Technical Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE SPOT NIFTY :
After four days of decline, Nifty closed higher with a surge in defensive stocks. Nifty opened with a gap-down and recovered smartly by 248 points from the day's low. Finally, it ended with a 0.74 per cent gain with the support of IT and pharma stocks. In the last hour of Thursday's session, the rally of banking stocks also helped Nifty to close higher. It formed a bullish candle and usually, a bullish engulfing candle is a signal for an upside move. However, the index is trading near its previous week's low. To avoid bearish signals, it must close at least above 16,584 or 16,614. Today, it opened below the 20-DMA and took support. The 200-DMA is in a downtrend. At the same time, the positivity did not attract a higher volume. Since May 13, the swings have become very shorter and are limited to 3-4 days.
On a 75-minute chart, the MACD has given a buy signal while Nifty closed above the moving average ribbon. A move above 16,500 will be a short-term positive for Nifty. Interestingly, Nifty has consumed more time for the current swing. The current swing is already 19 days while the prior downswing consumed 26 sessions to fall 13 per cent. Earlier, the upswing consumed just 18 sessions to move 15.6 per cent higher. However, now, even after 19 sessions, the current swing just moves 4.5 per cent higher from the bottom. This shows that the bulls do not have a dominant force to bounce above the 50-DMA. For now, the biggest task for the index is to cross the 50-DMA resistance at 16,809, which is also near the last week's high. The short-term trend indicator 20-DMA is in an uptrend but the contracting Bollinger Bands indicate that the consolidation will continue. The RSI is still looking sideways while the MACD histogram has not inched higher, which indicates the lack of momentum. As the weekend approaches, it is better to wait for the next week for a directional move.
NIFTY DERIVATIVES: Nifty futures lost 136.2 points or 0.82 per cent since the last weekly expiry. However, the index has formed a bullish engulfing candle on Thursday, but the volume is lower than the previous day. Barring Wednesday, volumes are below average. The open interest is up by 5.34 per cent on a 0.74 per cent gain, which indicates that the longs were built up. For the monthly expiry, the put-call ratio (PCR) is at 1.3 while for the next weekly expiry, the PCR is at 1.18 which indicates slight positivity. The at-the-money strike implied volatility for monthly options is at 17.6, slightly declined by 0.8, and even for the next weekly expiry, IV is at 17.1. India VIX also declined 5.80per cent since the last week's expiry to 19.14.
The total call open interest is 6,00,661 while the total put open interest is 7,10,847. On the call side, the 17,000 strike has the highest open interest of 56,505, followed by 16,500 strike with 50,348 OI. And the 16,900 and 16,600 strikes also have significant OI above 32,000. On the put side, the 16,200 strike has an open interest of 59,179, followed by 16,300 strikes with 46,951 OI. Currently, Max Pain is at 16,400 while VWAP is at 16,416.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
BHARAT DYNAMICS LTD. ........... BUY .......... CMP ₹ 818.15
BSE Code ...... 541143
Target 1 : ₹ 913
Target 2 : ₹ 1,103
Stoploss : ₹ 750 (CLS)
✓ Current Observation: Bharat Dynamics Limited (BDL) is a public sector undertaking under the Ministry of Defence, Government of India, to be the manufacturing base for guided missile systems & allied equipment for the Indian Armed Forces. BDL has been working in collaboration with DRDO and foreign original equipment manufacturers (OEMs) for the manufacturing & supply of various missiles as well as allied equipment to the Indian Armed Forces.
✓ Technically, the stock has been forming a stage-2 cup formation for the last seven weeks. Currently, the stock is trading at a new weekly closing high. On the daily chart, it is above the 61.8 per cent retracement level of the prior swing. The stock is trading 63 per cent above the 200-DMA and 12.52 per cent above the 50-DMA. The short and long-term moving averages are in an uptrend. The moving average ribbon is also trending up. The stock also meets the CANSLIM characteristics. It has an EPS Rank of 81, which is a good score, indicating consistency in earnings. The relative price strength (RS) rating of 91, which is great, indicates the outperformance as compared to other stocks. Buyer demand at A+ is evident from the recent demand for the stock. The master score of A is the best. Overall, the stock has great fundamentals and technical strength to stay in the momentum. Buy this stock between the range of Rs 800 and Rs 845. Maintain a stop-loss at Rs 750. The short-term target is Rs 913 while the medium-term target is Rs 1,103.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of KEI Industries Ltd at Rs 1,302.25 in issue no. 33 (dated June 06, 2022). Post our recommendation, it traded higher and hit the swing high at Rs 1,377.35. After a nominal correction, the stock is trading near our recommended price and is expected to remain bullish. The technical parameters indicate strong strength in the stock and thus, we recommend HOLD.