Technical Analysis

SPOT NIFTY :
It has been a disastrous week for Nifty as the benchmark index fell about 647 points or 3.64 per cent since the last weekly expiry. Since last Thursday, the index fell severely and hit a low of 16,837 on Tuesday. Nifty made a splendid recovery of about 440 points thereafter. However, this was met with a huge gap-down on Thursday and Nifty fell sharply towards the 16,850-level in the first hour of the trade. Nevertheless, it managed to rise from the ruins by recovering most of the points to end at 17,110. Thus, the index found strong support at 16,800 and bounced back sharply. This support is 78.60 per cent Fibonacci retracement from the recent swing. Moreover, today’s candle is an inside pin bar candle. On the hourly timeframe, the index has formed a double bottom pattern while its neckline level stands at 17,310.

This week, Nifty plunged below its 20-DMA, 50-DMA, and 100-DMA. Moreover, with such a sharp fall, the fear of the index fall- ing below 200-DMA continues to mount. On the day of the expiry, Nifty slipped about 167.80 points or 0.97 per cent. It was supported majorly by Axis Bank and SBI, which surged over 2 per cent each. However, IT stocks were the top draggers as HCL Technologies, Wipro, and Tech Mahindra were found to be the three out of five top losing stocks of Nifty. However, a positive point to note is that Nifty PSU Bank was the top supporter among the sectoral index and has soared over 5 per cent during the day.

As discussed last week, Nifty is likely to test the support levels while the level of 17,200 was decisively breached and hit a low of 16,837. After some recovery, we found 16,837 to be a crucial support level for the next week. This is followed by 16,626, the 200-DMA of the index while the next is 16,410, which is the prior swing low. With Union Budget being around the corner, volatility is expected, and Nifty can go either way. In case of any short-covering, 17,310 will be a key level to watch out for as it is the breakout level of the double bottom pattern while the next to follow is the 50-DMA at 17,452. The psychological level of 17,500 will hold a major resistance thereafter. The clarity in the trend is likely to surface after the key Budget event.

NIFTY DERIVATIVES:
The futures made a strong comeback on expiry as it recovered about 248 points from its intraday low. However, Nifty Futures has fallen about 694.10 points or 3.89 per cent since last Thursday. With such a sharp fall, India VIX has surged about 18.43 per cent during the week to close at 21.07. Heading on to the first week of February, the PCR for the first weekly expiry stands at 0.65, indicating a bear- ish sentiment among the market participants.

For the weekly expiry of February 3, the total open interest on the call side stands at 5,61,473 while in the case of the put side, the total open interest is 3,65,934. The maximum open interest of 39,685 is found to be at 18,000 on the calls, followed by 17,000, which has 30,900 contracts outstanding. On the other hand, the 17,000 holds the highest open interest of 33,369 on the put side, followed by 16,500, which has the open interest of 29,297. Thus, with the 17,000 strikes heavily written, the market participants are expecting Nifty to trade sideways near 17,000. The combined premium of this straddle is around Rs 530, and thus, a range of 16,470-17,530 is widely a      nticipated. However, with the Union Budget being around the corner, the dynamics might change at any moment.

Thus, it would be a wise decision to keep the trading position low for the week. For February monthly expiry, the put side is heav- ily written, indicating a bullish view for the month. The total put open interest for February month is 4,56,643 while this number is 2,79,657 for the call side. The PCR for the month of February is 1.63 while VWAP is at 17,094.

TECHNICAL RECOMMENDATION

PEARL GLOBAL INDUSTRIES LIMITED ............ BUY ....... CMP Rs 565.00

BSE Code :532808
Target 1 :  Rs615
Target 2 : Rs630
Stoploss  : Rs 510  (CLS)

Current Observation:
•Pearl Global Industries Limited is engaged in the manufacturing and exporting of readymade garments.
• Technically, the stock has retested the breakout level of falling wedge- like pattern on December 20, 2021, and thereafter, witnessed over 68 per cent upside in just 18 trading sessions. After registering the high of Rs 532, it has witnessed a minor throwback. During the throwback phase, the volume activity was mostly below the 50-day average volume. Hence, it should be viewed as a routine decline after a robust move.
• On Thursday, the stock has given a bullish flag pattern breakout on the daily chart. This breakout was confirmed by a robust volume. Besides, the flag pole height is 143 points.
• As the stock is trading at its all-time high, all the trend indicators are hinting the uptrend to continue. The stock is trading above the long as well as the medium-term trend indicators, i.e. 200 and 50 DMA. The leading indicator i.e. the 14-period daily RSI is in a super bullish zone and has given a positive crossover. The daily MACD stays bullish as it is trading above its zero line and signal line.
• The trend strength indicator i.e. the average directional index (ADX) is at 38.25, which indicates strength. The +DI is much above the -DI. This structure is indicative of the bullish strength in the stock.
• In a nutshell, the stock has registered a bullish pattern breakout along with volume confirmation. Hence, one can accumulate this stock with a stop-loss of Rs 510 for a target of Rs 615, followed by Rs 630. 

REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Power Grid Corporation of India at Rs 214.60 in issue no. 14 (dated January 24, 2022). Post our recommendation, the stock moved higher as per our expectations and hit an all-time high of Rs 220.20. However, a slight correction was reflected in the stock thereafter due to bad market sentiment and thus, it slipped near our recommended level. The stock shows no major weakness as it still trades above all the key moving averages and tends to consolidate at a higher level. Thus, we recommend to HOLD the stock with a stop-loss of Rs 204.