Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : Right at the beginning, it seemed like it’s going to be an interesting weekly expiry as, at the opening bell itself, Nifty marked an all-time high of 13,216.60.

However, the opening level turned out to be the high point of the day, and post that, the bulls lost their spark and the index started to trim their gains. At close, Nifty settled at 13,134 i.e. at its record closing high.

Unlike the usual weekly expiry day, the market today oscillated in a range of just 109 points, which is lower than the 10-day average. It was also the lowest in the last four days, which resulted in the formation of an NR4 pattern on the daily chart. The formation on the daily chart resembles a bearish belt hold pattern as the highest price of the day turned out to be the opening price of the day and the closing was near the day’s low. However, given the fact that the day’s range was too narrow and also the price did not breach its prior bar low, we don’t think this should have a bearish implication. In fact, this can be viewed just as a breather as Nifty has managed to maintain a higher-low formation. Further, the advance-decline ratio was tilted in the favour of advancers as 1,357 stock advanced as against 549 decliners.

On Thursday, on an intraday basis, the price moved above the high of the bearish engulfing pattern (November 25) and challenged the Doji pattern, which was formed on the weekly chart. However, the index was not able to sustain above the high of this pattern and thus, closed below that. This certainly means that there is a high probability of further consolidation.

The negative divergence pattern continued on the daily chart and on the 75-minutes chart, the RSI just popped up above the 60-mark but thereafter, for the whole day, it traded below the 60-mark. Meanwhile, on the 60-minutes chart, the Bollinger Bands have started to contract and resulted in the formation of NR4 pattern as well as the contraction of Bollinger Bands (both indicate volatility contraction), just before the big event i.e. RBI policy on Friday. This means that we could see volatility expansion on Friday as the phase of volatility contraction is followed by the expansion of volatility. 

Hence, going ahead, the traders should keep a watch around the high and low of Thursday’s session. Hence, the level of 13,100 turned out to be an immediate support level as a breach of this level could open gates for a further correction towards the 12,900 levels. Meanwhile, the 13,220 level should be watched on the higher side. Overall, the bulls lacked momentum and the level of 13,100 became the immediate support for the bulls. 

NIFTY DERIVATIVES: Nifty Futures has gained 180.20 points or 1.38 per cent since the last weekly expiry. For the next weekly expiry, the open interest wise put-call ratio (PCR) is at 1.08. For the December monthly series, PCR is at 1.72. For the next weekly expiry, at 14,000, the call strike price has witnessed an addition of 13,96,650 open interest. So, the total open interest currently stands at 15,93,450, which is the highest. On the put side, 13,100 puts has seen an addition of 13,55,175 open interest and thus, the total OI stood at 17,27,550, which is the highest. For the next weekly expiry, the total call open interest is 1,51,24,725 and the put open interest is 1,63,76,175. For the December monthly series, the highest call open interest is at 13,000 strikes with 27,17,175 OI, followed by 13,500 strikes with 19,39,950 OI. On the put side, the highest put open interest is at 12,000 strikes with 32,79,450 OI. The current derivative data suggest that the Max Pain is at 13,000 for the monthly expiry.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY 

POLYPLEX CORPORATION LTD ............. BUY .......... CMP Rs 773 

BSE Code : 524051
Target 1: Rs 830
Target 2 : Rs 850
Stoploss : Rs 720 (CLS)

✓Current Observation: Polyplex Corporation Limited is a holding company. The company manufactures plastic films and resins. Its geographical segments include India and abroad. Its business portfolio includes biaxially oriented polypropylene (BOPP) films and cast polypropylene (CPP) films.
✓ After registering a high of Rs 857.70, the stock has witnessed a correction. The correction is halted near the 61.8 per cent retracement level of its prior upward move (Rs 643.35-Rs 857.70). The stock has formed a strong base in the zone of Rs 727-Rs 722 level and initiated an upward journey.
✓ Considering the daily timeframe, the stock has given a downward sloping trendline breakout, formed by connecting swing highs from November 2020. The breakout is confirmed by the above 50-day average volume.Currently, all the moving averages based trade set-ups are showing a bullish strength in the stock. Daryl Guppy’s multiple moving averages is suggesting a bullish strength in the stock.
✓Interestingly, the 14-period daily RSI has given a downward channel breakout, which is a bullish sign. The daily stochastic oscillator is suggesting some bullish strength as well since per cent K is above the per cent D. Further, Martin Pring’s longterm KST setup has also given positive crossover.
✓Considering the above factors, we recommend buying this stock with a stop-loss of Rs 720 on a closing basis for a target of Rs 830-Rs 850 in the short to medium-term.

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Gujarat State Fertilizer & Chemicals Ltd at Rs 71.45 in issue no. 06 (dated November 30, 2020). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 75.50. We had given a ‘book profit’ message at the level of Rs 75.20 through our SMS service on December 03, 2020. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit.