Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : The benchmark index Nifty has gained about 858 points or about 10 per cent in the last four trading sessions. Nifty registered a swing high of 9,039 as on March 27 and thereafter, in the next four trading sessions, it retraced about 61.8 per cent of its earlier three sessions’ upmove. With a slower pace of retracement, it clearly hinted that the bears were losing their momentum as the golden ratio of 61.8 per cent retracement acted as a strong support. After registering higher low of 8,056, Nifty started to move higher on April 7 and thus, registered one of its biggest gains in a single day since May 2009 and now, the bulls are ready to challenge the crucial support resistance zone of 9,000-9,100. On April 8, Nifty continued to show follow-through move and in the process, Nifty not only hastened towards 9,000 but also went on to register a new swing high of 9,132. However, Nifty failed to sustain at higher levels and corrected almost 400 points from swing high to end the session with modest losses and this led to the formation of shooting star candlestick pattern near the fresh swing high, which indicated power of bulls wearing out. Besides, on Thursday, there was no follow-through selling seen in the index and Nifty opened with a gap-up as well as traded with positive bias for the rest of the day. But, Nifty was not able to cross above the prior bar high and as a result, it formed an inside bar as it traded within high low range of prior bar. However, the key takeaway from Thursday’s session was that Nifty closed above its 20-DMA for the first time in the last 31 trading sessions. Nifty also managed to close above 23.6 per cent retracement level decisively. FPIs are back in buying mode for two consecutive trading sessions i.e. Tuesday and Wednesday’s session. All the sectoral indices ended in green with Nifty Auto, Nifty Financial Services, Nifty Bank and Nifty Metal gaining between 5 to 10.52 per cent. A strong participation from across the sector clearly indicates that the bears are losing the grip but the bulls will get an advantage only if they manage to close above 9,100-9,150 level. A close above the level of 9,100-9,150 could push Nifty towards the next upside target of around 9,400 which is 38.2 per cent retracement of the entire fall from January 2020 high to the low of March 2020. Traders with long positions can maintain a trailing stop-loss of 8,800 and for any fresh short positions, wait for a reversal and close below the prior bar.

NIFTY DERIVATIVES: Nifty Futures gained by 816.20 points or 9.88 per cent since the last weekly expiry. Indian Volatility Index (VIX), a gauge for market’s short-term expectation of volatility, from the high of March 24, 2020 has cooled off by 42.59 per cent in the last 11 trading sessions. For the next weekly expiry, open interest wise put-call ratio (PCR) is at 1.54. For April monthly series, PCR is at 1.28. For the next weekly expiry, highest call open interest is at 9,500 strike with 7,80,450 OI. On the put side, 8,000 strike has 10,59,450 open interest, which is the highest. The 9,500 call of the next weekly expiry today has seen new addition of 3,63,750 open interest and on the put side, 8,000 put has seen a new addition of 5,86,875 open interest. The total call open interest is 44,73,900 and the put open interest is 68,62,350. For April monthly series, the highest call open interest is at 10,000 strikes, followed by 9,500 strikes. On the put side, the highest put open interest is at 8,000 strikes. The current derivative data suggest that the Max Pain is at 9,000. 

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

SUDARSHAN CHEMICAL IND. ................. BUY ................ CMP Rs 421.05

BSE Code ...... 506655 Target 1 .... Rs 450 | Target 2 .... Rs 460 | Stoploss.... Rs 390

✓ Current Observation: Sudarshan Chemical Industries Ltd is a leading colour and effect pigment manufacturer. It operates through various segments, which include pigments, agro chemicals and others.
✓ The stock had formed a reversal dark cloud cover candlestick pattern near to its 52-week high as on February 6, 2020 and thereafter, witnessed correction. The correction was nearly 43 per cent from the top. The correction halted near the important support level of Rs 290 and this support is defined by a horizontal trend line.
✓ At present, the stock had given 18-days flat consolidation pattern breakout along with robust volume. Along with this pattern breakout, the stock has also managed to close above its 50-day EMA, 100-day EMA and 200-day EMA.
✓ The leading indicator, 14-period daily RSI, is currently quoting at 56.71 and it is in rising trajectory, which suggests a bullish bias. The daily MACD stays bullish as it is trading above its zero line and the histogram is suggesting a pickup in the upside momentum.
✓ Hence, considering the consolidation pattern breakout along with a strong volume, we recommend buying this stock for the target price of Rs 450, followed by Rs 460, with a stop-loss at Rs 390 level on closing basis. 

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Dr Reddy’s Laboratories Ltd at Rs 3,100 in issue no. 24 (dated April 6, 2020). Post our recommendation, the stock moved higher in-line with our expectation and went on to touch the level of around Rs 3,270. We had given a ‘book profit’ message at the level of Rs 3,214.50 through our SMS service on April 3, 2020. Thus, the investors who had taken positions, according to this strategy, would have made decent profit.