Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : After opening at a lifetime high on Monday, Nifty fell sharply and engulfed the prior six days of price action. As mentioned earlier, the indecisive candles and the waning momentum finally resulted in a sharp fall. On a weekly chart, Nifty formed a very big bearish engulfing bar with added distribution day during the week. For the last two days, it is holding the 50-DMA, which acts as a critical support, for now. On Thursday, Nifty formed an inside bar and is consolidating for the time being. It is also holding above the trendline support drawn from September’s low. As long as the index trades below Wednesday's high, it may continue the trend towards the downside. As we discussed earlier, the initial target of 12,118 had been met. Before taking a decisive path, it may consolidate for one or two days. Thursday's positiveness did not bring any cheers in the indicator set-up. The RSI bounced from the historical support of 45 zones. There is a positive divergence visible. The MACD histogram increased even though the price moved up, it means that the momentum on the downside is picking up. The only positive observation on the chart is that the Nifty still did not make any lower lows. In any case, if it falls below 12,087 levels, there will a higher probability of reaching 11,929. A close above 12,225 will take us to 12,370 levels. The weekly close is important now. On a monthly chart, it is forming a long-legged doji pattern, indicating the tiredness of the bulls.


NIFTY DERIVATIVES: Nifty lost 174.75 points or 1.41 per cent since the last weekly expiry. The short covering on the eve of weekly expiry led to a positive closing on Thursday. But the volume is lower than the previous day and the open interest did not rise, as it requires reversing the trend. The open interest fell by 7.51 per cent on Thursday. While entering into the last week of the month, the rollovers stood at 12.27 per cent. The open interest wise Put-Call Ratio (PCR) is at 1.14, indicating that the sideways will continue with a bearish bias. The total call open interest is at 2,50,25,175 and the put open interest is at 2,94,85,750. The maximum call open interest was seen at 12,500 strikes and 12,300 strikes. On the put side, the maximum open interest is seen at 12,000 strikes and 12,100 strikes. The implied volatility increased to 16.5 on Wednesday, which is above the normal IV and back to the normal (13.91) at the end of the weekly series. The India VIX is cooled off a little on Thursday, but when compared to the last week, it is up from 14.13 to 15.86. In fact, the VIX is at the highest level after October 2019. The current derivative data suggests that the max pain is at 12,200 for the monthly expiry.



TECHNICAL RECOMMENDATION

STOCK STRATEGY

ESCORTS LTD. ................................... BUY ....................... CMP Rs.715.00 

BSE Code ...... 500495  Target 1 .... Rs.760 | Target 2 .... Rs.775 |  Stoploss .... Rs.674 (CLS)



✓ Current Observation: The stock is trading above the prior pivot level and has broken out of the downward channel last week. The stock is trading above all the short and long moving averages. The moving averages are trending up and indicating that the stock is in clear uptrend. The stock is meeting Minervini’s trend template conditions and trading above Daryl Guppy's multiple moving averages. All the moving averages are in the desired sequence and the current price is above all of them.
✓ The RSI (66.61) is in a bullish zone and out of two years flat zone. The MACD is above the zero line and signal line since last November. The histogram is suggesting that the momentum is picking on the upside. The ADX is reasonably at 24.06 on the weekly chart. The +DI is much above –DI, which is pointing out that the strength of the trend is strong enough.
✓ The stock is meeting most of the CANSLIM characteristics. Its relative price strength is reasonably good at 76 and the EPS strength is at 84. The greater buyers’ demand is indicating the institutional interest in the stock. Number of institutions and their stake increased in the last quarter. The institutional investors stack up by 1.28 per cent in the last quarter. The improved earnings and their stability and Return on Equity (ROE) of 17 per cent, is showing the fundamental strength in the stock.
✓ The stock has come out of the 8-week cup pattern and trading at 4 per cent above the pivot. The cup depth is at 14.87 per cent. Buy this stock at Rs 715 with a stop-loss of Rs 674. The target is placed at Rs 760-775 in a short-term. 

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Power Grid Corporation of India Ltd at Rs 195.75 in issue no. 13 (dated January 20, 2020). Post our recommendation, the stock moved higher in-line with our expectation and went on to touch the level of around Rs 211. We had given a ‘Book Profit’ message at the level of Rs 209.30 through our SMS service on January 20, 2020. Thus investors, who had taken positions according to this strategy, would have made decent profit.