Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :The geopolitical tensions that are getting escalated between Russia and Ukraine have proved to be the most dominant external factor impacting the global equities negatively from a sentimental standpoint. However, the equities across the globe tried to find a base for themselves along with making a scramble to find at least a short-term bottom for them. Indian Nifty was no exception as it successfully defended double bottom support near 16,410 by keep- ing its head above this point. As compared to Wednesday’s close, the headline index closed on Thursday with a net loss of 107.90 points.
From a technical perspective, the most important thing that the markets have been able to do was to crawl back and maintain their head above 16,400 levels on a closing basis. In the previous note, it was mentioned that Nifty had broken down from a bearish descend- ing triangle; this breakdown had come with a gap on the downside. However, this had also come along with a bullish divergence on the RSI and there were greater chances of Nifty pulling itself back. The pullback was seen but the markets found the resistance at the lower edge of the descending triangle, which it had violated. In other words, the support had successfully turned itself into strong resistance.
So, we can fairly say, at least as of now that Nifty, not only averted structural damage following a breakdown from the bearish descend- ing triangle but it has also, kept its head above 16,400 levels while holding the important double bottom support.
While Nifty continues to trade below all the three key moving averages, it has created a trading range between 16,400 and 16,900 levels. The zone of 16,900-17,000 is set to pose a stiff resistance in the event of any technical pullback happening.
The pattern analysis shows that while Nifty has broken down from a bearish descending triangle, it averted any further decline and the index also held as well as defended the double bottom support at 16,400 levels. It is seen trading between 16,400 and 16,900 levels; any violation or a slip below 16,400 will invite incremental weakness in the markets. Besides, a large bearish engulfing candle has also emerged. Since this bearish engulfing candle has appeared, following a decline and near pattern support, it may act as a potential reversal point. This will, however, need confirmation, going ahead from here.
In the coming days, the price action of Nifty against the levels of 16,400 will be crucial. Breaching this level on the downside will mean violating double bottom support along with indicating an invitation to incremental weakness in the markets.
From the sectoral standpoint, the economic sanctions on Russia have led to a massive rally in industrial metals. We have had this effect in the Indian markets as well. We will continue to see metals as well as oil & gas space remaining strong and relatively outperforming the broader markets. Apart from this, defensive spaces like IT, consump- tion, and FMCG pockets are also expected to do better. Overall, while Nifty is largely expected to remain in a defined range unless a fresh set of negatives are there to be dealt with, its behaviour vis-Ã -vis the levels of 16,400, will be crucial to watch.
NIFTY DERIVATIVES:
While the weekly options expiry took place, it remained very much on the anticipated lines. While heavy call writing was witnessed at the strikes of 16,700 and higher, Nifty failed to move past this point. On the other hand, the maximum accumulation of the Put OI was seen at 16,500 from the beginning; it continued to remain at the highest point at this strike level, and this helped the index in avoiding any dip below this point.
For the coming days, the options data continue to define the likely trading range for Nifty between 16,500 and 17,000 levels as indicated by the highest Put & Call OI at these levels, respectively. Additionally, high Put writing was also seen at 17,600 levels, which means that if things remain stable on the external front, some techni- cal pullback in the markets can be expected.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
AMBIKA COTTON MILLS LTD........... BUY ............ CMP ₹ 2,422.00
BSE Code ...... 531978
Target 1 : ₹ 2,550
Target 2 : ₹ 2,650
Stoploss : ₹ 2,320 (CLS)
â—¼ Current Observation: Ambika Cotton Mills Ltd is a manufacturer of cotton yarn. The company’s business includes manufacturing shirts/knitwear products both in the domestic as well as international markets.
â—¼ On the weekly timeframe, the stock is forming a 3IB pattern, which signifies a smaller trading range and contraction in the volatility. Usually, a period of contraction in volatility is followed by periods of high volatility when the stock takes a directional bias. It offers favourable risk-to-reward ratio at the current levels.
â—¼ Moreover, the stock is above its 10-week, 30-week, and 50-week moving average. In addition, all these moving averages are in the desired sequence and in a rising trajectory. The 14-period weekly RSI is placed above 60, which indicates strong strength in the stock.
â—¼ Despite the bad sentiment of the market, the stock has not fallen more than 50 per cent of its sizeable bullish candle. Thus, the stock’s strength is pretty strong. Along with this, it has delivered about 25 per cent returns to its shareholders on a YTD basis and also, outperformed the broader market by a huge margin.
â—¼Considering the above points, the stock is expected to test the levels of Rs 2,550, followed by Rs 2,650. However, due to uncertainty in the global market, it is advisable to maintain a stop-loss at Rs 2,320, which is a prior swing low.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Avenue Supermarts Ltd at Rs 4,022.45 in issue no. 19 (dated February 28, 2022). As per our expectations, the stock jumped from its support and hit our recommended target in just one day! We had given a ‘BOOK PROFIT’ message at the level of Rs 4,200.70 via our SMS service on February 25, 2022. Thus, investors, who had taken positions according to this strategy, would have made a decent profit.