Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :
The benchmark indices closed with small gains. With the help of global markets as well as the IT sector rally, the frontline index was able to close with gains of 27 points or 0.16 per cent and settled at 17,248.40.
Nifty IT index surged 1.18 per cent while the infra index climbed 0.11 per cent. The media index turned out to be the top loser with 1.77 per cent. The other indices ended with less than 1 per cent loss. The negative market breadth is a major concern for the time being.
The benchmark index Nifty snapped its four consec- utive days of decline with a small gain. After forming a Dragonfly Doji pattern on the last weekly expiry, it got bearish confirmations. Three consecutive bearish candles at the swing high level have given weaker signals for the market. Every effort to rise has been utilised as a selling opportunity. Nifty declined below 20-week moving aver- age decisively and formed a dark cloud cover as of date.
During the week, Nifty declined 262.90 points or 1.50 per cent. This is an indication of a weaker market condition. For the past four sessions, it has sustained below the 20-DMA while the 50-DMA is in a downtrend. Today's gap-up opening did not sustain even for an hour and declined sharply. Currently, it holds two distribution days. In the zone of 17,184- 225, Nifty made three lows and it will act as a support for now. Closing below this zone means a bearish engulfing on the weekly chart.
Nifty is moving in a rhythm or sequence of two weeks of decline and two weeks of rising pattern in the previous eight weeks. In any case, a close below 17,544 means that there is a probability of another week of decline. On a 75-minute chart, the histogram shows a decline in the bearish momentum, as the last three days of price action are limited to the 17,376-17,184 zone. A move out of this zone will lead to an impulsive move. The overall trend is negative as Nifty is moving in a downward channel. Better avoid aggressive positions on either side, as the market is undergoing a complex correction.
NIFTY DERIVATIVES:
Nifty Futures has declined 221.35 points or 1.26 per cent since the last weekly expiry or in the last five sessions. During the week, the volumes were above average, indicating the market's selling pressure presence. The open interest was also higher in the declining market, which indicates short build-ups. On a positive day, the open interest declined by 5.3 per cent. The put-call ratio (PCR) is constantly above 1.35. For the next weekly expiry, the PCR is at 0.58, which shows a limited downside from now. The implied volatility is at 17.08, whereas the 30-day average volatility is at 18. Currently, the IV percentile is at 51.59, which means Nifty traded over 51.59 per cent of the time at the current volatility. On a weekly expiry day, VIX cooled off by 7.68 per cent and settled at 15.89.
The total call open interest is at 7,72,094 while the total put open inter- est is at 4,46,984. The 17,300 strike has the maximum call open interest of 71,466, followed by 17,400 strikes of 71,007 OI. The 17,500 strike also has a higher open interest of 56,253. Deep-out-of-the-money strike 18,000 strike also has a higher open interest of 64,999, which is one of the highest increases in OI. On the put side, at-the-money strike, 17,300 has the highest open interest of 48,633, followed by 17,200 strikes with 47,580 OI. On both sides, call and put selling are likely to be witnessed for the next week. This may lead to a highly volatile week. The 17,300 and 17,200 strikes saw OI increase by over 360 per cent each. On the put side, the same strikes saw a 491 per cent and a 435 per cent increase in the open interest, respectively. For the next weekly expiry, Max Pain is at 17,300, and the VWAP is at 17,248.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
LG BALAKRISHNAN & BROS LTD ​ ............ BUY ....... CMP Rs 618
BSE Code :500250
Target 1 : Rs 665
Target 2 : Rs 690
Stoploss : Rs 580 (CLS)
•LG Balakrishnan & Bros Ltd (LGB): is a leading player in transmission products with its automotive timing and drive chains, sprockets, auto tensioners, guides, fine blanked components, precision machined parts, belts & rubber products. It has 19 state-of-the-art manufacturing plants in India along with one in the United States. The company commands an unrivalled domestic OEM market share in India and a good presence in the worldwide OEM market.
• Technically, the stock has broken out of a 30-day cup pattern with a massive volume. The stock, from a technical standpoint, is comfortably placed above its key moving averages of around 16.53 per cent as well as 48 per cent from 50-DMA and 200-DMA, respectively. It has recently broken out of a base in its weekly chart and is trading around 5 per cent from the pivot point, which is the ideal buying range for a stock. The relative price strength is decently at 70. It is also meeting the CANSLIM characteristics of investing. Mansfield’s relative strength indicator is at 2.27, showing a strong outperformance compared to the broader market. The weekly MACD has given a fresh buy signal and the RSI is in a strong bullish zone. The ADX (39.99) shows a solid strength in the trend, which is trading above the VWAP and the anchored VWAP resistance. Pring's KST has also given a fresh buy signal.
• In short, the stock is in a strong uptrend and has registered a fresh bullish breakout. Buy this stock at the current market price. It can test Rs 665 in the next two weeks. Maintain a stop-loss at Rs 580. Above Rs 665, it can test Rs 690 in the medium-term.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Mayur Uniquoters Ltd at Rs 580 in issue no. 08 (dated December 13, 2021). Post our recommendation, the stock moved higher in line with our expectations and went on to touch the level of around Rs 626.90. We had given a ‘Book Profit’ message at the level of Rs 622 via our SMS service on December 10, 2021. Thus, investors, who had taken positions according to this strategy, would have made a decent profit.