Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : The geopolitical tensions between Russia and Ukraine refused to show any respite; Russia continued shelling at the civilian settlements as well as on civic infrastructure over the past few days. Apart from this, the largest nuclear plant in Europe remains under siege, which is likely to get dangerous in its obvious ways. Despite all this, the Indian equity markets had shown the addition of large short positions over the past several days. It was seen scrambling hard to find a temporary base for itself and staged a technical pullback. The markets witnessed a short-covering-fuelled rally and on Thursday, the headline index Nifty closed with a net gain of 249.55 points or 1.53 per cent.
In the previous note, we mentioned that the RSI, which is a lead indicator, had shown a strong bullish divergence against the price. While Nifty made lower lows, the RSI did not and this had resulted in a bullish divergence. Nifty witnessed a gap-down opening along with a negative closing on the first day of the week; after this, the remaining three sessions saw a massive, strong, short-covering-led rally in the equity market. From the week’s low point of 15,671, the headline index surged close to 1,000 points in three days. The high point on Thursday fell near the lower trend line of the bearish descending triangle that Nifty had violated on its way down.
While this point, i.e., the lower edge of the bearish descending triangle was a support earlier, it now becomes resistance level for the markets on its way up. This level falls around 16,800 levels. Going higher, Nifty has 200-DMA, which presently stands at 16,959. This makes the level of 16,800-16,950, a stiff resistance area for the mar- kets in the near term.
The relative strength index (RSI) on the daily chart is 45.71. It has marked a new 14-period high, which is bullish. It is also seen to have broken out by penetrating the falling trend line pattern resis- tance. The daily MACD stays bearish and is below the signal line.
The pattern analysis on the charts shows that Nifty has poten- tially formed a base with the most immediate low point of 15,671. Until this range is protected, the markets will not see any structural breakdown and continue to remain in a defined trading range. On the upside, Nifty has a pattern resistance near 16,800, followed by the 200-DMA, which stands at 16,959. This makes the zone of 16,800- 16,950, a strong resistance zone for the markets.
Over the coming days, it is largely expected that the markets will consolidate below the 200-DMA. Until this happens, we can also expect some sector rotation to happen. The sectors like metals, oil & gas, etc., which had run up so hard, may take some breather and con- solidate. At the same time, some good quality names from the beat- en-down sectors may continue seeing buying from the lower levels.
The surge in the markets has been predominantly due to short covering. The geopolitical tensions remain today as much as they were in the previous days. Oil, which had seen sharp technical retracements, may see some upmove due to all this. Apart from this, we might also see markets react to Federal Reserve’s rate decision. All these factors will continue to keep the markets on tenterhooks. The prudent way to navigate such markets would be by limiting leveraged exposures and sticking to good quality names by making purchases with every downside that the market has to offer.
NIFTY DERIVATIVES:
The weekly options took place on the expected lines. Though the highest Call OI was at 17,000 levels, heavy call writing at 16,900 and 16,800 prevented Nifty from sustaining above it. On the downside, with the highest Put OI staying at 16,500 throughout the day, Nifty was able to keep its head above this point.
The options data continues to show the highest Call OI accumu- lation at 17,000 levels. This means that unless there is a major thrust, Nifty is unlikely to move past 17,000 too soon. In all probabilities, we can expect the markets to trade in a wide range with the levels of 17,000 acting as a stiff resistance point
TECHNICAL RECOMMENDATION
STOCK STRATEGY
MINDA INDUSTRIES LTD........... BUY ............ CMP ₹ 993.25
BSE Code ...... 532539
Target 1 : ₹ 1060
Target 2 : ₹ 1100
Stoploss : ₹ 930 (CLS)
◼Current Observation: Minda Industries Limited is a supplier of automotive solutions to original equipment manufacturers. The company offers a range of products across various verticals of auto components, such as switching systems, acoustic systems, and alloy wheels. n The stock of Minda Industries has soared about 12 per cent since its prior swing low in just three trading sessions, displaying a strong bullish momentum. Moreover, it has closed above its prior swing high of Rs 964.
◼ The stock has found strong support at the zone of Rs 874-Rs 877. In fact, it formed a double bottom pattern while on Thursday, it witnessed a breakout of the neckline of the double bottom pattern. The breakout is accompanied by an above-average volume, which happens to be greater than the 10-day, 30-day, and 50-day average volume.
◼ The stock's relative strength index (RSI) has reached its highest value in the last 14 days, which is bullish. Also, it has managed to close above its prior swing high. Moreover, the OBV is increasing, which indicates bullish sentiment from volumes' point of view.
◼ Recently, the MACD line has crossed the signal line and as a result, the histogram turned positive. Meanwhile, the Elder impulse system has turned bullish.
◼ Considering the ongoing bullishness, the stock can test the levels of Rs 1,060, followed by Rs 1,100. However, in case of bad market sentiment, maintain a stop-loss of Rs 930.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Ambika Cotton Mills Ltd at Rs 2,422 in issue no. 20 (dated March 07, 2022). On Monday, the bad global cues spoiled the market sentiment, leading to a drastic fall of the broader market, which eventually, affected the stock’s performance. It fell about 3.26 per cent on that day and hit our defined stop- loss at Rs 2,320. Thus, we booked LOSS.