Technicals

SPOT NIFTY : As we suspected earlier, the counter-trend consolidation has come to an end with a downside breakout. A two-week consolidation in the form of bearish flag pattern downside breakout with the highest volumes triggered the next leg of the downside move. These breakdown implications are very serious in nature. The market may test the 10400 level very fast. The fall will be more ferocious than the flag pole, which means we are going to achieve the target in less than two weeks. The flag pole duration is 13 trading sessions. As per the bearish flag breakdown rule, the downside target of pole size will be achieved in flag pole duration. This means the breakdown is already two days old. The probability of achieving the target in the next 11 trading sessions is very high. There is nothing that looks positive on the index part. The market breadth has once again entered into the worse phase. More and more stocks are hitting new lows. The Midcap and Smallcap indices are in a fresh breakdown. The only index that looks resilient is Nifty IT on account of dollar appreciation. There are 493 stocks that hit a new 52-week low on Thursday, as 1433 stocks closed with a negative bias, while only 368 stocks had positive closing.

Technically, Nifty corrected more than 61.8 per cent of Oct-June rally. It also corrected 11.25 per cent or 1362 points from the June 3 top. Any kind of faster retracement after the consolidation breakout will lead to a sharper fall. That is what we witnessed on Thursday. We have enough confirmation that 12103 is a major top. The next level of significant support is placed at 10450-10400. This correction may lead to more pain across the stocks, irrespective of market capitalisation. Be ready to brace with the situation.



NIFTY DERIVATIVES: A Nifty future lost 297 points or 2.69 per cent since last weekly expiry. The fall is more sharper and with higher volumes. The open interest (OI) is increasing as there is massive shorts build-up in the market. The technical pattern breakdown leads to an aggressive selling and OI build-up. The OI has increased by 8.13 per cent in the Nifty. The Bank Nifty has highest 14.48 per cent increase in OI. As Nifty closed below the previous low of 10806, bears are in full control. Another week to go before the August series expiry, but the rollovers have risen to 14.68 per cent. The Put-Call Ratio for August month series is at 0.83, which is still above the neutral zone. There is huge Call writing happening from 10550 to 10950 strikes. The highest OI was seen at 11000 strike with OI of 49,25,025. The Calls have a more OIs than the Puts in the overall market. The highest Put OI was seen at 10700 and 10500 strikes with OIs of 27,15,300 and 25,70,175. Interestingly, the 11000 strike Put has maximum OI of 28,58,850. Surprisingly, 10,600 strike Put has seen a short-covering as the price is up and OI is down. The remaining strikes from 10550 to 10750 witnessed a long buildup in Puts. With this current derivative data, the max pain is placed at 10750. 



STOCK STRATEGY

HINDUSTAN UNILEVER ........................ BUY .......................... CMP Rs.1,869 

BSE Code ...... 500696 Target 1 .... Rs.1950 Target 2 .... Rs.1980 Stoploss .... Rs.1810(CLS) 



✓ Current Observation: Indian FMCG major, multi-brand Hindustan Unilever closed at a new life-time high with higher volumes. The stock also has broken out of the 36-week flat base pattern. Even in the weak market conditions, this stock is showing strength with renewed buying interest.
✓The stock never made a lower low on a weekly chart for the last two-and-a-half years. The indicator set up is showing very clear bullish strength in the stock. The RSI is above 63 and in the bullish zone. It has also moved above the prior swing high. The MACD line is above the signal line for the past three weeks. The highest volume on the breakout candle shows that the accumulation is in full swing.
✓ The stock is meeting all the CANSLIM characteristics. Its relative price strength is as high as 84 and EPS strength is 80. The greater buyers demand is at A grade. Its return on equity (RoE) is highest at 77 per cent. It has consistent earnings and sales growth above 10 per cent. The institutional holding is up by 0.7 per cent.
✓ Buy this stock at Rs. 1869 with a stop loss of Rs. 1810. The target is open towards Rs. 1950, followed by 1980. 

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Pidilite Industries at Rs 1352 in issue no. 43 (dated August 19, 2019). Post our recommendation, the stock has been witnessing consolidation along with low volumes. The stock is still trading above its pivot and above the short and long term moving averages. The technical parameters of the stock still look promising. We would advise our readers to hold this stock with a stop loss of Rs 1290, as the stock is likely to move higher from the current levels.