Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : This week, Nifty consolidated with huge volatility and lost about 64.3 points at the end of the weekly expiry. After a decent gap-up on Monday, the benchmark index was not able to sustain above its 100-DMA and fell sharply thereafter. It formed a bearish engulfing pattern on the technical chart, which was an alarming sign of bearishness. However, the index found strong support in the form of its 200-DMA. From Tuesday’s low of 17,006.30, the stock bounced back about 300 odd points. Thus, the level of 17,000 acted as a significant support level for Nifty. 

Interestingly, on the day of the expiry, the index opened with an unexpectedly higher gap-down; however, the opening level also turned out to be the low of the day as there was a difference of only three odd points. From the low of the day, the index saw a smart upside recovery in the early-mid part of the session but later on, it witnessed a roller-coaster ride amid weekly index options expiry and finally, closed on a slightly negative note at 17,222.75. Meanwhile, on the daily chart, it had formed a positive candle carrying minor upper shadow. Volatility has been reflected in the form of India VIX, which surged over 5.83 per cent during the week. On the day of the expiry, the market was primarily supported by Nifty Media, which surged nearly 6 per cent while sectors such as auto and financials were weak.

As discussed earlier, the 100-DMA proved to be strong resistance from where Nifty witnessed a correction. Thus, the level of 17,350 shall act as a strong resistance level, which is also its 100-DMA level. Next in line is the level of 17,442, which was the high point of this week, followed by 17,639, which is its prior swing high. On the downside, the level of 17,094 shall act as the first line of defence, followed by the 17,000 level of 200-DMA. If 200-DMA is breached, the index can see a strong downfall thereafter. However, with such strong reactions seen at the lower as well as the higher levels, Nifty is trapped in a tough fight between the bulls and the bears. 

Overall, we expect the benchmark index to remain in a range of 17,000-17,450 as a breakout on either side of the range would result in a trending move. 

NIFTY DERIVATIVES: Nifty Futures lost about 107 points this week and traded with huge volatility. Since its week’s high of Rs 17,464.40, it has fallen over 250-odd points, demonstrating short build-up at higher levels. On the day of the weekly expiry, Nifty Futures closed at 17,215, down by 0.33 per cent. Interestingly, it is trading with a discount of about 8 points to its spot price. For the monthly expiry, PCR stands at 0.96. It indicates a slightly bearish sentiment among the market players, which has drastically come down from 1.49. This indicates that more call writing has been done at higher levels; thus, pulling the index down. On the day of the weekly expiry, India VIX crashed about 3.31 per cent and is just below the 24-mark. 

For the March monthly expiry, the total call open interest stood at 12,69,962 while the open interest on puts is 12,25,023. The 18,000- call option continues to have the highest open interest of about 1,04,531. It is followed by the 17,500 strike, which has about 80,493 contracts outstanding. On the put side, coincidently, the strikes of 16,500 and 17,000 have nearly the same open interest of about 87,300. Interestingly, straddles have been created in huge quantity at 17,200 strikes. The total premium of the straddle is around Rs 418, which means that the market participants are expecting the index to swing in the range of 16,800 to 17,600 for the next few days. 

Considering the fact that the index remained range-bound this week, it is likely to trade with a lot of volatility. Thus, traders can expect a wide range of 16,500 and 18,000 for the next week. For March expiry, Max Pain is at 17,100 while VWAP stands at 17,221.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY 

KEI INDUSTRIES LTD. ............ BUY ........ CMP ₹ 1,199.90 

BSE Code : 517569
Target 1 : ₹ 1,325
Target 2 : ₹ 1,360
Stoploss : ₹ 1,074(CLS)

✓ Current Observation: KEI Industries Limited is engaged in the manufacturing & marketing of power cables for retail and institutional segments.
✓ Technically, the stock has registered a breakout above the downward sloping trendline, which was formed by connecting the swing high from December 06, 2021, signalling the resumption of an upmove. Interestingly, the breakout is supported by strong volume and a sizeable bullish candle. Volume for the day was above the 50-day average volume, highlighting larger participation in the direction of the trend.
✓ As the stock is trading near its all-time high level, it is trading above its short and long-term moving averages.
✓ The leading indicator i.e. the 14-period RSI has marked a fresh 14-period high; it’s above the 60-mark and pointing northwards, which thus, supports the positive bias. The daily MACD is seen sustaining above its nine-period average and hence, validates positive bias in the stock.
✓ The +DMI is above the -DMI and ADX. An uptick in ADX is an indication of improvement in the trend strength. The Elder Impulse System as well as Pring’s KST shows a strong bullish signal.
✓ In a nutshell, the stock has registered a breakout of downward trendline along with volume confirmation. The stock can touch the levels of Rs 1,325, followed by Rs 1,360 and one can place stop-loss at Rs 1,074. 

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Coromandel International Ltd at Rs 849.95 in issue no. 22 (dated March 21, 2022). This week, the market consolidated amid volatility. The stock faced resistance at higher levels and plunged below our recommended buying level. However, it is trading near the strong support level at its 200-DMA. Moreover, the technical parameters have not turned bearish. Thus, we recommend HOLD.