Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : After making a new lifetime high on the last expiry day, Nifty lost its steam to continue the rally to further highs. It fell 223.50 points from the top, recovered sharply, and retrace almost 50 per cent of the fall on Wednesday. However, with the status quo monetary policy announcement, the Nifty is unable to continue its euphoria. It faced a resistance exactly at 61.8 per cent retracement of the fall. Wednesday’s sharp recovery is due to massive short covering in the leading stocks. The index lost 132.75 points or 1.09 per cent since November month expiry. Technically, the Nifty is forming a bearish belt on a weekly chart. Unless the index moves above this week’s opening level (12,137), the market tries to consolidate on the lower side. The index, once again, closed below the 13 EMA. The leading indicator broke the critical support of 59. The MACD histogram declined further with Thursday’s fall. The Stochastic Oscillator also fell below the prior swing after a prolonged overbought condition and there are serious negative divergences, visible in all major indicators. With Thursday's fall, the negative divergence confirmed the downside move to continue. Now, on the up side, 12,137 works as a stiff resistance and, on the downside, 11,900 will act as a short-term support. In any case, a fall below 11,900 will take the Nifty towards 11,800 level. It is advisable to be cautious with long positions, considering current structure.
NIFTY DERIVATIVES: The Nifty futures lost 102.20 points or 0.84 per cent since the last week of November expiry. It added two distribution days. Due to the massive short covering, it sharply bounced from the lower levels but the open interest declined. On Thursday, with a status quo monetary policy, all the stocks in Bank nifty closed in the negative zone. The India VIX rose by 7.37 per cent on expiry day. Almost all the gains of Wednesday are wiped out. The open interest increased by 1.50 per cent, indicating the shorts were built up. The rollovers in the first week are at 3.21 per cent. The Put-Call ratio (PCR) is at 1.09. For the monthly series of December, the open interest-based PCR is at 1.17. The maximum open interest for next week is at 12,100 strikes with 13,210,50 OI. On the put side, the highest open interest is at 12,000 strikes with 1,249,800 OI. The total call open interest is at 7,606,875 and the put open interest is at 7,767,000. There is a short buildup visible in Calls from 11,800 to 12,250 strikes. In the same strikes, longs were witnessed on the put side. This indicates that the Nifty facing very strong resistance at 12,150. Currently, the index is trading with 13.32 implied volatility. With the current derivative data, the max pain for the next weekly expiry is 12,000.
STOCK STRATEGY
KOTAK MAHINDRA BANK ....................... BUY .................. CMP Rs1644.20
BSE Code ...... 500247
Target 1 .... Rs1720
Target 2 .... Rs1740
Stoploss .... Rs1585 (CLS)
✓ Current Observation: Kotak Mahindra Bank is trading near to the pivot at lifetime highs. The stock is just broken out of the Double Bottom pattern with a 43-day consolidation zone. It is also just 1 per cent away from the prior high.
✓ The stock is trading above the short and long term moving averages, which are trending up. The Bollinger Bands are also moving upwards in a tight range as the price is moving in a specific range.
✓ The RSI has broken out of the channel and a triangle. For the last four days, the MACD histogram is increasing and showing the bullish momentum in the stock. ✓ The stock is meeting various advanced trend templates, such as Mark Minervini and Daryl Guppy’s MMA. Its price relative strength is as high as 90 and EPS strength is at 94. A good buyer’s demand indicates that big investors are accumulating the stock.
✓ The institutional investors increased their stake in the company by 0.31 percent in the last quarter. The consistent double-digit earnings and sales growth for several quarters indicates the fundamental strength in the stock.
✓ Buy this stock at Rs. 1,644.20, with a stop loss of Rs. 1,585. The target is placed at Rs. 1,720- Rs. 1,740.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Balkrishna Industries Ltd. at Rs 933.15 in issue no. 6 (dated December 02, 2019). Post the recommendation, the stock has been witnessing a consolidation, along with a low volume. The stock is still trading above the short and long term moving averages and its technical parameters still look promising. We would advise our readers to hold this stock with a stop loss of Rs. 870 on closing basis, as the stock is likely to move higher from the current levels.
