Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :
The benchmark index - Nifty closed higher for the fourth successive day. It closed at 16,294.60 levels with gains of 35.80 points. Nifty opened gap-up and closed at almost the opening level. Today, the trend was led by the metal and the IT indices. Nifty index breadth along with the overall market breadth was found to be negative.
As we expected earlier, Nifty recorded an impulsive move after 34 days of consolidation in just 200 points. With gains of over 400 points in just three days, it’s a surprise for many. Nifty is sustaining above the 161.8 per cent (16,223) retracement level of February-April fall. As Nifty is trading at a new lifetime high, there is no relevance for moving averages. Now, even the shorter period averages are also trending up. The weekly RSI has also broken out of a sloping channel and moved above the prior swing. The daily RSI entered above the zone of 70. The daily +DMI is at a prior swing high. The weekly MACD line is also about to move above the signal line. However, there are some concerns even in this strong bullish market. The market breadth is extremely negative for the past three days. Even the benchmark index breadth is negative for the last two days. Meanwhile, sector rotation and the stock-specific activities are keeping the market alive. The volume is also not reflecting this euphoric move.
Nevertheless, the index has formed a perfect Doji candle. Steve Nison's Doji principle says that a Doji needs a close below it for a bearish reversal at a lifetime high. Four successive gap days are showing that the market has overextended and shows exhaustion. Reserve Bank of India (RBI) will announce the monetary policy on Friday at 10 am, which is likely to affect the sentiment. The banking, financial services & insurance (BFSI) sectors were already sharply retraced before the policy. Nifty, which closed above the upper Bollinger bands, shows the overextended rally. It needs to retrace back into the bands in the next two to three days. After a five per cent rally, with an indecisive candle in place, it is time to be cautious.
NIFTY DERIVATIVES:
Nifty Futures gained 509.60 points or 3.23 per cent during the last five trading sessions. It rallied by 840 points or 5.42 per cent from the low of July 28. This extraordinary rally in just seven trading sessions on low volume is giving a sense of doubt. The open interest is rising for the past five days. Today, the open interest has reached the highest level after June 15. The put-call ratio (PCR) also reached the extreme level and shows that the possible swing high is in place. This is the highest PCR after March series. The next weekly expiry's PCR is also at the highest level of 1.42. This is an extreme of PCR. The at-the-money (ATM) implied volatility of monthly options is at 10.585. India VIX closed at 12.87, which is almost at the previous week's close.
For the next weekly expiry, the total call open interest is at 3,78,550 while the total put open interest is at 5,39,514. At-the-money strike calls have the highest open interest of 56,333, followed by 16,500 strikes with 34,658. The 16,400 strikes also have an open interest of 31,225. On the put side, at-the-money strike of 16,300 have an open interest of 50,670, followed by 16,200 strikes with 48,144 OI. The 16,000 strike also has an open interest of 47,248. There is a huge short build-up in 16,350 to 16,650 strike calls. The 16,550 strikes open interest rose by 510 per cent. From 16,000 to 16,300 strikes calls seen the long build-up. On the put side, a short build-up was seen from 15,950 to 16,650 strikes. The 16,350 strikes have seen an increase of 683 per cent in the OI. For the next weekly expiry, Max Pain is at 16,250, and the VWAP is at 16,288.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
PIRAMAL ENTERPRISES LTD ..........BUY .......... CMP Rs2601.15
BSE Code : 500302
Target 1: Rs 2,860
Target 2 : Rs 2,900
Stoploss : Rs 2,400 (CLS)
Current Observation:
•Piramal Enterprises is a well-diversified company, having interests in pharma and financial services. The financial services wing contributes 55 per cent of the revenue, with a loan book of Rs 44,668 crore. It focusses on wholesale lending with a loan book of Rs 39,365 crore. Its pharma vertical has an EBITDA margin of 22 per cent. It manufactures complex hospital generics and consumer healthcare products. It has a joint venture with Allergan, which is a market leader in ophthalmology.
• Technically, the stock broke the five-week flat base with an above-average volume. Its relative price strength has improved to 60 and is above the prior swing, which shows that the trend is picking up. The stock is trading 15 per cent above the 50-DMA and 48 per cent above the 200-DMA. It took support at a 10-weekly average in the recent consolidation. The daily MACD is showing bullish momentum. The Elder impulse system and Pring’s KST have given a buy signal. The stock is well above the anchored VWAP support. Besides, the RSI is in a strong bullish zone.
• As the stock is above the prior pivot, it shows good technical strength. As long as it trades above Rs 2,521, it's a positive sign. The short to medium target is placed at Rs 2,860 - Rs 2,900. Maintain a stoploss at Rs 2,400.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Rupa & Company Ltd at Rs 496.05 in issue no. 41 (dated August 02, 2021). Post our recommendation, the stock moved higher in line with our expectations and went onto touch the level of around Rs 550. We had given a ‘book profit’ message at the level of Rs 535 via our SMS service on August 02, 2021. Thus, investors, who had taken positions according to this strategy, would have made a decent profit.