Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY : The market is finally showing decisive weakness during this week. It formed the most bearish candle today. Nifty lost 41.50 points and settled at 15,680. For the last two days, its breadth is negative. After a long time, four red candles in a row indicate that the bears are getting some strength. Nifty struggled around the 15,900 levels but failed to close above it.

On Monday, Nifty had opened at a new lifetime high of 15,915.65 but failed to sustain the opening gains and thus, formed a bearish engulfing candle. Since then, Nifty is gradually drifting downside. It lost 180.35 points or 1.13 per cent in the last four trading sessions. With an added distribution day today, the total distribution day count now stands at five. Any increase in distribution days will change the market condition to a downtrend. The 15,900 has become a very strong resistance for Nifty. Unless it clears this resistance, we cannot be so bullish on the market direction. Sustaining below the 20-DMA for the second consecutive day is a short-term weaker sign. During the last one month, it traded in a little over 200-point range between the zones of 15,900 and 15,670. However, today, it closed at the critical support level. This indecisiveness at the higher levels, on low volatility & low volume, indicates a probable intermediate top at 15,916. A close below the 15,670-600 zone will be the first warning signal for the bulls.

There are evident negative divergences on the weekly and the daily charts. The momentum is picking up on the bearish side. The Elder impulse system has given a bearish signal. Even Pring's KST has given a sell signal during the week. The current price structure suggests that there is little scope for an upside move beyond 15,900. The aggressive shorts can be built only if Nifty closes below 15,600. Meanwhile, the next support is at 15,431. A close below this level will have very decisive bearish implications. Take out the profits from the table for now.

NIFTY DERIVATIVES:

Nifty Futures declined by 70.45 points during the last five sessions. The volume and the open interest is picking up since Monday as the market falls. This is an indication of weakness. The open interest (OI) increased by 1.38 per cent. The put-call ratio (PCR) for the month is at 1.26 while for the next weekly expiry, the PCR is at 0.79. Currently, the ATM implied volatility declined to this year's low of 10.43. VIX has also declined to 12.84, which is the lowest in the last 20 months. Because of this low volatility, the option premiums have shrunk to unattractive levels. This low volatility is also an indication of a high probability of impulse moves.

For the next weekly expiry, the total call open interest is at 3,28,287, and the total put open interest is at 2,59,809. The maximum call open interest is at 15,800 strikes, followed by an at-the-money strike of 15,700 with an OI of 34,111. Out-of-themoney strike 16,000 has an OI of 29,545; deep-out-of-the-money strike of 16,500 strikes also has a higher OI of 28,652. On the put side, the maximum open interest is at an ATM strike of 15,700 with 29,226 OI, followed by 15,500 strikes with 26,794 OI. Deep-out-ofthe- money put strike of 15,000 also has an OI of 24,301. There is a huge call selling witnessed from 16,000 to 15,350 strikes. The 15,650 strikes witnessed a 705 per cent increase in the open interest. Even the 15,450 strike OI increased by 533 per cent. On the Put side, 15,900 to 16,050 strikes have seen a long build-up. Max Pain for the next weekly expiry is at 15,700 while VWAP is at 15,727. As ATM strike call & put option premiums are less than Rs 100, it is not attractive to apply straddles.

TECHNICAL RECOMMENDATION

STOCK STRATEGY

SCHAEFFLER INDIA LTD. ...... BUY ...... CMP Rs 5611.60

BSE Code : 505790
Target 1 : Rs 6,050
Target 2 : Rs 6,150
Stoploss : Rs 5,200 (CLS)

✓Current Observation: Schaeffler Group is a leading global automotive and industrial supplier. The 70-year-old Group has carved a niche for itself as a manufacturer of high-precision components and systems for engine, transmission, and chassis applications in the automotive segment. Schaeffler India Limited is an integral part of Schaeffler Group. With four plants & eight sales offices, it has a significant presence in India. All Schaeffler plants in India are certified as per the international quality standards.
✓Technically, the stock broke the 11-week flat base. The stock is trading just 7 per cent below its lifetime high. It moved 2 per cent above the prior pivot level. The stock is trading above the short and long-term moving averages. It is 6.72 per cent above the 50-DMA and 16.72 per cent above the 200-DMA. Both averages are trending up. The RSI is in a super bullish zone. The weekly MACD is about to give a buy signal. The ADX (39.63) shows strength in the trend while the +DMI is above the -DMI. The Elder impulse system is showing a bullish price structure on the weekly chart.
✓As the stock is trading above the weekly base and pivot, it is giving an ideal buying opportunity in the range of Rs 5,550-Rs 5,620. Maintain stop-loss of Rs 5,200 level. The short to medium-term target is placed at Rs 6,050-Rs 6,150.

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Dixon Technologies Ltd at Rs 4,547.20 in issue no. 36 (dated June 28, 2021). Post our recommendation, the stock witnessed a minor correction along with low volume. The correction is halted near the 20-day SMA level. Currently, it is hovering around the breakout point. However, we can expect to see some smart upmoves if it closes above the level of Rs 4,550. We would advise our readers to hold this stock with a stop-loss of Rs 4,320 on a closing basis as the stock is likely to move higher from the current levels.