Technicals Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY : When was the last time we had seen Nifty ending in red for two consecutive trading sessions? I know it’s hard to recall but this state-ment gives us an indication that we are very much used to bullish close these days. As a matter of fact, Nifty had witnessed two consecutive red on November 29-30, 2020.

On Thursday, Nifty started off the session with a gap-up on the back of strong leads from Wall Street. However, the market participants used this gap-up to take the profit off the tables. This was evident from the fact that the opening level was almost the high point of the day and as the day progressed, bouts of volatility were witnessed on the eve of the first weekly options expiry of January 2021, and in the end, Nifty erased almost 133 points from the day’s high. Despite profit booking and weekly options expiry, the index did not breach its prior bar low as well as 5-EMA on a closing basis. This clearly suggests that the bulls are just resting for the time being and this is a routine correction. We can get confirmation of this from the fact that the market breadth was extremely in the favour of advancers as 1,183 stocks advanced against 709 decliners. The broader indices had a gala time as Nifty Mid-cap and Small-cap surged 1.45 per cent and 1.37 per cent, respectively.

One of the key takeaways for the bears was that despite opening at the day’s high, Nifty had closed near its day’s low. Besides, after a long time, Nifty’s close and low had just a difference of 14 points. In the recent past, we have seen the other way around that either after a correction, the bulls grab the opportunity with both hands and buy the dips. Even in the last trading session i.e. Wednesday, despite the gloom & doom news, Nifty recovered 100 points from the day’s low. So, is this a warning bell? Yes! One needs to adopt some cautiousness and maintain a strict stop-loss and at the same time, keep monitoring the distribution day count. A rise in a distribution day can halt the uptrend and the current distribution count stands at three.

On the upside, the zone of 14,240-14,280 would continue to act as a resistance zone while on the downside, the zone of 14,000-14,070 is likely to act as an immediate support level. Going forward, Q3 earning season would take the centre stage with IT bellwether TCS scheduled to announce its earnings on Friday. The outcome of the earnings could dictate the near-term trend of the index.

Nifty IT index has been a major contributor to the index and any disappointment in the earnings from the IT sector could lead to gloominess among the investors’ camp. On the fundamental side, Nifty PE is at 38.90 and the price-to-book value is at 4.01. Usually, the price-to-book value has reacted lower whenever it had attempted to reach a level closer to 4 since the global financial crisis of 2008-09.

NIFTY DERIVATIVES:
Nifty Futures has gained 194.25 points or 1.38 per cent since the last weekly expiry. For the next weekly expiry, the open interest wise put-call ratio (PCR) is at 0.80. For January monthly series, PCR is at 1.68. For the next weekly expiry, the highest call open interest is at 15,000 strikes with 29,40,000 OI, followed by 14,200 strikes with 24,17,700 OI. On the put side, 13,000 strikes have 18,65,250 open interest, which is the highest. Today, the highest addition in the open interest was seen at 15,000 calls of the next weekly expiry with 26,39,175 OI and on the put side, 14,200 puts have seen the highest addition in the open interest with 10,10,700 OI. For the next weekly expiry, the total call open interest is 2,36,82,600 and the put open interest is 1,88,42,925. For January monthly series, the highest call open interest is at 14,500 strikes with 17,23,425 OI, followed by 14,000 strikes with 19,25,925 OI. On the put side, the highest put open interest is at 13,000 strikes with 26,08,275 OI. The current derivative data suggests that Max Pain is at 14,000 for the monthly expiry.

TECHNICAL RECOMMENDATION

STOCK STRATEGY 

MOTILAL OSWAL FINANCIAL SERVICES LTD .............. BUY .......... CMP Rs 643.10​

BSE Code : 532892
Target 1 :  Rs 695
Target 2 :  Rs 715
Stoploss : Rs 590(CLS)

✓Current Observation:Motilal Oswal Financial Services Limited is a financial services company, focussing on wealth creation for its customers, such as institutional, corporate, high net worth individual (HNI) and retail. The company's segments include broking & other related activities, fund-based activities, asset management & advisory, investment banking, and housing finance.
✓Considering the daily timeframe, the stock has formed a spinning top candlestick pattern as on December 08, 2020, and thereafter, witnessed a correction. The correction is halted near the 61.8 per cent retracement level of its prior upward move (Rs 548.10-Rs 665.70) and coincides with the 200-DMA level.
✓The stock has formed a strong base near the support zone and on Thursday, gives the breakout of 11-day consolidation. This breakout is confirmed by a robust volume.
✓The 50-DMA crossed over the 200-DMA almost eight trading sessions ago and is popularly known as the 'golden crossover', which is a long-term bullish signal. Talking about the indicators, the RSI is currently quoting at 61.05 and it is in a rising trajectory. The daily ADX is currently quoting at 14.90, which suggests that the trend is yet to be developed. The directional indicators have recently seen a bullish crossover as +DI has crossed over -DI.
✓Based on the above observations, we expect the stock to move higher from the current levels and test the levels of Rs 695, followed by Rs 715 in the short-term. The stop-loss can be maintained at Rs 590 level on a closing basis.

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Chambal Fertilisers & Chemicals Ltd at Rs 230.25 in issue no. 10 (dated December 28, 2020). Post our recommendation, the stock moved higher in line with our expectation and went onto touch the level of around Rs 239.45. We had given a ‘book profit’ message at the level of Rs 239.10 via our SMS service on December 29, 2020. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit.