Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY :

Nifty has formed as many as four red candles in the last five trading sessions. After hitting a fresh lifetime high of 17,947.65, Nifty is forming lower highs. It declined 204.80 points or 1.15 per cent since last Thursday’s close. On a weekly chart, it is forming a dark cloud cover candlestick pattern.

In September, Nifty 50 has gained 485.95 points or 2.84 per cent, mak-ing the month, one of the best in the last decade. After taking support at the channel demand line for two days, Nifty has finally broken down the channel. The next immediate support is at 20-DMA of 17,530. The distance from the 20-DMA has declined to just 0.50 per cent. This support-breaking move is not a trend reversal sign. Unless the index forms a lower low and a lower high, we cannot assume a trend reversal. The recent swing low is at 17,326. Below this level, the index will form a lower low. As long as Nifty trades above this level, the consolidation will continue just as we expected. If there’s a break below 17,326, Nifty may bounce from the zone of 17,254 to form a lower high. During the consoli-dation, the index may experience serious volatility. As India VIX is already trading above the 18.5 level, any kind of spike will result in serious price swings in a shorter period. The RSI developed negative divergence, and it got confirmation of the bearish implications as it closed below the prior swing. The MACD line is below the signal line for the third consecutive day, and the histogram shows an increase in the bearish momentum. For the weekend, 17,576-17,530 is a critical support zone.

NIFTY DERIVATIVES:
Nifty Futures have declined by 214 points or 1.20 per cent in the last five sessions. For the last three sessions, the volume indicates a clear distribution. The rollovers are less than the last month and also, in the last three and six-month average. The put-call ratio (PCR) is at 1.45 for October series. The next week's PCR is at 0.64. At-the-money strikes implied volatility is at 16.74, which is much higher than the previous weeks. This indicates that the volatility is back to the above-normal level, and the option premiums have become expensive.

For the next weekly expiry, the total call open interest is at 6,12,254, and the total put open interest is at 3,92,286. The maximum call open interest is at 19,000 strikes, with an open interest of 65,204, followed by 17,700 strikes with 57,048 OI. Even the deep-out-of-the-money strike of 18,500 has an open interest of 48,398. The 18,000 strike also has a significant open interest of 46,720. On the put side, the maximum open interest is at 17,500 strikes with 34,782 OI, followed by 17,600 strikes with 33,751 OI. Deep-out-of-the-money strike, 17,000 has an open interest of 29,849. There is a huge call selling witnessed across all strikes. On the put side, a long build-up has been spotted. The 17,650 strikes saw a 485 per cent increase in the open interest, followed by 17,550 & 17,750 strikes, seen with an over 240 per cent increase in the open interest. On the put side, the 17,550 strikes witnessed a 199 per cent increase in the open interest. The 17,350 strikes open interest is up by 179 per cent. Max Pain for the next weekly expiry is at 17,700. Meanwhile, the VWAP is at 17,667. 

TECHNICAL RECOMMENDATION

STOCK STRATEGY

SUN PHARMACEUTICAL INDUSTRIES LTD. ..........BUY .......... CMP Rs 818.20

BSE Code : 524715
Target 1: Rs 875
Target 2 : Rs 900
Stoploss : Rs 775(CLS)

Current Observation:
•Sun Pharmaceutical Industries Ltd (Sun Pharma) is the fourth-largest speciality generic pharmaceutical company globally with revenue of over $4.5 billion. It has 40 manufacturing facilities across the world. The company manufactures and markets a large basket of pharmaceutical formulations, covering a broad spectrum of chronic & acute therapies. It includes generics, branded generics, speciality, complex or challenging to make technology-intensive products, over-the-counter (OTC), antiretrovirals (ARVs), active pharmaceutical ingredients (APIs), and intermediates.
• Technically, the stock has broken out of an 8-week flat base of stage-1. The stock is trading above all the key moving averages. It is 5.04 per cent above the 20-DMA and 6.68 per cent above the 50-DMA. Besides, all the moving averages are trending higher. It is also trading at a five-year high. After forming a rounding bottom for these five years, it is in a transition to stage-2. The volume during the week is higher than the base period. The weekly RSI is in a strong bullish zone. The MACD is above the signal line and the histogram shows that the bullish momentum is picking up. The daily MACD has given a fresh buy signal. The ADX (35.17) indicates that the trend is stronger. It is also above the anchored VWAP resistance. The Elder impulse system has given a buy signal on all timeframes. Pring's KST is about to give a buy signal.
•In short, the stock has registered a strong bullish breakout. A sustained move above Rs 804 is positive and it can test Rs 875 immediately while the medium-term target is placed at Rs 900. Maintain an initial stop-loss at Rs 775. 

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Birlasoft Ltd at Rs 439.85 in issue no. 49 (dated September 27, 2021). Post our recommendation, the stock has witnessed a minor correction along with low volume. Currently, the stock is hovering around the upward sloping trendline support, which coincides with the 50-day EMA level. However, we can expect to see a smart upmove if it closes above its 20-day EMA (418.60) level. We would advise our readers to hold this stock with a stop-loss of Rs 405 on a closing basis, as the stock is likely to move higher from the current levels.