Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :
The domestic equity markets sud-denly went into the bear's grip. With todays' 143.60 points decline and the across the board selling has triggered alarm on long positions. The Nifty finally settled below psychological at 17873. Though it recovered 75 points from the bottom, it has registered a distribution day as the volume is higher. Only the metal index is able to close with a 0.36 per cent gain. The market breadth is negative as 1207 declines and only 787 advances.
The week began with a huge 123 points gap up and made a high of 18112. The long lower shadow can-dle shows that strong buying support emerged. But, after it made a high of 18112 it declined gradually, going below Monday's low and almost testing the 50-DMA. On a weekly chart, it formed a shooting star doji. Interestingly, the Nifty breaking down the bearish flag with higher cash volume is a bearish sign. As the index closed below the prior day's low for the second consecutive day and below the key trendline support, the weakness is clear. The bulls will get confidence after closing above 18113. The RSI also declined below 50 zone, and is forming lower tops, and lower bottoms, which is an indication of a downtrend. The negative movement indicator -DMI is moved above the +DMI, and the ADX (15.05) shows that trend has lost momentum and looks weak. The Mansfield Relative Strength shows the weaker trend. The Elders impulse system also shows the bearish tone present in the market. If the Nifty falls below 17734 on weekly closing, it may test 17500 in a sharper decline. Only above 18113 or a close above the prior day high will bring some positive strength into the market.
NIFTY DERIVATIVES:
The Nifty futures gained by 65.75 points or 0.37 per cent since the last weekly expiry. Today it declined by 110.5 points with above-aver-age volume. The open interest has increased by 7.35 per cent indicates shorts were built up in futures. The Put-Call Ratio (PCR) is at 1.05. For the next weekly expiry, the PCR is at 0.64 per cent, which indicates the limited downside. The At The Money (ATM) implied volatility (IV) is at 14.47. India VIX closed at 16.35, up by 0.29 per cent.
For the next week, the total call open interest is at 569449, and the total put interest is at 366316. The 18000 strike call has a maximum open interest of 59570, followed by a 18100 strike with 38,642. The 17900, 18200 and 18400 strikes also have a higher open interest of over 34,000. Interestingly the deep out of the money strike 18700 strike has an open interest of 39,483. On the Put side, the 17500 strike has an open interest of 29,875, followed by a 17400 strike with 28,212. Even the deep out of the money strike 17300 has an open interest of 27,438. The Max Pain is at 17900. The VWAP is at 17880.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
FORCE MOTORS LTD ...........BUY .......... CMP Rs 1,623.50
BSE Code :500033
Target 1: Rs 1,760
Target 2 : Rs 1,800
Stoploss : Rs 1,500 (CLS)
Current Observation:
•A Pune based fully vertically integrated automobile company, Force Motors is engaged in manufacturing light commercial vehicles, small commercial vehicles, Utility Vehicles, and Agricultural Tractors. It also manufactures high technology Automotive Aggregates. Its vehicles "Traveller" and "Trax" are the market leaders in the respective segments. The company also manufactures engines and axles for Mercedes Benz India. It also has a joint venture agreement with Rolls-Royce power systems AG to manufacture in and supply worldwide, the 10 and 12-cylinder and series 1600 engines.
• Technically, the stock is trading above the prior pivot, and the volumes are above the average in the current week. It has broken out of a 16-week cup and handle pattern too. The stock is trading above the key moving averages and is 10 per cent above the 50-DMA and 21 per cent above the 200-DMA. As the long consolidation for a period, the relative strength is moderately at 46. But, the Mansfield Relative Strength indicator moves much above the zero line, indicating out-performance compared to the broader market. The Weekly MACD has given a fresh buy signal.
• RSI is in a strong bullish zone. The ADX (30.73) shows a solid trend strength. The Elders impulse system has given a buy signal. The stock is also above the Anchored VWAP resistance. In short, the stock has registered a strong breakout with a higher volume indicates positive earnings for Q2. n A weekly close above Rs 1612 is positive for the stock, and it can test Rs 1760 and Rs 1800 in the short to medium term. Maintain a stop-loss at Rs 1500.