Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : On the backdrop of geopolitical tensions, the stock markets witnessed a huge volatility. The Nifty traded in a range of 336 points during the week. On net, it ended with 66.30 points or 0.53 per cent in the last five trading sessions. It is forming a small body big lower shadow candle. It indicates that all the supply was absorbed and lower level were used for accumulation. The gap of January 6 was filled with the gap up opening of January 9. Out of 336 points fall, it retraced 285 points in two days. With this erratic move, the market structure got disturbed. An interesting observation is that, on the weekly chart, the bearish candle will get a confirmation if the Nifty closes below the last week’s close. Nothing has changed fundamentally in these five days. Technically, the indicators are not giving any confirmed buy signals. These euphoric moves may cool off over the next few days. The MACD line is still below the signal line and the RSI is within the downward channel. The ADX is further weakened and +DI and -DI are at confluence. Only in case the Nifty sustains above the prior high for at least two days, the fear of downfall will be erased. As mentioned above, if the Nifty closes below 12,151 on a weekly closing basis, the last week’s bearish candle will get a confirmation. In another scenario, if Nifty closes below 12,000 then, the down move will continue. In such a backdrop, the weekly closing becomes important.
NIFTY DERIVATIVES: Nifty futures lost 68.30 points or 0.55 per cent since last weekly expiry. On an expiry day, it opened with more than 100-points gap and sustained all the day. The gain of 1.72 per cent with a maximum open interest gain, it indicates that the bullish bets are on. The open interest rose by 16.40 per cent. The rollover stood at 7.72 per cent. For the January monthly series, the open interest wise Put- Call Ratio (PCR) is at 1.38 per cent. At the same time, for next week, the PCR is at 1.74 per cent, which is very high in comparison to the recent times. The volume wise PCR for the next week also is at a higher side with 1.29 per cent. This indicates that the up-side potential is limited. At the money strike (12,200) has the maximum call open interest of 10,55,325. On the put side 12,100 has the maximum open interest with 15,76,275. With Thursday’s rally, from 12,000 to 12,450 call strikes witnessed a long build-up. In the same strikes, the shorts build-up in Puts. The implied volatility is at an average level of 13.91 per cent. India VIX came down by 10.5 per cent and closed at 14 on expiry day. The current derivative data suggests that the Max Pain is at 12,200 for the next week.
STOCK STRATEGY
L&T FINANCIAL HOLDINGS........ BUY .......... CMP Rs 123.15
BSE Code ...... 533519
Target 1 .... Rs 135
Target 2 .... Rs 138
Stoploss .... Rs 112 (CLS)
✓ Current Observation: L&T Financial Holding is an AAA rated NBFC, offering various financial services to the corporate, retail and infrastructure finance areas. It also offers fund products and investment services.
✓ Technically, the stock formed a 28-day flat base pattern. It is also making higher highs and higher lows for the past three months on a daily chart. The volumes have been on a higher side in recent times.
✓ The stock witnessed a golden crossover, the 50-DMA crossed the 200- DMA, and it is also trading above all the moving averages. The leading indicator RSI also comes out of 70-weeks range and entered into a bullish zone.
✓ The MACD line reached above the zero line on a weekly chart. The ADX is healthy at 23.77 on the weekly chart, indicating a technical strength in the stock. The stock also meets the majority of the CANSLIM characteristics. Its price relative strength (RS) is at 82 and EPS strength is at 83. Greater buyers’ demand indicates the institutional investors' interest in the stock. Institutional investors increase their stake in the company by 5.47 per cent in the last quarter.
✓ Good earning strength and strong price performance make the stock attractive at the current level. Buy this stock at Rs 123.15 with a stop-loss of Rs 112. The target is placed at Rs 135- Rs 138 in the short to medium-term.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Adani Gas Ltd at Rs 179.75 in issue no. 11 (dated January 06, 2020). Post our recommendation, the stock did not sustain at higher levels as selling pressure emerged in the market and the stock slipped below the stop-loss level. We recommend our readers to exit with a loss. We exited the stock at Rs 162.45 on January 06, 2020.