Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : After falling by 2.69 per cent from its lifetime-highs, the Nifty retraced in a brisk way at the last hour of trading on Wednesday. Even though the critical support was breached on Tuesday with added distribution day, it continued the bearish move till the first session on Wednesday. However, the Cabinet meeting and the amendments to the Insolvency bill enhanced the momentum in the Banking and Financial services sector. Except for the IT index, all the sectoral indices ended with decent gains. The shorts squeeze also helped the indices to recover from the bottom.
The current upmove in the Nifty has faced resistance at 50 retracement level and closed above the 38.2 retracement level. Also, Nifty has faced a resistance around 13-DMA and fell about 34 points from the day’s high. On Friday, 12003.65 (13-DMA) will act as the critical resistance and Wednesday’s low 11832 will act as a short-term support. The two-day sharp bounce was unable to close above 20-DMA too. Despite the upmove on December 4, the Nifty was not able to cross the 50 per cent retracement. As we expected last week, the RSI bounced from 46 levels which is a historical support. The MACD histogram reduced its bearish momentum for the last two days. But, the major concern is its flat volumes. Sharper bounce without a volume support may not sustain for a longer period. Let's wait and watch the volume improvement as well as follow the trend. Friday’s closing will give more clues for the short-term direction. Fresh long positions can be initiated above 12,005 levels with a prior day low as stop-loss. At the same time, short positions can be initiated below 11,935 with 12,005 as stop-loss.
NIFTY DERIVATIVES: Nifty futures lost 25.45 points or 0.21 per cent since last weekly expiry. 166.95 points bounce from the Monday’s low created hopes of moving towards a new lifetime high. The open interest increased by 7.23 per cent and the rollovers are at 5.18 per cent in the second week of the December series. The Put-Call ratio (PCR) is at 1.14 per cent. The maximum call open interest is at 12,000 strike with 1,093,125 OI. On the put side, 11,900 strike has the maximum open interest of 1,427,475. The total call open interest for next weekly expiry at 6,389,925 and put open interest is at 8,451,075. For next week, the open interest wise (PCR) is at 1.32, indicating that the upside is limited. The long build up seen from 11,750 to 12,200 on Call side and the shorts were build up in the same strikes on the put side. The volatility index India VIX is closed 13.34 with a marginal loss. The Nifty implied volatility is at 13.91. The current derivative data suggests that the Max Pain is at 11,950 for next week.
STOCK STRATEGY
BAJAJ AUTO ....... BUY .... CMP Rs 3265.30
BSE Code ...... 532977
Target 1 .... Rs 3420
Target 2 .... Rs 3460
Stoploss .... Rs 3150 (CLS)
✓ Current Observation: Bajaj registered a closing high in 52 weeks on Wednesday. It is trading in a 6 week flat base range and at pivot and has also retested the earlier breakout point. The increase in volumes for the last two weeks is a sign of fresh accumulation of the stock. The stock is trading above all the short and long term moving averages. The 40- and 30-week moving averages are trading up.
✓ The RSI (66.92) is in a bullish zone on a weekly chart. It is coming out of the squeeze zone on a daily chart. The MACD is just above the signal with Thursday’s close and is above prior swing on a weekly chart.
✓ The trend strength indicator ADX is strong at 21.26 and +DI is much above the -DI, which is indicating that the long-term strength is very strong. It is also meeting all important CANSLIM characteristics. The price relative strength (RS) is as high as 86 and EPS strength is at 77.
✓ The institutional investors increased their stake in the company by 2.85 per cent in the last quarter. The double digit growth in EPS and 22 per cent Return on Equity (RoE) shows the fundamental strength of the company.
✓ Buy this stock at Rs. 3,265.30 with a stop loss of Rs. 3,150. The target is open to Rs. 3,420 - Rs. 3,460.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Kotak Mahindra Bank at Rs 1,644.20 in issue no. 7 (dated December 09, 2019). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 1,690. We had given a ‘Book Profit’ message at the level of Rs 1,684.75 through our SMS service on December 11, 2019. Thus, investors who had taken positions according to this strategy would have made decent profit.
