies’, where it’s on 96th rank.
✓ The stock has witnessed a breakout of an ascending triangle-like pattern along with a gap-up as on September 10. Thereafter, the stock went on to achieve the target of the ascending triangle pattern and registered an all-time high of Rs 2,369.35 as of September 16. However, after that, in line with the correction in the frontline index, the stock has also entered into a corrective decline. During this corrective decline, the stock has retested its ascending triangle breakout. As the current decline is seen on the back of the relatively lower volume, if we compare it with the breakout candle, we believe that this correction is more to do with the weakness seen in the headline index.
✓ Over the past six trading sessions, the index has retraced 61.8 per cent of its earlier five sessions’ upmove (2,081-2,369) seen during the early part of September month. The lack of faster retracement further confirms that this correction is a buying opportunity for those who missed out on the rally on the previous occasion.
✓ We expect the stock to take support from the current levels and witness a rally from the current price. On the upside, the level of Rs 2,300 is likely to be the initial target for the stock, and one can maintain a stop-loss of Rs 2,150 on a closing basis. 

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Sonata Software Ltd at Rs 337.30 in issue no.48 (dated September 21, 2020). Post our recommendation, the stock showed an initial move to the upside and went on to hit the high of Rs 346. However, due to a selling pressure witnessed in the markets during the past six trading sessions, the stock also went into a corrective decline and made a low of Rs 305 but it did not sustain at lower levels and bounced back. We would recommend our readers to continue holding this stock with a stop-loss of Rs 313 on a closing basis as this stock is seen holding above its 20-DMA and a decline in the price for the last two sessions could be seen on the back of lower volumes.