Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : Since last Thursday close to this Thursday close, Nifty went down nearly by a quarter of a per cent but the movement which was seen on Monday has definitely kept the traders on the edge of their seat. After the formation of a bearish engulfing bar on Monday, Nifty has traded within the high-low range of the bearish engulfing bar for the last three trading sessions, and at the same time, it has failed to pierce 50 per cent range of the bearish engulfing bar. Now, what does it indicate or suggest? Generally, after a formation of the widespread bar, the whole D-Street is painted red i.e. bearish sentiments become the talk of the town and everyone expects a fall to continue. 

Now, let us understand the price action in layman’s language. Suppose you run about 4 km per day and on one sunny morning, you feel motivated enough to run triple of what you do daily, i.e. instead of 4 km, you plan to run 12 km that day. Then, what will happen the next day? You will feel exhausted due to the excessive run or you may plan to take rest due to body strain. Similarly, the bearish engulfing candlestick pattern, which was formed on Monday, had a spread of 468 points, which was almost 3.5 times of the 10-day average range. Now it’s but natural that the price might take a breather after such an excessive move but at the same time, the 50 per cent range of the bar, which is near 11,566 is strongly protected by the bears that indicate the bears have not given up.

On the other hand, the bulls have been putting an all-out effort to pierce this borderline of 11,560-11,600 but in vain. However, there are two positive takeaways; the price has not breached the lower level of Monday’s session and we have seen a series of higher lows for the past three trading sessions. Moreover, the index has been trading above the 21-day EMA, which has acted a line of support for the bulls in the recent past. 

So, now, after multiple attempts to pierce the range of 11,560-11,600 on the upside, the bulls definitely might be getting itchy and impatient. Now either the bulls would prefer to have a gap-up opening straight above this range, which would boost their confidence or if it doesn’t have in the next 2-3 trading sessions, then probably bears would tighten their grip and on the downside, we might see the levels of 11,440, followed by 11,300 in the near term. So all eyes in the near term would be on the level of 11,560-11,600.

NIFTY DERIVATIVES : Nifty Futures lost 29.95 points or 0.25 per cent since the last weekly expiry. For the next weekly expiry, an open interest wise put-call ratio (PCR) is at 0.93. For September monthly series, PCR is at 1.30.

For the next weekly expiry, the highest call open interest is at 12,500 strike with 19,20,525 OI. On the put side, 11,400 strike has 12,18,750 open interest, which is the highest. For September monthly series, the highest call open interest is at 12,000 strikes with 19,66,125 OI, followed by 11,500 strikes with 18,30,825 OI. On the put side, the highest put open interest is at 11,000 strikes with 29,96,625 OI. The current derivative data suggest that the Max Pain is at 11,500 for the monthly expiry.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY

MAHINDRA & MAHINDRA LTD ................ BUY .............. CMP Rs 642.00

BSE Code ...... 500520 | Target 1 .... Rs 683 | Target 2 .... Rs 695 | Stoploss.... Rs 600

✓Current Observation: Mahindra & Mahindra Limited is an India-based mobility products & farm solutions provider. The company’s segments include automotive, farm equipment, financial services, real estate, hospitality, and others. The automotive segment comprises the sale of automobiles, spares, mobility solutions and construction equipment. Its farm equipment segment comprises of the sale of tractors, implements, and spares.
✓From the low of Rs 245.40, which was registered on March 25, 2020, the stock has maintained its rhythm of higher highs and higher lows.
✓Recently, the stock has formed an Adam & Adam double bottom pattern, which suggests bullish momentum. Further, since the last two trading sessions, the volume is above the 50-day average, which is a sign of accumulation.
✓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.
✓Talking about the indicators, the 14-period daily and the weekly RSI is in a bullish zone. Interestingly, the RSI has also formed a double bottom pattern. The momentum indicator, MACD line, has crossed above the signal line, which resulted in the histogram turning positive.
✓ Considering the above factors, we recommend buying the stock at Rs 642.00 with a stop-loss of Rs 600. The target is placed at Rs 683-Rs 695 over the short-term.

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Bajaj Holdings & Investment Ltd at Rs 2,853.70 in issue no. 45 (dated August 31, 2020). Post our recommendation, the stock did not sustain at higher levels as selling pressure emerged in the market and the stock slipped below the stop-loss level. We recommend our readers to exit with a loss. We exited the stock at Rs 2,657.90 on September 01, 2020.