Technicals Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : Nifty finally succumbed to selling pressure after a breath-taking rally of nearly 1,428 points from the lows of 11,535 to the highs of 12,963 in just 14-trading sessions. This can be attributed to weak cues from European equity markets as it bleeds red amid lockdown related fears. The Nifty 50 also recorded its sharpest fall since October 28 as it slipped nearly 1.30 per cent to close below the 12,800 mark. Despite recording such a sharpest fall, India VIX added meagre 2.35 per cent and is still trading below 20 mark, which indicates that there is no widespread panic in the markets. This could also be gauged from the fact that the advance decline ratio was not extremely negative but it slightly skewed in the favour of bears.

But what is concerning is that, the main pillar (Bank Nifty) of the current rally plunged sharply. Moreover, all the components of the Bank Nifty ended in red. Said that, if the leader starts to crumble, then a new leader should emerge to carry on the baton. And today, the defensive came into the picture as Nifty FMCG added 0.43 per cent and ITC was major contributor in the index. The price action of the day formed a small body bearish candle carrying an upper shadow indicating an emergence of profit booking from the new highs. In the technical parlance it is called as 'Shooting Star Pattern.' The formation of this candlestick pattern is viewed as a bearish reversal candlestick pattern which usually occurs at the top of an uptrend. Moreover, for the first time in the last 14 trading sessions, index closed below its prior bar low and that too with the current candle carrying a long upper shadow, which is a sign of concern. With the Thursday's fall, index has partially filled the opening gap created on muhart trading session.

Going ahead, the index has strong support placed in the region of 12,700 - 12,740 levels. As long as index stays above this zone, market participant should not be panic. However, if it breaches this zone, it would invite further selling pressure and at the same time the panic would result into a rise in India VIX. At this point in time market participants should be cautious and should stay away from attempting to catch a bottom. Because if the index closes below 12,700 level, then it would retrace from 38.2 per cent of the current up leg which is placed around 12,417 levels and incidentally is near about the pre-pandemic all-time high level as well. The MACD has started to cool off from its historic high level on a daily chart. Further, the RSI which has moved below the 9-day EMA and the +DMI which shows the positive momentum, continued to decline.

Overall, watch out for the 12,700 - 12,740 levels in the near term as sustaining above or below these levels could dictate the trend of the market in the near term.

NIFTY DERIVATIVES : Nifty Futures has gained 72.05 points or 0.56 per cent since the last weekly expiry. For November monthly series, open interest wise put-call ratio (PCR) is at 1.18.

For November monthly expiry, highest call open interest is at 13,000 strike with 34,32,300 OI, followed by 13,500 strike with 33,78,450 OI. On the put side, 12,000 strike has 37,42,200 open interest, which is the highest. The highest change in open interest was seen at 12,900 call of November monthly expiry with 18,32,925 OI and on the put side, 12,000 put has seen highest change is open interest with 8,10,150 OI. The total call open interest for November monthly series is 3,50,40,675 and the put open interest is 4,12,13,775. The current derivative data suggest that the max pain is at 12,700 for the monthly expiry.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY 

LUX INDUSTRIES LTD .......... BUY ...... CMP Rs 1,568.90 

BSE Code ...... 539542
Target 1 :  Rs 1,650
Target 2 : Rs 1,670
Stoploss : Rs 1470

✓ Current Observation: Lux Industries Limited is engaged in the manufacture and sale of knitted apparel, including hosiery. The Company offers various products for men, women and kids. The Company's products include briefs, trunks and drawers, vests, bermudas, t-shirts, socks, leggings, bloomer, panties, slacks and slips. The Company also offers winter wear products. The Company's manufacturing units are located in Kolkata (West Bengal) and Tirupur, in the state of Tamilnadu.
✓ The stock has formed Spinning Top candlestick pattern as on weekend of March 27, 2020 and thereafter marked the sequence of higher tops and higher bottoms.
✓ Recently, the stock has given horizontal trendline breakout on weekly timeframe. After registering the high of Rs 1,564.50, the stock has witnessed minor correction. During the corrective phase, the stock has re-tested the breakout level and resumed its northward journey.
✓ Currently, all the moving averages based trade set-ups are showing a bullish strength in the stock. The Daryl Guppy’s multiple moving averages is suggesting a bullish strength in the stock.
✓ The 14-period RSI on the daily timeframe is in bullish territory. Furthermore, in the recent corrective phase the RSI has bounced from the zone of 62-63 mark, which indicates that the stock is in a super bullish range as per RSI range shift rules.
✓ Considering above factors, we recommend buying this stock with a stop loss of Rs 1,470 on closing basis for a target of Rs 1,650-Rs 1,670 in the short to medium-term.