Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY :

Nifty showed a dismal performance in the third week of January as it fell about 500 points or 2.473 per cent since the last weekly expiry. All was going well for Nifty as it formed two bullish candles after the last expiry and had hit a high of 18350. However, bad global cues weakened Nifty’s senti- ment as it tumbled about 593 points in just three days. The index formed a bearish engulfing pattern on Tuesday and rapidly fell towards the 18000 level. It continued to fall on the day of expiry and closed at 17757. The fall was so severe, that India VIX surged nearly 6.46 per cent since last Thursday. On Thursday, Power Grid Corp and Bharti Airtel emerged as the top gainers among Nifty stocks. It can be called a disappointing expiry, as despite Nifty moving higher initially, failed to hold on to its gains and fell sharply thereafter. On the day of weekly expiry, Nifty ended lower by 181 points or 1.01 per cent. With this, the fear on the downside has increased. Major contributor to the downfall has been Nifty IT and Nifty Pharma, which has fallen about 1.66 per cent each on the day of expiry. However, Nifty Metal continued to support the market and is up by 0.52 per cent.

Last week, we said 18342 will be a key level to watch out for. After hitting this level, Nifty saw a sharp fall towards 18210, followed by 18000. Nifty broke every support level and witnessed strong bearish sentiment. Considering the market mood, we find the key support level to be 17613 for next week, which is its prior swing low. The next support levels are 17500 which is a key psychological level followed by 17200. On the upside, 17943 will act as the first line of resistance, followed by 18000 and 18210, which is its prior swing high. However, more focus must be on the support levels as these are likely to be tested next week.

NIFTY DERIVATIVES:
Since last Thursday, Nifty Futures has fallen about 474 points or 2.59 per cent. It closed negative for the third consecutive day on Thursday and slipped about 0.90 per cent. As the monthly expiry approaches, we find that PCR has fallen drastically to 0.76, which was 1.66, a week ago. This shows the change in sentiment of the mar- ket participants, as more call options are written aggressively. Despite Nifty falling about a per cent on the day of the weekly expiry, India VIX ended marginally lower to close at 17.79.

For January monthly expiry, the total open interest on the call side stands at 13,15,925, while the total open interest on the put side is 9,99,183. The maximum open interest is found to be at 18,000 call options, which is about 1,53,342. The 18,500 is the next strike, which has about 1,17,509 contracts outstanding. The in-the-money 18,000 option on the put side holds the highest open interest of about 84,665 and is followed by 17,500, which has 67,897 open contracts. On Thursday, call options of 17,800, 17,900, and 18,000 were aggressively written. Thus, 18,000 will be tough resistance for Nifty. However, 17,500 will hold key support for the index in the coming week. Thus, a range of 17,500-18,000 is widely anticipated by the market participants. Nonetheless, this is subject to change as volatility has been on a rise, and there are good chances that the range might not sustain. Max Pain for January expiry stands at 17,900 while VWAP is at 17,825.

TECHNICAL RECOMMENDATION

POWER GRID CORPORATION OF INDIA LTD​ ............ BUY ....... CMP Rs 214.60

BSE Code :532898
Target 1 :  Rs226
Target 2 : Rs230
Stoploss  : Rs 204  (CLS)

• Current Observation: Power Grid Corporation is India’s principal electric power transmission company. The company is engaged in the transmission of bulk power across various states of India. It owns & operates 90 per cent of India’s interstate as well as inter-regional electric power transmission system. The company’s business segments include transmission, consultancy, telecom, and ULDC/RLDC.
• After registering the high of Rs 216.45, the stock has witnessed a minor consolidation, which is halted near the 50 per cent Fibonacci retracement level of its prior upward move and coincides with the 50-day EMA level.
•  During the consolidation phase, the stock has formed a symmetrical triangle pattern on the daily chart. Further, due to the narrow range, Bollinger Band has contracted significantly, which is an early sign of the explosive move.
•  On Thursday, the stock has given a breakout of the symmetrical triangle on the daily chart along with robust volume. With this, the stock closed above the upper Bollinger band level and started band walk, which is a bullish sign.
•  The stock is comfortably placed above its key moving averages i.e. around 6 per cent and 16 per cent from 50-day EMA as well as 200-day EMA, respectively. Interestingly, the daily RSI has also given a breakout of falling wedge patterns. Also, it surged above 60 mark and it is in the rising mode.
• Based on the above observations, we expect the stock to move higher from the current levels. Besides, as per the measure rule of the triangle pattern, the upside target is placed at Rs 226, followed by Rs 230. Maintain a stop-loss at Rs 204. 

REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Polycab India Ltd at Rs 2,685.95 in issue no. 13 (dated January 17, 2022). Post our recommendation, the stock moved higher as per our expectations and hit an all-time high of Rs 2,771.75. However, due to bad market sentiment, the stock came under selling pressure and retested the breakout level. From there, the stock has surged over 2 per cent and wit- nessed buying pressure at lower levels. Thus, we recommend to HOLD the stock with a stop-loss of Rs 2,500.