Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : On Monday, Nifty formed a bearish belt hold pattern and it recorded its lowest closing since April 8, 2020. However, from Monday’s low, Nifty has recovered three per cent or 300 points. If we analyse the price action of the last three trading sessions, Nifty has been consolidating within the high-low of Monday’s bearish belt hold pattern. But on intraday basis, it did manage to move above Monday’s high on the weekly expiry day. However, it failed to sustain at higher levels and as a result, it came off 80 points from the day’s high and closed in the bottom half of the day’s range.

On Wednesday, there were quite a few positive takeaways. To begin with, the index managed to close above Tuesday’s high and at the same time, it protected the low of the previous bar. Further, it formed a sizable bullish candle which had spread (high-low range) greater than its 10 days’ average spread. However, a lot depends upon Thursday’s price action as a follow-through move and close above Monday’s bearish belt hold would have a signal formation of a temporary bottom. But the formation of shooting star like candlestick pattern right at 50 per cent retracement level of its fall from the high of 9,584 create skepticism about bulls dominance.

Going ahead, Nifty has multiple resistances in the zone of 9,160-9,281 and on the downside; the level of 8,700- 8,800 is a crucial support zone. RSI on the daily timeframe is around 48 but an interesting observation has been witnessed on the hourly timeframe, i.e. the 14-period RSI has turned down from 60-62 regions. 

Also, Nifty has recorded its third consecutive positive close on Thursday and if we observe deeply, since February 12, we have seen a maximum of four positive close on trot, which suggests that we are nearing to the threshold limit of positive closes in a row.

All-in-all, the bulls clearly look tired after a three per cent rally from Monday’s low and the level of 9,160 is likely to act as an immediate resistance zone. For short positions, wait for Nifty to close below its prior bar low.

NIFTY DERIVATIVES: Nifty Futures lost 77.70 points or 0.84 per cent since the last weekly expiry. Indian volatility index (VIX), a gauge for the market’s short-term expectation of volatility, dipped by 7.90 per cent to end at 92.98. For May monthly series, an open interest wise put-call ratio (PCR) is at 1.06.

For May monthly expiry, the highest call open interest is at 10,000 strike with 28,32,675 OI, followed by 9,500 strike with 23,08,650 OI. On the put side, 9,000 strike has 33,12,825 open interest, which is the highest. Some of the out-of-the-money (OTM) options also have a higher open interest. The 8,500 put of May monthly series was seen at 28,14,075 OI, followed by 8,000 put with 21,60,825 OI.

The highest change in open interest was seen at 9,000 put of May monthly expiry with 7,51,425 OI and on the call side, 9,100 call has witnessed the highest change in open interest with 5,59,200 OI. The total call open interest for May monthly series is 2,24,93,400 and the put open interest is 2,37,46,800. The current derivative data suggests that the Max Pain is at 9,100.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY

CADILA HEALTHCARE LTD. ........................... BUY .............. CMP Rs 344.35 

BSE Code ...... 532321 Target 1 .... Rs 365 | Target 2 .... Rs 375 | Stoploss.... Rs 325

✓ Current Observation: Cadila Healthcare Ltd is a well-known research-oriented, technology-driven pharmaceutical company focussed on the research areas of biotechnology, formulations and active pharmaceutical ingredients (APIs).
✓ Technically, the stock has formed a reversal bearish belt hold candlestick pattern as on April 9, 2020 and thereafter, witnessed a correction. The correction is halted between 38.2 and 50 per cent retracement level of its prior upward move (Rs 247.65-Rs 374) and coincides with 20-day EMA.
✓ All the moving averages are trending upside and they are in a particular sequence. The stock is meeting Daryl Guppy’s multiple moving averages set-up rules as it is trading above both, the short and long-term moving averages.
✓ The daily RSI is currently quoting at 62.23 and it is in a rising trajectory. The weekly RSI is in a super bullish zone and bounced exactly from 60 level. The average directional index (ADX), which shows strength of the trend, is as high as 29.48 on a daily chart and 25.01 on a weekly chart. Generally, above 25 level is considered as a strong trend. In both the timeframes, the stock is meeting the criteria.
✓ Hence, we recommend buying this stock for a target price of Rs 365, followed by Rs 375, with a stop-loss of Rs 325 level on closing basis. 

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Syngene International Ltd at Rs 339.75 in issue no. 30 (dated May 18, 2020). Post our recommendation, the stock moved higher in-line with our expectation and went on to touch the level of around Rs 382. We had given a ‘book profit’ message at the level of Rs 350.95 through our SMS service on May 19, 2020. Thus investors, who had taken positions according to this strategy, would have made decent profit.