Technical

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY : Nifty gained 286 points or 2.46 per cent since the last weekly expiry. Since the end of the April series, it has gained 187 points or 1.59 per cent. On election results day, Nifty moved in the range of about 427 points. With a gap-up opening of 165 points on Monday, i.e. on May 20, Nifty closed with gains of about 421 points. This upward momentum is continuing till the end of the May series. With a whopping 7.16 per cent gain in 17 trading sessions, Nifty looks stretched as some of the indicators have reached overbought condition. The bearish hanging man pattern on Tuesday got confirmation and failed on Thursday. Though Nifty opened flat with buying interest, it negated the earlier bearish patterns. The 1:1 advance-decline ratio and the waning momentum is generating some doubts about further upmove. The MACD histogram is turning down since last three days. This indicates that the momentum is waning. But as there is no significant weakness in the Nifty, we cannot be bearish at the current juncture. We can continue with the cautiously optimistic approach about the long positions. The negative divergence in RSI still persists and has not yet made any swing high. This technical evidence is creating some suspicion about the move. The new government's swearing-in ceremony and May derivative series expiry has propelled the Nifty to a new closing high. A follow-up action is required for further upside. On the weekly chart, Nifty has formed an inside bar, which indicates the indecision on the top. In this scenario, as long as Nifty trades above the 11800 level, we have a positive bias. On the upside, Nifty can reach 12200 if the momentum sustains. Otherwise, Nifty can consolidate within the range. In case Nifty closes below 11760 level, it will try to fill the May 20 gap area. Be selective about fresh long positions.



NIFTY DERIVATIVES: May series ended with gain of 134 points, moving a range of 932 points since the close on April 26. This huge volatility in a month was due to the general election results and the new government formation. Most of the out of the money (OTM) call options gave whopping profits initially, but after May 23, all the ATM money options closed worthless. Even the direction was right, and as per the expectations of the traders, the 11900 Call option fell from Rs. 263 to Rs. 37 from May 23. The rollovers were seen at 58.44 per cent and the open interest (OI) increased by 2.34 per cent. Currently, the Put-Call Ratio (PCR) is at 1.28, which is suggesting that the upside is limited. For the June 6 weekly series, the highest OI of 12,78,750 is seen at 12000 strike. The next high OI is at 12100 strike with much lower OI of 744,525. On the Put side, the highest OI is at 11800 strike with 11,42,625. The long buildup is witnessed till 12,150 strike from 11,800 strike. On the Put side, the shorts were built up from 11200 to 12100. With current derivative data, the Max Pain is at 11900 level. Nifty may consolidate between 11800-12100 range for the next week.






STOCK STRATEGY 

V-GUARD INDUSTRIES .............................. BUY ...................... CMP Rs234
BSE Code ...... 532953
Target 1 .... Rs255
Target 2 .... Rs264
Stoploss ...Rs220 (CLS) 

✓ Current Observation: Technically, the stock has broken out of a bullish symmetrical triangle with very good volumes on the weekly time frame. It is trading above the 50-DMA and 200-DMA decisively. 

✓ All the indicators are suggesting bullish strength. The MACD has just crossed above the signal line above the zero line and the histogram has turned into bullish momentum. The RSI is moving exactly in the upward channel and meeting the range shift rules. The directional line +DI is much above the -DI, which is indicating that the trend is strengthening. The stochastic oscillator is also suggesting some bullish strength as %K is above the %D. 

✓ It price strength (RS) 77 and EPS strength at 79 are closer to the CANSLIM characteristics. With 18 per cent ROE, A+ buyers demand looks attractive. The stock is just 3.9 per cent away from its life-time high. 

✓ Buy this stock at Rs. 234 with a stop loss of Rs. 220. The initial target is Rs. 255 and, above this level, it can reach Rs. 264. 

REVIEW OF STOCK STRATEGY 

We had recommended buying the stock of HDFC Asset Management Company at Rs 1742.85 in issue no. 31 (dated May 27, 2019). Post our recommendation, the stock has been witnessing consolidation along with low volumes. The stock is still trading above its pivot and above the short and long term moving averages. The technical parameters of the stock still look promising. We would advise our readers to hold this stock with a stop loss of Rs 1672 on a closing basis, as the stock is likely to move higher from the current levels.