Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty retraced 62 per cent of the recent fall and formed an inverted hammer candle. Interestingly, this bearish candle was formed after a hanging man formation. After a 244 point surge from the Tuesday low, the benchmark index looks tired. It failed to close above the prior day high and closed below the open level. The two day up surge is because of huge short squeeze. Even the market breadth is not positive. The two days upsurge did not change the indicator set up. The negative divergences are still intact. If you look at hourly chart, the RSI failed several times to cross the 70 level. The 50-DMA is working as stiffer resistance for now. The Nifty was able to close above 50-DMA just for one day. Even the 244 point surge in two days failed to close above 50-DMA and it actually worked as resistance again. The magnet of the market 20-DMA is trending down. Any close below 20-DMA 12,042 will resume the downward move. This time the move can be a sharper one. We can expect this sharp and euphoric move to lead lower to the Tuesday low of 11,908. As long as Nifty trades between 12,152 -11,908 we may not get good trades. Any close above 12,152, the immediate target is placed at the prior high 12,246 and above this level it can test the maximum of 12,310. But, closing below 12,042 will lead sharp fall up to 11,908. Below this level, it will test the recent swing low of 11,614. So, trade cautious on a long side, unless the Nifty clears the 50-DMA, it advised to not to venture the long positions.
NIFTY DERIVATIVES: Nifty futures lost 91.40 points or 0.75 per cent since last weekly expiry. Just one day it closed with gains due to massive short covering. On a falling day the open interest rose by 6.13 per cent which indicates that the shorts were built up. As we are entering in to a last week of February series, the rollovers increased to 17 per cent. The Put-Call Ratio (PCR) is at 1.04. The highest open interest on Call side is at 12,200 with 34,88,850 O+I. On the Put side, the highest open interest is at 12,000 strike with 44,55,075 OI. The total call open interest is at 2,63,50,800, and the total put open interest is at 2,73,16,125. On the call side, shorts were built up from 11,850 to 12,300 strikes. And at the same time, on the Put side long build up was seen from 11,950 to 12,300 strike rates. The current derivative data indicates that 12,200 is a stiff resistance on higher side and 12,000 works as short-term support. The Max Pain is at 12,100. The India VIX moved a little higher compared to last expiry day. The implied volatility is stable at 13.91. Expectations next week will be mostly on the downside, so it is advisable to adopt bearish spreads to take advantage of the downside.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
POWER FINANCE CORPORATION ............... BUY ............. CMP Rs. 132.25
BSE Code ...... 532810 Target 1 .... Rs. 143 | Target 2 .... Rs. 150 | Stoploss.... Rs. 122
✓ Current Observation: Power Finance Corporation (PFC) has formed a 34 week cup and handle pattern with a depth of 34.8 per cent. It reached to the prior pivot point. It is actually trading above the recent short pivot. The stock is making higher highs and higher lows and trading above the short and long term moving averages.
✓ It is also meeting the GAMMA set up rules. The stock is above all the moving averages. All the moving averages are trending up and they are in a desired sequence. It is just 4.7 per cent away from June 2019 high.
✓ At the same time, the stock is also above 50 week average and the 20 period RSI is much above the 50 level. The RSI is also making higher highs and is above the prior swing high. The MACD line is above the zero and signal line is indicating a bullish momentum.
✓ Its price relative strength (RS) is at 87 and the greater demand shows the accumulation in the stock. The institutional investors increased their stake in the company by 1.37 per cent in the last quarter. The return on equity is at 16 per cent and trading at 5 P/E multiple. These technical and fundamental factors make the stock attractive atcurrent level. Buy this stock at Rs. 132.25 with a stop loss of Rs. 122. The target is placed at Rs. 143-150.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Titan Company Ltd at Rs 1,298.70 in issue no. 17 (dated February 17, 2020). Post our recommendation, the stock moved higher in-line with our expectation and went on to touch the level of around Rs 1,341.05. We had given a ‘Book Profit’ message at the level of Rs 1,336.45 through our SMS service on February 20, 2020. Thus, investors who had taken positions, according to this strategy, would have made a decent profit.