Technicals Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :The stock market is showing signs of exhaustion and topping formation. The confluence of evidence is showing that the market is in a topping formation.
Though Nifty is yet to form a swing low, the way it is falling, and the opening highs are not sustaining for the past one month, it gives us an indication that the market is witnessing distribution or profit booking. Even before the fall of March 2020, there were several days, when it had behaved in the same manner. The index spent most of the time in a tight range of 600 points. In this range, there are two upswings and two downswings. The first three swings lasted 8-10 sessions. However, the current swing is violent in nature as it has fallen sharply just in five sessions to reach the range's support zone. Most of the time, Nifty spent in a tight range, and recently, it has witnessed a sharp fall. For the last 31 trading sessions, Nifty is trading in a broad range of 15,200-14,600, barring a few days of unsustainable moves.
Nifty lost about 616.95 points or 4.06 per cent during the last five trading sessions. It started with a big bear bar of 383 points range engulf-ing candle on Friday. There have been four such big bear days of over 300 points fall in the last 17 sessions. This is undoubtedly not a bull market character. As it trades below the 50-DMA with five distribution days, we can categorise the market as an uptrend under pressure. It breached the upward channel support too. A move below the minor swing of 14,467 is a first significant indication of a reversal.
A major swing low is placed at 13,596, which was formed a day before the Budget day. This level is an important long-term support zone. Now, the index is on the verge of filling the gap of post-budget 14,336-14,469. Nifty declined for the fifth straight session. In recent history, the declining swings are limited up to 5-6 days. So, the question is, will it bounce from the next session onwards or not? Generally, any sharp move attracts a counter-trend rally or a bounce. Let us hope for that highly probable bounce next week. The bulls get strength only above the 50-DMA, while otherwise, the bears would continue to dominate the market. The bounce may test the zone of 14,750-14,850. Nifty will get the strength to move higher only above this zone.
NIFTY DERIVATIVES:
Nifty Futures recorded the biggest weekly loss after January 2021. It lost 605.30 points or 3.97 per cent. Thursday’s one per cent fall along with a 2.35 per cent increase in the open interest and the volume shows that short positions are built-up.
As we are entering into the last week of March series, the rollovers are at 16.04 per cent. Currently, the open interest wise put-call ratio (PCR) is at 0.83, which is indicating the limited downside potential. During January and February series expiries, the PCR was at 0.6 to 0.7. Generally, the swing lows are formed at 0.6 to 0.7 PCR levels. Currently, it is not wise to take aggressive bearish positions. Nifty may not be bull-ish, but it may consolidate before taking a big move again. Interestingly, all the call option premiums, including in-the-money (ITM) of March 18 series, eroded sharply. In contrast, in-the-money put (ITM) premiums rose as Nifty fell sharply. This is because of the higher premiums at the beginning of the week.
The monthly open interest is interestingly low as compared to the recent past. March series has only 5,65,883 of total call open interest and 4,68,788 of put total open interest. Traders have become cautious amid higher intraday swings and gap openings. The 14,500-strike put has the maximum open interest of 42,137 contracts while on the call side, the 16,000-strike call has the maximum open interest. Today, the second-highest open in addition has been seen in 15,000 strike call option and with this, the total open interest concentration stands at 54,692 contracts. Hence 15,000 level is likely to act as a strong barrier. On the put side, the maximum concentration of OI stands at 14,500 put option. Hence, for the next week, the 14,500-15,000 zone is likely to act as an important resistance and support level. The derivative data suggests that the Max Pain is at the 14,800 levels.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
GLAND PHARMA LTD​ .......... BUY ............ CMP Rs 2,470.60
BSE Code : 543245
Target 1 : Rs 2,690
Target 2 : Rs2,800
Stoploss :Rs 2,310 ((CLS)
Current Observation:
✓Gland Pharma is having a vast variety of generic and injectables, focused on multiple therapeutic areas based in Hyderabad. The company is well-placed in North American markets and has recently entered into the emerging markets. It entered into an agreement to manufacture the COVID-19 vaccine, Sputnik V. The production and delivery of the vaccine will take place in the current quarter. As it has expertise in manufacturing sterile injectables, this vaccine drive would give an additional advantage to the company.
✓ This is one of the recently listed stocks, which has shown a robust financial performance for Q3. Its revenue grew by 33 per cent while the company registered an EPS growth of 21 per cent. It has a decent level of return on equity (RoE) at 16 per cent. Post listing, the institutions have increased their stake by 2.27 per cent. About 127 funds have invested in the stock.
✓Technically, the stock is meeting William O'Neil's new listing entry rules. After listing, it rose by 65 per cent from its listing price. Later, it entered into a consolidation phase, wherein, it corrected a little over 17 per cent from the high and formed a saucer base for eight weeks. During this correction, it did not drift below the listing price. Post breakout of a saucer, it again entered into a small consolidation. This nine-day consolidation is currently at the support zone. The stock is also trading near its 50-DMA. As the stock has limited trading history, many of the indicators are at the beginning stage.
✓ Accumulate this stock at Rs 2,400-Rs 2,500 zones with a stop-loss of Rs 2,310. Once it clears the current base resistance zone of Rs 2,690, it can test the level of Rs 2,800.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Mindtree Ltd at Rs 1,896 in issue no. 21 (dated March 15, 2021). Post our recommendation, the stock moved higher in line with our expectations and went onto touch the level of around Rs 2,037.25. We had given a ‘book profit’ message at the level of Rs 1,977.30 via our SMS service on March 16, 2021. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit