Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : Nifty closed above the 20-weekly average after almost 13 weeks and formed the strongest bullish candle. The weekly RSI has broken out of the falling wedge pattern, which is an indication of bullish strength. Nifty gained over 645 points or 4.04 per cent during the last five days of trading. It faced resistance at the upward channel supply line. It opened with a huge positive gap on Wednesday but failed to sustain at higher levels. 

For the last two days, the index has been hovering around the level of 16,600 and formed an outside bar. As it is still at the channel resistance line, it is better to wait for a breakout or a reversal. The current upswing is 24 session-old, which rallied 1,424 points or 9.38 per cent from June 17 lows. Earlier, the longest swing was of 27 days, which rallied about 15.4 per cent in the month of May. The 100-day exponential MA, which is on an uptrend and currently at 16,437, may act as major support. The 100-DMA is also acting as support for the last two days. It is currently at 16,525 and is acting as immediate support. Nifty can change its direction towards the downside only below this level. 

Most importantly, the index closed above Bollinger Bands, which is an indication of an overextension of the trend. During the current major downtrend, Nifty never extended beyond Bollinger Bands. Hence, this phenomenon is giving perplexing signals to the traders, who are left to wonder whether this is a dead cat bounce or a reversal of the trend! Given the fact that we have seen a strong closing, no indicator shows a negative bias. On the other side, the rally is extended and is at a crucial resistance. So, it is better to have a light position or book profit and sit on the sidelines for the time being. 

NIFTY DERIVATIVES: Nifty futures rallied 655 points or 4.1 per cent since the last weekly expiry. It traded with volatility near the resistance line. The volume recorded was below average. Barring Wednesday, all the days recorded very low volume. This rise in low volume is creating suspicion about the continuation of the rally. 

The open interest, which climbed 10.2 per cent, is an indication of a long built-up. On a weekly expiry day, the implied volatility has declined to 15.37. Even India VIX slipped to the 16.86 level, which is the lowest since January this year. During the last five days, VIX declined 8.08 per cent from 18.34. The put-call ratio (PCR) is currently at 1.33, which is near the swing high. Meanwhile, Nifty futures’ prior high stood at 16,790. 

For the monthly expiry, the total call open interest is at 9,03,460 while the total put open interest is at 11,98,144. The out-of-themoney (OTM) 17,000 has the highest open interest of 89,109, followed by in-the-money (ITM) strike 16,500 with 68,219 OI. The 16,600 also has a high open interest of 59,189. On the put side, the 16,500 strike has the highest open interest of 94,322, followed by the deep-out-of-the-money strike of 16,000 with 90,744 OI. On the call side, barring 16,250, all strikes witnessed long built-up. The 16,850 strikes saw a 198.7 per cent rise in the OI. On the put side, all the strikes saw short built-up. The 16,650 strikes saw a 301.89 per cent rise in the short built-up. The derivative data shows that Max Pain is at 16,500 while VWAP is at 16,565.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY 

HINDUSTAN AERONAUTICS LTD ........... BUY .......... CMP ₹ 1,847.25 

BSE Code : 541154
Target 1 : ₹ 2,000
Target 2 : ₹ 2,100
Stoploss : ₹ 1,770(CLS)

✓  Current Observation: Hindustan Aeronautics Limited (HAL) is the largest defence public sector undertaking. It has 20 production divisions and ten research & development (R&D) centres across India. It has the capability of designing as well as developing platforms, aero-engines, systems & manufacturing aircraft, helicopters, engines, and systems. The company also has a capacity for maintenance, repair & overhaul (MRO) of aircraft and engines.
✓  After four weeks of counter-trend consolidation, the stock is bouncing towards the prior pivot. Volumes recorded have been above-average for the past three days. The stock is moving in an upward channel. It is trading above all the key moving averages. It is trading 4.25 per cent above the 20-DMA and 3.22 per cent above the 50-DMA. Its relative momentum is above 100 and shows an improvement. The KST and the TSI indicators have given a fresh buy signal. It is above the Anchored VWAP. The MACD line is above the zero line while the histogram shows increased bullish momentum. The +DMI is above the -DMI, and ADX is rising. It shows a pickup in uptrend strength. Since March 2020, the stock is consistently making higher lows and moving in a clear staircase model. The stock is meeting CANSLIM characteristics. It has an EPS rank of 89, which is a good score thereby, indicating consistency in earnings. The relative price strength (RS) rating of 82, which is good, indicates its outperformance as compared to other stocks. The buyer demand at A- is evident from the stock's recent demand. A group rank of 8 indicates that it belongs to a strong industry group. It has a 25 per cent return on equity, which is good. The master score of A is the best. Overall, the stock has great fundamentals and technical strength to stay in momentum.
✓ The stock is gaining momentum and bouncing from the channel support. Buy this stock above Rs 1,850. Maintain a stop-loss at Rs 1,770. The short-term target is placed at Rs 2,000 while the medium-term target stands at Rs 2,100. 

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Himadri Speciality Chemical Ltd at Rs 88.20 in issue no. 39 (dated July 14, 2022). The stock faced nominal profit-booking during the week and traded lower. However, as per our expectations, Rs 82 level proved to be strong support for the stock, and it bounced back strong thereafter. It is currently trading above all the key moving averages while the technical parameters are not showing any strong bearishness. Thus, we recommend HOLD.