Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :
During the last five days, Nifty lost 147.5 points or 0.85 per cent. Throughout the week, the index experienced gap openings and trad- ed with high volatility. It is trading in a broader range after opening with a big gap-down on April 18. It is still below the gap area resistance. It tried to fill the gap on April 21 but was unsuccessful. Since April 5, the index experienced gaps on both sides almost every day with a majority on the downside. It tested the 50 per cent retracement level twice and made four higher-low candles. However, it failed to form a higher high. Over the last seven days, the benchmark index formed a counter-trend consolidation pattern i.e. the Pennant.
The index closed above the 50-DMA but failed to close above the 200-DMA even after Thursday’s upmove. The 20-DMA is placed at 17,441. The Bollinger Bands are moving parallel in a wide range. The consolidation will continue unless Nifty fills the gap and closes above 17,610. On the downside, a prior bar close or a close below 17,103 (50-DMA) will be negative. At the same time, if Nifty moves below 16,893, it will resume the downtrend. Below the 50-DMA, the support is placed at the zone of 16,893-16,755. The RSI is hov- ering around the zone of 50 while the MACD line is still below the zero line.
Today, Nifty closed above the Anchored VWAP. The KST and TSI indicators are still in the bearish zone. On a weekly basis, it needs to close above the 20-weekly average of 17,280. Currently, Nifty has formed a bullish engulfing candle on the weekly chart. This needs to get the confirmation by next week. However, with the increased vol- atility in the global as well as domestic markets, trading has become an extremely difficult task. As the overall market is in a bear phase, it is better to have lighter positions and trade only on the confirmation of a trend bias.
NIFTY DERIVATIVES:
Nifty Futures lost 219.70 points in the April series and fell 147.5 points since the last weekly expiry. Except for the first two trading sessions of the sharp upmove, Nifty mostly moved on the downside with huge volatility. Almost on all the days, it opened with gaps on both sides. The rollovers were seen at 73.95 per cent i.e. above the three-month (50.61 per cent) and six-month (65.94 per cent) aver- age. The April series put-call ratio (PCR) begins on the higher side of 1.74. For the next weekly expiry, the PCR is at 1.11. This indicates a minor high on the index. At-the-money implied volatility (IV), which is at 18.4, is also, above the average level. With this, the option premiums are quoting a little high. Besides, closed at 19.38, down by 5.98 per cent today.
The total call open interest is 5,58,411 while the put open interest is 6,21,174. The at-the-money (ATM) strike 17,300 has the highest open interest of 48,433, followed by the 17,500 strikes with 41,357 OI. In-the-money (ITM) strike 17,200 also has the highest open interest of 35,169. The 17,350 strike has the highest i.e. 249 per cent rise in the open interest. All these strikes have seen a long build- up. On the put side, the 17,000 strike has the highest open interest of 59,950, followed by the 16,900 strikes with 42,653 OI. Interestingly, the deep-out-of-the-money strike 16,000 strike also has the highest open interest of 62,849. This strike PE is trading at Rs 5.80. Almost all the strikes have seen a short build-up on the put side. Based on the current derivative data, the next week's Max Pain is at 17,200 while the VWAP is at 17,187.80.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
BHARAT ELECTRONICS LTD ............ BUY ........ CMP ₹ 246.75
BSE Code :500049
Target 1 : ₹275
Target 2 : ₹ 288
Stoploss : ₹ 237 (CLS)
Current Observation:
✓Bharat Electronics Limited (BEL) is an Indian state-owned aerospace & defence company with about nine factories and several regional offices in India. The company aims to increase non- defence market share to 20 per cent-25 per cent in the next two to three years. With the government's new defence orders to the PSUs, double- digit revenue, order inflow growth, sustained margins, and a strong order book are expected to ensure better performance.
✓ The stock broke out of a 20-week consolidation with a massive volume three weeks ago and is trading 7 per cent above the breakout level. The stock is comfortably placed above its key moving averages i.e. around 13 per cent & 20 per cent from 50-DMA and 200-DMA, respectively. It is trading 16 per cent above the 20-weekly moving averages.
✓ The weekly MACD is showing strong bullish momentum. The 14-period RSI (63.91) is in a strong bullish zone and at the 20-week high. The accumulation and distribution line is at a new high, showing the stock's demand.
✓ It is above the Ichimoku cloud and shows a strong bullish bias in the stock. The ADX began to trend up, and the +DMI is above the -DMI, which is a positive sign. The stock is trading near the lifetime high. It may consolidate for a brief period after a very big consolidation breakout.
✓ All the current fundamentals and the future projections are very bullish. It looks attractive at current valuations with a strong order book, a healthy balance sheet, and double-digit return ratios. The consensus price estimate for the short-term is Rs 275. Maintain a stop-loss at Rs 237 as per the risk appetite. Meanwhile, the medium-term target is Rs 288.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Gujarat Alkalies & Chemicals Ltd at Rs 976.40 in issue no. 27 (dated April 25, 2022). As per our expectations, the stock traded firmly above our suggested buying price. It witnessed some resistance at higher levels but we exited on time. We had given a ‘Book Profit’ message at the level of Rs 1,013.40 via our SMS service on April 26, 2022. Thus, traders, who had taken positions according to this strategy, would have made a decent profit.