Technicals Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty has gained nearly 3.25 per cent from the last Thursday’s close to this Thursday amid vaccine development in India. Interestingly, along with Nifty, India VIX is also surging higher as it has jumped around 11.68 per cent in the last five trading sessions. However, it has started to cool-off after touching the mark of 24, which also happens to be a stiff resistance level for India VIX.
Amongst the sectoral indices, Nifty Auto, Nifty PSU Bank and Nifty IT were the top gainers. Moreover, all the components of these sectors are trading above their 50-DMA, which clearly reflects the strength these stocks have seen in the medium-term.
On Wednesday, Nifty ended at a fresh record high for the fourth consecutive session but the volatility was top-notch as intr-aday range for Nifty was about 217 points, which was greater than the 10-day average range. Nifty opened with a gap-up and soon after opening, it started to trim its gains. As the day progressed, selling pressure exuberated but the recovery in the last hours of the trade helped the indices to close almost flat and the entire price action of the day led to the formation of a ‘hanging man’ like pattern. As per the traditional book theory, the formation of a ‘hanging man’ at the top or after an extended upmove indicates a bearish reversal but somehow, we know that if one would have followed the bookish technical analysis in the last six-seven months, one would have bitten the dust. Such has been the trend of the market that majority of the booking reversal pattern failed to get any kind of confirmation.
On Thursday as well, Nifty did not breach its prior session low as once again, the 5-EMA came to rescue the bulls. After taking support from its 5-EMA, Nifty recovered nearly 120 points from the day’s low. On the other hand, Nifty did not move above the prior session high and this led to the formation of an inside bar. Hence, going ahead, the high and low of Thursday’s session would be crucial to watch out as a breach on either side would result into a trending move. In case, the low of 14,470 is breached, it would open gates for further correction towards the levels of 14,360 while on the upside, if the high of 14,653 is breached then the upswing can get extended up to the levels of 14,740 and 14,780.
The 14-period RSI has reached to 81.47 and above the prior swing high. Meanwhile, on the lower timeframe i.e. 75-minutes, it’s holding above the 60-mark as any dips towards the 20-moving average on the 75-mins is being bought.
So, we are seeing the super bullish range on the RSI being played in the 75-mins chart. Hence, considering the strong momentum and liquidity flows, we would advise the traders to avoid shorting as the sentiment is extremely buoyant. However, if any range consolidation happens either at current or slightly higher levels, it should not come as a surprise as the same is overdue. Further, we expect stock-specific volatility to remain high, owing to earnings announcement. Hence, the partic-ipants should prefer hedging their positions and apply proper risk management strategies in such an exuberant environment.
NIFTY DERIVATIVES:
Nifty Futures has gained 440.90 points or 3.10 per cent since the last weekly expiry. For the next weekly expiry, the open interest wise put-call ratio (PCR) is at 1.08. 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 18,66,600 OI, followed by 14,600 strikes with 17,18,475 OI. On the put side, 13,500 strikes have 16,42,875 open interest, which is the highest. For the next weekly expiry, the total call open interest is 1,69,74,900 and the put open interest is 1,83,05,925. For January monthly series, the highest call open interest is at 15,000 strikes with 24,26,775 OI, followed by 14,000 strikes with 13,96,125 OI. On the put side, the highest put open interest is at 14,000 strikes with 30,60,675 OI. The cur-rent derivative data suggest that the Max Pain is at 14,200 for the monthly expiry.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
NEULAND LABORATORIES LTD .............. BUY .......... CMP Rs 1,240​
BSE Code : 524558
Target 1 : Rs 1,330
Target 2 : Rs 1,360
Stoploss : Rs 1,150
Current Observation: Neuland Laboratories Limited is engaged in manufacturing active pharmaceutical ingredients (API). The company also provides Custom Manufacturing Solutions (CMS) to develop and manufacture pharmaceutical ingredients & intermediates.
✓The stock has formed a spinning top candlestick pattern as on the weekend of March 20, 2020 and thereafter, witnessed over 350 per cent upside in the next 33 weeks.
✓After registering a high of Rs 1,335, the stock has witnessed correction. During this corrective phase, the volume was mostly below the 50-week average volume, which suggests that it is a routine decline after a robust move. The correction is halted near the 20-week EMA level. ✓Currently, the stock is meeting the criteria of Mark Minervini’s trend template. The current stock price is above both the 150-day (30-weeks) and 200-day (40-weeks) moving average price lines. Moreover, the 30 and 40-weekly averages are trending up and at the same time, they are in the desired sequence.
✓On the weekly chart, the leading indicator i.e. the RSI has given a positive crossover, which is a bullish sign. The daily MACD stays bullish and the histogram is suggesting a pickup in the upside momentum.
✓Considering the above factors, we recommend buying this stock with a stop-loss of Rs 1,150 on a closing basis for a target of Rs 1,330-Rs 1,360 in the short to medium-term
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Motilal Oswal Financial Services Ltd at Rs 643.10 in issue no. 12 (dated January 11, 2021). Post our recommendation, the stock moved higher in line with our expectation and went onto touch the level of around Rs 680. We had given a ‘book profit’ message at the level of Rs 670.55 via our SMS service on January 08, 2021. Thus, investors, who had taken positions, according to this strat-egy, would have made a decent profit.