Technical Analysis
SPOT NIFTY : The much anticipated pre-budget rally has become a mirage for the traders. After opening on a positive note, Nifty drifted down faster than expected. The last week’s bearish engulfing is confirmed. Out of the two up trending channels, one is already broken and another one is just at a critical support. As we are already cautioned since the past few weeks about the mistrust rally, Nifty is unable to move further above the lifetime highs and is oscillating in the range. The down bars are giving a clear indication for the past few weeks. Nifty decisively closed below 50 DMA and now with six distribution days in the past six weeks means the ongoing uptrend is clearly in danger. The leading sectoral index-Nifty Bank has already broken down the head and shoulder pattern, which is a very bad sign to the market. The out-performance of the mid and small-caps have once again turned negative. The market breadth is negative. And most importantly, the selling from FIIs again picked up the momentum. These developments before the Budget are not desired. Even though, technically, Nifty did not make an intermediate lower low, the current down swing is the highest retracement among the recent down swings. Nifty retraced more than 78.6 per cent of the prior upswing. The leading indicator RSI has broken down the descending triangle and confirmed the negative divergence. MACD reached to the below zero line and the histogram is suggesting that the pickup is in bearish momentum. Most importantly, Nifty is just holding 23.6 retracement of the September 20 to January 20 rally. In any case, if it closes below 12,015, which is broken on intraday basis on Thursday, will be a nightmare for the bulls. The meaningful support is placed at 11,929. If it breaks on the eve of Budget, the market will experience a bigger fall. On the positive side, if it is only above 12,270 then, we can hope for the bullish trend to continue further.
NIFTY DERIVATIVES: Nifty futures lost 164.2 points or 1.35 per cent since the last weekly expiry. During the week, every pullback was used as a selling opportunity. As January monthly series ended, the rollovers were at 53.54 per cent. This is the lowest rollover in the past six months. Union Budget is just another couple of days away and the traders are not showing interest in rollovers as they are practicing a cautious approach. February monthly Put-Call Ratio (PCR) is at 1.05 and for the next week, open interest PCR is at 0.69, which is very low as per the recent time. The overall derivative positions are also at the lower side as the event risk is very near. For the next weekly series, the highest call open interest is seen at 13,000, 12,300, 12,500 and 12,200 strikes, which looks unusual. On the put side, the highest open interest is at 12,000 strike. After this, the highest open interest is seen at 11,900 strike. The traders are playing a safe game by taking positions in and out of the money options. From 11,800 to 12,250 call strikes, the shorts were built up. On the put side, from 11,800 to 12,250, the long build-up is visible. The current derivative data suggests the max pain for the next week which is placed at 12,050. India VIX increased from 15.85 to 16.80 during the week, indicating that the volatile sessions are ahead. As the event risk in place, buy at the money (ATM) call and put (long straddle).
TECHNICAL RECOMMENDATION
STOCK STRATEGY
AVENUE SUPERMARTS ......................... BUY ................. CMP Rs.2,051.65
BSE Code ...... 540376 Target 1 .... Rs.2,200 | Target 2 .... Rs.2,240 | Stoploss .... Rs.1,915
✓ Current Observation: Avenue Supermarts Ltd owns and operates the supermarket chain under the brand DMart, promoted by celebrity investor-Radhakishan Damani. DMart outlets sell products like grocery, general merchandise, apparels, etc.
✓ Technically, the stock is trading at a new life-time high. It has broken out of 10-week cup and handle pattern. The stock also has broken out of 63-day ascending triangle with a huge volume.
✓ RSI closed above the prior swing high in a bullish zone. It is also making the higher highs and higher lows. The indicator is exactly moving along with the price. MACD line is above the zero line and the signal line. The histogram suggests that the bullish momentum is picking up.
✓ The ADX is reasonably good at 22.53 levels. The +DI is above the -DI and ADX shows a strength in the trend. The ascending triangle breakout target is placed at Rs 2,340. The target may reach in the next three months. Any kind of dip in the stock is an opportunity to buy.
✓ Buy this stock at Rs 2,051.65 with a stop-loss of Rs 1,915. The target is placed at Rs 2,200-2,240 in a short-term.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Escorts Ltd at Rs 715 in issue no. 14 (dated January 27, 2020). Post our recommendation, the stock moved higher in-line with our expectation and went on to touch the level of around Rs 744.85. We had given a ‘Book Profit’ message at the level of Rs 744.05 through our SMS service on January 28, 2020. Thus, investors who had taken positions, according to this strategy, would have made decent profit.