Technicals Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : The rally from the March lows has been a very special one not only because the index has recorded gains of 73 per cent from the lows of March but also, due to the fact that despite strong attempts made by the bears at the swing high to enter into the territory of bulls and dominate them, the bulls have never given up easily. At the same time, they have not let them conquer and build the bear castle. Similar was the story on Thursday as well.

On Wednesday, Nifty had formed a bearish engulfing pattern with a wide range of 312 points, which is double the range of 10-days. Furthermore, the opening was at a higher level and the closing was near the day’s low. On Thursday, the price did move below the low of the bearish engulfing pattern on an intraday basis, which only turned out to be a trap for the bears as Nifty took support around 12,790 levels and recovered nearly 227 points from the day’s low.

Interestingly, the price has retraced around 61.8 per cent of the bearish engulfing bar the very next day. In the previous instance from the March lows, we have seen a formation of the bearish engulfing pattern and thereafter, there has been no follow- up selling and in some instances, the price had pulled back and retraced around 50 to 100 per cent but the retracements have been gradual. However, in the current case, the price has retraced 61 per cent the very next day. This clearly indicates that the bulls are in no mood to turn over. Why do we say so? The volatility index, India VIX melted like ice as it plunged 13 per cent. Further, all the sectoral indices ended in green and the advance-decline ratio was in favour of the bulls as 1,261 advanced against 588 decliners.



So, going forward, if the index moves above the 13,145 mark, the formation of a bearish engulfing pattern would be negated and this would open gates for a further upmove towards the levels of 13,220 and 13,300 in the near term. Meanwhile, on the downside, the level of 12,740-12,800 is crucial to watch out and tomorrow being ‘Black Friday’, it would be interesting to see whether the index holds above this level or not. As after Friday, the Indian markets will be off for a long weekend, and usually, what we have seen is that the traders prefer to stay light ahead of the long weekend. Besides, the GDP numbers are also scheduled to be announced on Friday. Overall, the bias remains bullish and the key level to monitor is 12,740-12,800 on the downside whereas, on the upside, a move above the 13,022 level would open gates towards a fresh all-time high.

NIFTY DERIVATIVES: Nifty Futures have witnessed one of the best monthly series in recent months as the index has gained almost 1,319 points or 11.30 per cent in the November monthly series. For the next weekly expiry, an open interest wise put-call ratio (PCR) is at 0.96. For the December monthly series, PCR is at 1.70. For the next weekly expiry, the highest call open interest is at 13,500 strikes with 24,91,200 OI. On the put side, 12,800 strike has 19,56,075 open interest, which is the highest. The highest addition in open interest was seen at 13,500 calls of the next weekly expiry with 10,96,275 OI and on the put side, 12,800 put has seen the highest addition in open interest with 12,03,825 OI. For the December monthly series, the highest call open interest is at 13,000 strikes with 25,06,800 OI, followed by 13,500 strikes with 18,49,350 OI. On the put side, the highest put open interest is at 12,000 strikes with 26,10,225 OI. The current derivative data suggest that the Max Pain is at 12,900 for the monthly expiry.

TECHNICAL RECOMMENDATION

STOCK STRATEGY

GUJARAT STATE FERTILISERS & CHEMICALS LTD .......... BUY ....... CMP Rs 71.45 

BSE Code ...... 500690
Target 1 : Rs 77
Target 2 : Rs 79
Stoploss : Rs 66 (CLS)

✓ Current Observation: Gujarat State Fertilisers & Chemicals Limited is engaged in the development of crop nutrition solutions. The company operates through two business segments: fertiliser products and industrial products. It offers fertiliser products, such as urea, ammonium sulphate, di-ammonium phosphate, ammonium phosphate sulphate, and traded fertiliser products.
✓ The stock has formed a Doji candlestick pattern as on the weekend of March 27, 2020, and thereafter, marked the sequence of higher tops & higher bottoms.
✓Recently, the stock has given an ascending triangle pattern breakout on the daily timeframe. Further, since the last three trading sessions, the volume was recorded above the 50-day average volume, indicating a strong buying interest by the market participants after the breakout.
✓Talking about the indicators, the RSI is in the bullish territory on the daily as well as the weekly chart, which is a positive sign. The daily MACD stays bullish as it is trading above its zero line and signal line. On the daily timeframe, ADX is 16.05 and it suggests that the trend is yet to be developed. Directional indicators continue in the ‘buy’ mode as +DI continues above the –DI.
✓Based on the above observations, we expect the stock to move higher from the current levels and test the levels of Rs 77, followed by Rs 79 in the short term. The stop-loss can be maintained at Rs 66 level on a closing basis.

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Lux Industries Ltd at Rs 1,568.90 in issue no. 05 (dated November 23, 2020). Post our recommendation, the stock moved higher in line with our expectations and went on to touch the level of around Rs 1,628. We had given a ‘book profit’ message at the level of Rs 1,626.60 through our SMS service on November 26, 2020. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit.