Technicals
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty has dropped by 380 points or 3.43 per cent from the Friday’s high. Two days of sharp declines, witnessed this week, has eroded investors’ wealth heavily. As we are cautioning for the last few weeks, the consolidation phase has ended, and now, resumed the decisive downtrend. Technically, Nifty is in a very weak structure, as it has broken out of the bearish symmetrical triangle or a 29-day box range. Nifty closed at lowest level since 20th February. As the fall is supported by heavier volumes and distribution is at the highest level, the fall is expected to be similar to the July fall. There is highest probability of the index breaching the 23rd August low of 10637. Nifty has consolidated between 50 per cent and 61.8 per cent retracement of 26th October 2018 to 3rd June 2019 high. With Thursday’s fall, the 50-share index has decisively closed below the 62 per cent retracement. The next level of strong support is placed at 10580-10455 zones. This support may hold for the September month. Evidences show that the market is completely under the bear grip. Unless it reaches the 11181 levels, any rally can be considered as a pullback only.
As the major indicator RSI has not yet reached to an oversold condition, it is expected to see some more declines in coming days. For the next two weeks, as long as Nifty trades below 10975, it is advised to avoid taking any kind of long positions. On the downside, keep the shorts on hold with a stop loss of 10830 for a target of 10580 and below.
NIFTY DERIVATIVES: This week’s derivatives expiry is almost similar to that of the July first week. Nifty futures lost 287.45 points from the last Thursday close. But, it fell by more than 396 points or 3.57 per cent from Friday’s high. The rollovers were seen 16.02 per cent before a week of monthly expiry. On more than a per cent decline on Thursday, the open interest increased by 9.64 per cent in Nifty. This shows that large number of shorts was built up in the market. Even in the Bank Nifty, the open interest rose by 21 per cent. Currently, the PCR is at 0.69. Open Interest wise PCR is at 0.89. This indicates that the reversal is still a distant opportunity. The 10500 strike has the highest Put open interest of 3382050 and the 11000 Call strike has the highest Open interest of 4476750. On the Call side, most of the strikes witnessed short covering otherwise long liquidation. The shorts were built up from 10500 to 10900 strikes. On the Put side, long build-up was seen in the same strikes. With current derivative data, the max pain is placed at 10750.
STOCK STRATEGY
ICICI PRUDENTIAL LIFE INSURANCE ............. BUY .......... CMP Rs.430.50
BSE Code ...... 540133 Target 1 .... Rs.455 | Target 2 .... Rs.465 | Stoploss .... Rs.410(CLS)
✓ Current Observation: ICICI Prudential Life Insurance is displaying extreme strength in bear market conditions. The stock took a support at 21 EMA and is clearly in an uptrend, making higher highs and higher lows.
✓ Also, it is trading above all the short and long term moving averages. The major indicator RSI took support near the 50 mark and has reached the bullish zone. RSI is also making higher lows.
✓After correcting 50 per cent from the recent upswing, it has resumed the uptrend and managed to reach the prior high. Its relative price strength (RS) is as high as 93 and the volumes are above average.
✓ This shows that the accumulation is high. So, buy this stock at Rs. 430.50 with a stop loss of Rs. 410. The target is open towards Rs. 455-465.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Tata Steel Ltd at Rs. 367.10 in issue no. 47 (dated September 16, 2019). Post our recommendation, the stock did not sustain at higher levels as selling pressures emerged in the market and the stock slipped below the stop loss level. Therefore, we recommend our readers to exit with a loss. We have exited the stock at Rs. 344.45 on September 18, 2019.