Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :
Nifty continued its rally for the third consecutive week and gained 352.50 points or 2.3 per cent in the last five trading sessions. The rally was mainly because of the PSU banks and also, due to Reliance Industries’ 12 per cent rise.
On Thursday, Nifty opened with a gap-up but sustained at the opening highs with a dip in the middle of the session. Technically, it formed another hanging man candle. Nifty traded in just 94 points range on a weekly expiry day. It just closed above Tuesday's high. In fact, it closed at a new lifetime high. On the weekly chart, it formed another big bullish bar. The histogram shows a significant decline in the bearish momentum. However, the daily momentum gives a slightly different picture. The RSI 71.55 entered the overbought zone. Even after breaking out of the 68-day cup, it was up by over 2.5 per cent. The current structure suggests that there is a probability of countertrend consolidation or it may retest the cup breakout level. However, be with the trend as long as it trades positively. A close below the previous bar’s low will indicate the beginning of the countertrend. The immediate target is at 15,784 if the trend continues.
NIFTY DERIVATIVES:
Nifty Futures advanced by 386 points or 2.52 per cent since the last weekly expiry. For the past three weeks, the drastic volume decline is a concern for the market. As the intraday margins increased from June 1, the volume started dipping. The open interest is up by 6.64 per cent, which shows a long built-up.
Nifty put-call ratio (PCR) is at 1.64, which is up from 1.32 of last Thursday. Even the next week's PCR, which indicates limited upside, is higher at 1.21. The first week's rollovers were at 7.73 per cent. Meanwhile, India VIX collapsed 8.51 per cent today and closed at 15.74. It is the lowest closing level for VIX since February 20, 2020. The lower VIX will result in a trending and impulsive move in the index, as they have an inverse relationship. Even the implied volatility collapsed to 15.4, which is the lowest in one year.
For the next weekly expiry, the total call open interest is at 2,50,881 while the total put open interest is at 3,04,237. The maximum call open interest of 29,125 is at strike of 16,000, followed by strike of 15,700 of 28,479 OI. The deep-out-of-the-money 16,500 strike also has 21,012 OI. On the put side, interestingly, the deep-out-of-the money strike 14,500 has an open interest of 26,130, followed by 15,500 strikes with 21,227 OI and 15,600 strikes with 20,953 OI. Out-of-the-money strikes of the month of May have higher put open interest. The 16,050-strike call has seen the highest increase in OI built-up of 480 per cent. On the put side, the 15,900-strike saw a 639 per cent increase in the OI. Currently, the Max Pain for the next week is at 15,700 while the VWAP is at 15,690.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
DR.REDDY'S LABORATORIES LTD...................BUY ................... CMP Rs 5,286.10
BSE Code : 500124
Target 1 : Rs 5,600
Target 2 : Rs 5,750
Stoploss : Rs 5,100 (CLS)
Current Observation:
✓Dr Reddy's is an integrated global pharmaceutical company, which operates via three core segments namely, pharmaceutical services & active ingredients, global generics, and proprietary products. It has a diversified presence across markets, including the USA, Europe, Russia, China, Brazil, and India along with other emerging markets. It also has an advantage of a wide portfolio of COVID-related drugs, including the vaccine. It has registered healthy growth across the market and businesses in the recent quarter. The company has been able to successfully acquire business from Wockhardt.
✓ Technically, the stock is forming a 37-week double bottom (William O'Neil’s) and is trading near the pivot level. It is trading in a tight range for the past three weeks. Currently, the stock is taking support at 20-DMA for the past 18 days. The short-term moving average is trending up. Besides, the histogram is showing a decline in the bearish momentum while the weekly momentum is rising, which is a positive sign for the market. The Elder impulse system gave bullish signs and the stock moved above the anchored VWAP. Meanwhile, the decline in volume shows the pattern character. The RSI has broken out of a channel on a weekly chart. The stock is at just a 2 per cent distance from the pivot. In short, the stock formed a long-term bullish structure.
✓Considering the above factors, we recommend buying this stock for a short to medium-term target of Rs 5,600-Rs 5,750 level. Maintain a stop-loss at Rs 5,100.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Tata Consultancy Services (TCS) at Rs 3,180.20 in issue no. 32 (dated May 31, 2021). Post our recommendation, the stock witnessed consolidation along with low volume. Currently, it is hovering around the 20-day EMA as well as the 50-day EMA level. However, we can expect to see some smart upmoves if it closes above the level of Rs 3,200. We would advise our readers to hold this stock with a stop-loss of Rs 3,065 on a closing basis as it is likely to move higher from the current levels