Technicals Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY :

Nifty has declined for the third straight session and formed a strong bearish candle on the weekly chart. It declined below several support levels. It formed a bearish engulfing pattern and closed below the 10-weekly and 50-DMA decisively. It also closed below the prior week's low.

With this decline of 338 points or 1.87 per cent, it has given a clear bearish signal after two weeks of consolidation. It was forming inside bars for the last three weeks with a range of the last week of October. The weekly range of 17,613.10-18,342.05 still acts as major support and resistance. The market breadth was negative as declines out-numbered the advances. The bearish flag pattern has registered a breakdown on the downside with a distribution day, which had serious bearish impli-cations. The RSI is below the critical support of 45 zone while the weekly MACD gave a fresh sell signal. The negative movement indicator is on the top of the +DMI and ADX, which is negative for the index.

In any case, if it forms a new swing low below the level of 17,613, it will further confirm the downtrend. Below this, there is another cluster of support at the zone of 17,452-17,326. An interesting point in today's fall is that Nifty has closed below the 23.6 retracements of the prior rally from the low of July 28 low for the second time in a row. This is in fact, a second caution for the bulls. Earlier, it declined below the level on October 29 but recovered later. On the upside, wait for a close above the 50-DMA of 17,850. Hence, the level of 17,613-17,850 will act as key levels for the beginning of a new week.

NIFTY DERIVATIVES:
Nifty Futures declined 363.35 points or 2 per cent during the last four trading sessions. It slipped 139.04 points on the weekly expiry day with 2.12 per cent increase in the open interest and a higher volume. This indicates the distribution or a short build-up in the index. For the last three days, the rising selling volume is another indication of shorts in the market. The put-call ratio (PCR) for the monthly series is at 0.65, which indicates limited downside potential. The implied volatil-ity at-the-money (ATM) is at 12.5, indicating lower option premiums. The rollovers are just at 18.21, which is lower than the three-month as well as six-month averages. We need to watch the rollovers data for the next four days.

For November monthly series, the total call open interest is at 10,90,675, and the total put open interest is at 7,08,285. The max-imum open interest is at 18,000 strikes with 1,15,637, followed by a deep-out-of-the-money strike of 18,500 with 81,959 of OI. The 17,900 strike has an open interest of 70,189. On the put side, the maximum open interest is at 17,500 strikes with 61,284 OI, followed by a deep-out-of-the-money strike of 17,000 with 56,186 OI. The 17,400 strike also has an open interest of 57,890. There are huge shorts that were build-up across the strikes on the call side. On the put side, a long build-up was seen from 17,450 to 17,900 strikes. The 18,150 to 18,000 strikes witnessed a short covering. The 17,750 strikes saw a 1,563 per cent increase in the open interest. The same strike on the put has seen open interest increase by 196 per cent. Max Pain is at 17,900 while VWAP is at 17,793.

TECHNICAL RECOMMENDATION

LUX INDUSTRIES LTD CMP 4,436.45 
BSE Code   539542      
Target 1  Rs4,746      
Target 2  Rs4,860     
 Stoploss Rs4,145 (CLS)     

Current Observation:
• Lux Industries is a leading innerwear company in India in terms of volume. It has seven state-of-the-art plants with a capacity of 30 crore pieces. With a strong retail network of over two lakh and more than 1,170 dealers' networks across India, it exports branded garments to 46 countries. It aims to reach 60 countries by 2025.  
• The company reported a 62.71 per cent jump in sales in Q2FY22. It recorded sales of Rs 627.20 crore. Its net profit is at Rs 100.44 crore, up by 89.95 per cent from Rs 51.20 crore. EBITDA stands at Rs 141 crore while its EPS stood at Rs 33.40. The return on equity is healthy at 27 per cent.  
• Technically, the stock has broken out of a 15-week Stage-2 consolidation. For the last three weeks, the volume recorded was above average. The relative price strength (RS) is as high as 83. The A+ buyer demand shows smart money is picking up the stock. The stock is meeting all the CANSLIM investing characteristics. It is trading above all the short and long-term moving averages. The weekly Elder impulse system is showing a bullish set-up. The Mansfield Relative Strength is at 2.93, showing a strong performance compared to the broader market while its RSI is in a strong bullish zone. MACD is about to give a bullish signal and the ADX (43.30) shows solid trend strength. The rising +DMI is showing strength in the trend. In short, the stock has registered a strong bullish breakout with an increased volume. 
• Buy this stock at the current market price of Rs 4,436.45. Maintain a stop-loss at Rs 4,145. The short-term target is at Rs 4,746 while its medium-term target is at Rs 4,860    

REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Force Motors Ltd at Rs 1,623.50 in issue no. 04 (dated November 15, 2021). Post our recommendation, the stock moved higher in  line  with  our  expectations  and  went  on  to  touch  the  level  of around Rs 1,740. We had given a ‘book profit’ message at the level of Rs 1,730.05 via our SMS service on November 16, 2021. Thus,  investors,  who  had  taken  positions  according  to  this strategy, would have made a decent profit.