Technical
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty tested its prior lifetime highs during this week. After making a series of indecisive and bearish patterns, it finally gave up the uptrend on Wednesday. The benchmark index is closing below its prior bar low for the last two days, which is a signal that the upward momentum is fading. In the aftermath of the weekly expiry and RBI policy on Thursday, it witnessed high volatility, took support at 8-EMA and settled above that. The Nifty is falling more than 0.25 per cent and volumes are higher than the previous day, which is an indication of distribution. The negative divergence in RSI is clearly visible now. If the RSI on the daily chart falls below the 63 level (now at 65.12), it will be a confirmation of the divergence as well as bearishness. The momentum indicator MACD line is also turning down and the histogram is clearly showing a cool off in momentum. The negative divergence in stochastic oscillator was also confirmed by the cross-under at an extreme high. As per the advanced Jeff Tompkins’ Trade Trend setup, on Thursday, the criteria for a Sell set-up has occurred in Nifty. So, avoid any kind of long positions but one can take short positions with 11,660 as stop loss. On the weekly chart, Nifty is forming shooting star kind of bearish pattern at lifetime highs, which is not a good sign at all. If it closes below the 11,572 mark on Friday, the bearishness will strengthen further next week. Even on the weekly chart, the stochastic oscillator cross-under is visible now and any further down in the index will lead to a sharper fall. In any case, as Nifty was unable to move upside towards 11,760 level again, there are enough possibilities of correcting at least 50 per cent of the recent rally, which means testing the 11,200 level again. So, exit longs in the index and apply bearish strategies. As long as Nifty trades below 11,700, hold shorts. The targets are visible towards 11,200 in the next two weeks.
NIFTY DERIVATIVES: Since last expiry, Nifty has gained just 28 points or 0.24 per cent. As the market is witnessing a decline, in two days the open interest (OI) has gone up further. On Thursday, the OI was up by 2.67 per cent. This is a definite indication of shorts build up in the index. In all the strikes above 11,000, call selling is visible. For April 11 weekly option series, the highest call selling happened in 11,800 strike, with an open interest of 800,625, and added fresh shorts of 396,150 on Thursday. 11,700 strike calls also have the highest open interest with an OI of 7,22,625. On just Thursday, this strike added 4,88,250 open interest. which is the highest addition among all. At the same time, at 11,400 strike puts have the highest OI of 5,28,000. The Put-Call ratio is at 1.02. The first week rollovers are at 6.92 per cent. As per currently available derivative data, the max pain is at 11,600. The Nifty will encounter tough resistance at the 11,800-11,700 zone and the supports are at 11,400-11,550 zone for the next week. As there are enough bearish signs visible now, apply bearish vertical spread option strategies in the index.
STOCK STRATEGY
HDFC ................................... BUY ................................. CMP Rs. 2,041.25
BSE Code ...... 500010 Target 1 .... Rs. 2165 | Target 2 .... Rs. 2210 | Stoploss ...Rs. 1975 (CLS)
✓ Current Observation: Technically, the stock is trading near to its lifetime high and above the recent pivot. It is also breaking out the 36-week 'cup and handle' pattern. On a daily chart, the stock has also broken out of the 'inverted head and shoulder' pattern, which is also a bullish sign. It is trading above the long and short term moving averages and all of them are turned upside. During the last four months, it had tested the Rs 2016 level and has broken it this week decisively.
✓ Its ADX is above 25 level, which shows strength in an uptrend. The directional momentum indicators +DI is much above the -DI, which is also a positive sign. The RSI above 60 in the weekly and daily charts is in super bullish zone. The MACD line crossed over the signal line above the zero line this week, suggesting that the bullish momentum is picking up in the stock. The volumes are also on the higher side.
✓ Williams Accumulation and Distribution indicator is at lifetime high, indicating that the smart money is flowing into the stock. The overall institutional holding (FII+DII) increased to 89.25 per cent in the December quarter. The FIIs holding the stock rose by 37 to 1779. Its price strength (William O Neil’s RS) is at 77 and is also turned upside on a weekly chart. The stock is meeting all the CANSLIM criteria.
✓ One can buy this stock at Rs 2041.25 with a stop loss of Rs 1975. The targets are open towards Rs 2165 in the very short term and Rs 2210 in the medium to long term.
REVIEW OF STOCK STRATEGY We had recommended our readers to buy the stock of Merck Ltd at Rs 3558.15 in issue no. 23 (dated April 1, 2019). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 3800. We had given a ‘BOOK PROFIT ’ message at the level of Rs 3756.75 through our SMS service on April 1, 2019. Thus, investors who had taken position according to this strategy would have made decent profit