Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : After having witnessed a breakout on the upside of the key overhead resistance of 11,565-11,585 levels on Wednesday, Nifty failed to witness any follow-up buying. In fact on Thursday, Nifty opened lower and even closed with a net loss of 0.76 per cent.
The price action of the day formed a small red body candle with a long upper shadow, which indicates a trap for the bulls. Further, what was an interesting key takeaway from Thursday’s session was that after a gap down opening, Nifty almost filled this opening downside gap and resisted around the high of September 3, and thereafter, it closed near the day’s low.
With this, Nifty has entered into a broad range once again. Going ahead, immediate support for Nifty is placed around the level of 11,460 as the 20-DMA is placed around this region, followed by the major support placed at 11,300. On the upside, the resistance is placed in the region of 11,585-11,600. Also, major resistance is placed around 11,800, which is the top of a bearish engulfing on the weekly chart, and until we clear this level on a weekly closing basis, the fear of the bearish engulfing pattern would continue to haunt.
Overall, the trend once again has turned sideways as Nifty has entered into a broad consolidation. Unless the level of 11,585-11,600 is not taken out, we could see the index moving in the broad range, where the initial support is placed around the 11,460 mark, followed by 11,300 levels. Traders are advised to follow strict money management rules and trade with less quantity in the index as the trend of the index has once again turned sideways.
NIFTY DERIVATIVES :
Nifty Futures has gained 71.65 points or 0.62 per cent since the last weekly expiry. For September monthly series, open interest wise put-call ratio (PCR) is at 1.09.
For September monthly expiry, the highest call open interest is at 12,000 strike with 33,86,775 OI, followed by 11,600 strike with 29,16,825 OI. On the put side, 11,500 strike has 34,83,750 open interest, which is the highest. The highest change in the open interest was seen at 12,500 call of September monthly expiry with 12,80,250 OI and on the put side, 10,500 put has seen the highest change in the open interest with 6,58,950 OI. The total call open interest for September monthly series is 3,15,67,425 and the put open interest is 3,44,21,850. The current derivative data suggest that the Max Pain is at 11,500 for the monthly expiry.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
SONATA SOFTWARE LTD ..................... BUY ................ CMP Rs 337.30
BSE Code ...... 532221 | Target 1 .... Rs 360 | Target 2 .... Rs 365 | Stoploss.... Rs 313
✓ Current Observation: Sonata Software Limited is an information technology (IT) services & solutions company. Its secondary segment comprises business segments, products & services. It provides a solution for travel, retail and distribution, and software product companies by integrating technologies, such as omnichannel commerce, mobility, analytics, cloud & enterprise resource planning.
✓ Technically, the stock has formed a reversal opening bullish Marubozu candle as on March 24, 2020, and thereafter, marked the sequence of higher tops and higher bottoms. On Thursday, the stock has moved above its prior swing high of Rs 331, along with robust volume. Additionally, the stock has formed a sizeable bullish candle.
✓ There is a ‘golden crossover’ observed on the stock as the 50-DMA recently crossed above its 200-DMA, which is a positive sign.
✓ The leading indicator, 14-period RSI, is in a rising trajectory on both the weekly and the daily timeframe. The momentum indicator, MACD line, has crossed above the signal line, which resulted in the histogram turning positive.
✓ In the daily timeframe, ADX is 17.05 and suggests that the trend is yet to be developed. The directional indicators continue in the ‘buy’ mode as +DI continues above the –DI.
✓ Considering the above factors, we recommend buying this stock with a stop-loss of Rs 313 on a closing basis for a target of Rs 360-Rs 365 in the short to medium-term.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Trent Ltd at Rs 673.10 in issue no. 47 (dated September 14, 2020). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 735. We had given a ‘book profit’ message at the level of Rs 728 through our SMS service on September 14, 2020. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit.