Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : The markets have this uncanny knack of surprising us. Last Thursday, when Nifty registered its longest losing streak after February 2020, it was blood, sweat & tears on the D-Street. However, almost after a week, the sentiments have changed and it's now in rock ‘n’ roll mood on the D-Street as Nifty has rallied almost 600 points from the last Thursday's close. With this, it has reclaimed its important psychological mark of 11,400. The situation reminds of a famous quote by Charlie Chaplin, ‘Nothing is permanent in this wicked world, not even our troubles.’
The Banking index, which was down and out, became the pied piper of the recent rally as it gained almost 9 per cent from last Thursday’s low. Now, Nifty has managed to close above its 20 and 50-DMA. It has retraced almost 78.6 per cent of its recent fall from 11,618-10,790. One of the key positive takeaways from Thursday’s session is that Nifty resisted for last two times around the 11,300 mark and today, it opened the session with a gap-up above 11,300 mark and managed to closed near the day's high, indicating that the bears are trapped as the gap-up caught them by surprise and the momentum thereafter, forced them to cover their short position.
On the weekly timeframe, the index has formed a candlestick pattern, which resembles a bullish Harami pattern while on the daily chart; Nifty formed a bullish body candle with a gap-up. The current swing is already five days old. Let us wait and watch whether this swing goes beyond six days or ends around the resistance area of 11,480-11,550.
Hence, the level of 11,480-11,550 is a key resistance area in the near term and if the index resists around these level and start moving lower, then, in that case, the formation of the lower top would come into play. The first top of 11,794, which was registered on August 31, was followed by a lower top formation of September 16 and if the index takes a U-turn around the zone of 11,480-11,550, then it would be a lower top formation. Until and unless the index does not move above the recent swing high of 11,618, the life for the bulls would not be easy. On the downside, immediate support is seen in the band of 11,295-11,347, and as long as the index trades above this band, be with a bullish bias with an upside target of 11,480-11,550.
NIFTY DERIVATIVES : Nifty Futures gained 607.25 points or 5.60 per cent since the last weekly expiry. For the next weekly expiry, open interest wise put-call ratio (PCR) is at 1.20.
For October monthly series, PCR is at 1.35. For the next weekly expiry, the highest call open interest is at 11,500 strike with 15,52,350 OI. On the put side, 11,200 strike has 17,29,800 open interest, which is the highest. The highest addition in open interest was seen at 11,800 call of the next weekly expiry with 8,86,275 OI and on the put side, 11,400 put has seen the highest addition in open interest with 12,75,825 OI. For the next weekly expiry, the total call open interest is 1,18,54,875 and the put open interest is 1,41,75,300.
For October monthly series, the highest call open interest is at 11,500 strikes with 17,54,250 OI, followed by 12,000 strikes with 17,42,400 OI. On the put side, the highest put open interest is at 10,500 strikes with 37,56,525 OI. The current derivative data suggest that the Max Pain is at 11,300 for the monthly expiry.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
MANAPPURAM FINANCE LTD ................ BUY ........... CMP Rs 166.50
BSE Code ...... 531213 | Target 1 .... Rs 178 | Target 2 .... Rs 182 | Stoploss.... Rs 156
✓ Current Observation: Manappuram Finance Ltd is an India-based non-banking financial company. The company provides a range of retail credit products and financial services. It operates through two segments: Gold loan & others and microfinance. Its other products and services include Forex, money transfer, and insurance broking.
✓ Technically, the stock has formed a bearish squeeze alert like candlestick pattern as on July 29, 2020, and thereafter, witnessed correction. The correction is halted between 38.2 per cent and 50 per cent retracement level of its prior upward move (Rs 74.25-Rs 187.25).
✓ Considering the daily timeframe, the stock has given a breakout of right-angled broadening and descending triangle pattern. This breakout is confirmed by the above 50-day average volume. Additionally, the stock has formed an opening bullish Marubozu candlestick pattern on the breakout day, which indicates an extreme bullishness.
✓ The stock is trading above its short and long-term moving averages. The stock's relative strength index (RSI) has reached its highest value in the last 14-days, which is bullish. Also, it has managed to close above the 60 mark after a span of over two months.
✓ In the daily timeframe, the ADX is 15.20, which suggests that the trend is yet to be developed. Directional indicators continue in the ‘buy’ mode as +DI continues above –DI. ✓ Hence, we recommend buying this stock with a stop-loss of Rs 156 on a closing basis for a target of Rs 178-Rs 182 in the short-term.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Reliance Industries Ltd at Rs 2,181.15 in issue no. 49 (dated September 28, 2020). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 2,267. We had given a ‘book profit’ message at the level of Rs 2,249 through our SMS service on September 29, 2020. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit.