Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE

Bollinger Band Squeeze is reflection of a phase where volatility contracts. Currently, we are witnessing absurd volatility in the market. So, there is no output at this point of time.

SPOT NIFTY :
Benchmark index-Nifty recovered 1,130 points or 15.04 per cent from Tuesday’s low. Nifty is above the two-day high or this week’s high. This is the second time that Nifty is closing above the prior bar high after Friday. This may be because of expiry hurry to close the short positions but, it failed to close above 23.6 retracement of the fall.

Theoretically, any price will not fall in a straight line fashion for a longer period. It takes some rest before continuing the prior trend. At some point of time, this resting will become a counter-trend rally. In the past bear markets, these counter-trend rallies were retraced about 38.2 to 50 per cent of the prior downfall. This time, Nifty registered the steepest fall in its history and fell a whopping 40 per cent in just 45 sessions, which is really hurting for any investor. It did not give a chance to exit.

Now, as long as Tuesday’s low of 7,511 is protected, we can expect a counter-trend. There are several supports placed at this zone. If we believe that ‘history repeats itself’, the retracement can go up to at least 38.2 retracement i.e. 9,390 but only if Nifty closes above 8,673. The next immediate resistance is at 8,883, which is Friday high. In any case, it extends the 50 per cent retracement which is at 9,970. The probability going near to 20-DMA (9,762) is high. If at all this is a ‘V-shape’ recovery, do not expect it to sustain. If we see an ‘L-shaped’ recovery, we can hope that the bottoming formation is in place. Unless you see a flat-base bottom for at least eight weeks, do not trust any kind of recovery. Please be patient till a base is formed.

NIFTY DERIVATIVES:
Nifty Futures gained by 435.60 points or 5.31 per cent since the last expiry close. March series lost 2,989.95 points or 25.71 per cent. The rollovers were seen at 49.24, which is less than three-month averages. For the next weekly expiry, put-call ratio (PCR) is at 1.13 while, April PCR series is at 1.23. The open interest is very low for the next week. Most of the strike did not have any open interest. As the rollovers and volumes are low, traders believe that uncertainty will continue with a higher volatility. The highest call open interest is seen at 9,000, followed by 8,500-strike. On the put side, the highest open interest is placed at 8,500, followed by 7,500. The total call open interest is 36,45,975, and the total put open interest is 41,10,825.

As the premiums were at a very high level, most of them collapsed massively. All the put options including in the money (ITM) options also melted. India VIX is collapsed from 86.64 to 71.53. The implied volatility also increased to 16.17

Bollinger Band Squeeze is reflection of a phase where volatility contracts. Currently, we are witnessing absurd volatility in the market. So, there is no output at this point of time.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY

GSK CONSUMER HEALTHCARE ................. BUY ............... CMP Rs. 9700.65

BSE Code ...... 500676   Target 1 .... Rs. 10700 |   Target 2 .... Rs. 11000 |   Stoploss.... Rs. 9000

✓ Current Observation: GSK Consumer Healthcare Ltd is an associate of GlaxoSmithKline plc of UK. It is one of the world’s largest consumer healthcare companies and one of the world’s leading over-the-counter (OTC) medicines’ company. The company holds number one position in OTC medicines across 36 markets and market leaders in specialist oral care.
✓ Technically, after testing June 2019 low, it bounced 31 per cent. Currently, the stock is trading above all the long and short-term moving averages and they are trending up. The stock is trading less than five per cent away from lifetime high. The RSI is taking support at 50 level several times on a weekly chart. The MACD is giving a buy signal on a daily chart and the ADX (22.52) is showing strength in the trend.
✓ The stock also meets all the CANSLIM parameters. Its price relative strength is at 93 and EPS strength is at 88. The good buyer's demand is indicating an institutional interest in the stock. Its consistent earnings growth over 20 per cent and 24 per cent return on equity (ROE), makes the stock attractive at current level.
✓ Buy this stock at Rs 9,700.65 with a stop-loss of Rs 9,000. The initial target is placed at Rs 10,700. Above this level, it can test Rs 11,000.