Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : After piercing the level of 11,200 mark on Wednesday and when the bulls had nothing going for them except for geopolitical issues, global carnage, and the underperformance of Bank Nifty underscoring the sentiments, Nifty staged a smart recovery on Wednesday and this strong rebound from the lower levels by the bulls, set the stage for a terrific Thursday. 

Also, on Wednesday, there were two key reversal pattern formations on the lower timeframe i.e. on 60 minutes. The two patterns namely, Trader Vic- 2B and a falling wedge, were formed with a divergence on RSI. 
Honouring the pattern confluence of the reversal pattern, positive global cues led Nifty to a gap-up opening, which remained in the positive momentum throughout the session; all thanks to Reliance Industries. At close, Nifty settled within the striking distance of 11,450 mark. 

With this, Nifty has reclaimed its 21-day EMA and formed a bullish candle on the daily timeframe. However, Nifty closed near the downside gap area (11,507-11,452), which was created on September 4. 

The abovementioned gap area is going to act as immediate resistance for the bulls and for this, the opening on Friday, and the movement thereafter would be closely monitored. Sustaining above this level would help the index to further move up towards the levels of 11,560-11,570 as it is a 61.8 per cent retracement level of the recent fall from the swing high of 11,794 to the low of 11,185. On the flip side, the support level is seen around the upside gap (11,298- 11,327) of September 10. 

Interestingly, the bearish engulfing pattern, which was formed on the weekly chart of Nifty last week has seen no follow-through move. In fact, Nifty is forming a hammer pattern but since there is one more trading session to go for this week, we will come to know about it only on Friday. However, if the index closes above the one of 11,560-11,570 then, all the advantages which the bears gained at the onset of September month would be forfeited.

Hence, the level of 11,560-11,570 would be the key level to watch out in the near term for the market participants. In case, we get a rejection around this level then it shall give a good risk-reward set up for the short traders. However, we would advise the traders to close a short position in case Nifty closes above the 11,560-11,570 level.

All-in-all, Friday’s session could set the tone for the near term and the level of 11,560-11,570 would hold key importance.

NIFTY DERIVATIVES:

Nifty Futures lost 75.30 points or 0.65 per cent since the last weekly expiry. For the next weekly expiry, an open interest wise put-call ratio (PCR) is at 1.15. For September monthly series, PCR is at 1.35.

For the next weekly expiry, the highest call open interest is at 12,000 strike with 15,14,625 OI. On the put side, 10,500 strike has 19,68,150 open interest, which is the highest. For the next weekly expiry, the total call open interest is 1,22,10,375 and the put open interest is 1,40,93,100.

For September monthly series, the highest call open interest is at 11,500 strikes with 19,60,500 OI, followed by 12,000 strikes with 17,31,900 OI. On the put side, the highest put open interest is at 11,000 strikes with 29,73,450 OI. The current derivative data suggest that the Max Pain is at 11,400 for the monthly expiry.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY 

TRENT LTD .................................... BUY ............................. CMP Rs 673.10

BSE Code ...... 500251 | Target 1 .... Rs 720 | Target 2 .... Rs 735 | Stoploss ...Rs 630 (CLS)

✓ Current Observation: Trent Limited is engaged in the retail sale of readymade garments and its major segments include retailing & others. It primarily operates its stores across three formats: Westside, Star, and Landmark.
✓ After registering the low of Rs 401.05, the stock has bounced sharply up to the level of Rs 707 and thereafter, witnessed correction. Currently, the stock is on the verge of giving a breakout of cup & handle pattern on the daily timeframe. The length of the cup with a handle pattern was of 56 trading sessions and the depth of the pattern was about 23 per cent.
✓ Since the last two trading sessions, its volume is above the 50-day average, which is a sign of accumulation before the actual breakout takes place. All the moving averages based trade set-ups are showing a bullish strength in the stock. Daryl Guppy’s multiple moving averages is suggesting a bullish strength in the stock.
✓ Talking about the indicators, the RSI is in a rising trajectory on both the weekly and the daily timeframe, which is positive for the stock. The trend strength indicator, average directional index (ADX), is at 37.99, which indicates the strength. The +DI is much above the -DI. This structure indicates that there is a bullish strength in the stock.
✓ Hence, we recommend buying this stock with a stop-loss of Rs 630 on a closing basis for a target of Rs 720-Rs 735 in the short-term.

REVIEW OF STOCK STRATEGY

We had recommended buying the stock of Mahindra & Mahindra Ltd at Rs 642 in issue no. 46 (dated September 07, 2020). Post our recommendation, the stock did not sustain at higher levels and on an intraday basis, it slipped below the stop-loss level. However, on a closing basis, it managed to close above the stop-loss level. We can expect to see smart upmoves if it closes above its weekly pivot, which is currently placed at Rs 630. We would advise our readers to hold this stock with a stop-loss of Rs 600 on a closing basis, as the stock is likely to move higher from the current level.