Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty made new lifetime high twice in the last week with a marginal gain, but failing moves high. Two consecutive indecisive and a bearish candle makes the uptrend suspicious from now. Continuous gap-up openings for the first three days and sideways move in the final three days indicate that the bulls are tired. Overall, Nifty gained about 140 points or 1.15 per cent during the week. After a dramatic recovery of more than 350 points, now, the Nifty is making an evening star or a spinning top kind of pattern on a weekly chart. It actually made two consecutive bearish patterns-hanging man and doji, on a daily chart for the past two days. These patterns created scepticism about bulls’ dominance.
The negative divergence in all the major indicators is the other reason to doubt the further rally. As all the pattern targets met, continuation or extension of a rally requires a massive push from the fundamentals. On the hourly chart, the Bollinger Bands narrowed again and the 20-DMA is actually flattened. Even in the hourly chart, the negative divergence in the RSI is clearly visible. Even the MACD line shows a negative divergence. As this benchmark index is trading at lifetime highs, no setup shows the bearish signals, but, the wavering price moments gives some kind of suspicion. A close below 12,280 may provide some bearish signs for the short-term. As long as it does not close below the prior bar low, be with a positive bias for the target of 12,400 and above. But, closing below 12,280 will take us to 12,110 levels. Better be cautious about aggressive long positions in the index.
NIFTY DERIVATIVES: Nifty Futures failed to make new lifetime high when Nifty Spot made a lifetime high. It gained only 101.25 points or 0.82 per cent. And there is another kind of divergence visible here. Nifty Spot made a higher high and Nifty Futures made a lower high. This divergence is interesting to watch at the weekend close. The rollover is at 8.09 per cent and the open interest is just flat at 0.8 per cent. The Put-Call Ratio (PCR) is at 1.73. For the next weekly expiry, the PCR is at 1.37. For the monthly expiry, the open interest wise PCR is at 1.40. The highest call open interest for the next weekly series is visible at 12,400 strike. The 12,300 strike put open interest is at the highest with 17,52,225. The total Call open interest is at 63,48,075 and the put open interest is at 86,84,850. As the market is moving in sideways as well as tight range, the option premiums melted sharply. All the call and put option premiums in the next week were eroded and the open interest is slightly increased. The implied volatility is stable at 13.91. The India VIX increased from 13.99 to 14.18 this week. Next week, it will be volatile and the range may shift to the downwards.
STOCK STRATEGY POWERGRID .................................... BUY ....................... CMP Rs 195.75
BSE Code ...... 532898
Target 1 .... Rs 208
Target 2 .... Rs 212
Stoploss .... Rs 187 (CLS)
✓ Current Observation: Power Grid Corporation of India Limited is engaged primarily in the power transmission business. The Company is also engaged in telecom and consultancy. Technically, the stock moved in a downward channel and reached the resistance line. It is trading above the prior swing high. At the same time, it has broken out of an ascending triangle. The stock is consistently making higher lows since December 2019 lows.
✓ The 200-DMA is flattened, with the price crossed just above it. The medium-term moving average 50-DMA turned up and the price is well above this. Whoever believes in the moving average crossover technique, there is good news in this stock. The 20-DMA crossed the 50-DMA, which is a short to medium-term bull signal. And this crossover happened for the first time in the downward channel.
✓ The RSI (61.50) is just above the bullish zone and reached to the prior swing high. The MACD is above the zero line and signalling. The MACD histogram suggests a bullish momentum. And most importantly, the MACD line crossed the prior swing highs. Its price Relative Strength (RS) is improving for the past four weeks and its EPS strength is as good as 83.
✓ The good buyers demand, to show the institutional interest in the stock. The institutional investors increased their stake in the company by 0.75 per cent in the last quarter. The consistent growth in sales and earnings as well as 17 per cent Return on Equity (RoE), makes the stock fundamentally attractive too. Buy this stock at Rs 195.75 with a stop-loss of Rs 187. The target is placed at Rs 208-212 in a short-term.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of L&T Financial Holdings Ltd. at Rs 123.15 in issue no. 12 (dated January 13, 2020). Post our recommendation, the stock moved higher in-line with our expectation and went on to touch the level of around Rs 128. We had given a ‘Book Profit’ message at the level of Rs 127.40 through our SMS service on January 15, 2020. Thus, investors who had taken positions, according to this strategy, would have made decent profit.