Technical Analysis
TECHNICAL RECOMMENDATION
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : A decline of more than 300 points in just two hours has given early signs of the current trend's end!
On August 4, Nifty opened with a positive gap and oscillated in the range of 329 points. It was the highest intraday daily range in recent times. At the end of the day, though Nifty recouped the bulk of its losses yet formed a hanging man candle.
Though it oscillated in the highest range, the index did not even test the shorter periods average of 8-EMA. It still appeared strong on a closing basis. The MACD histogram declined for the second consecutive day. With increased volatility, the higher volume indicates that the index is near the swing high. All the rallies since last October's high are with lower volume, and the declines attracted more volume. We believe that generally, low volumes are not trustworthy. The broader market breadth is negative, and only the defensive pharma and IT sectors protected the index from a negative close. These two sector indices improved the relative performance and have a stronger momentum compared to the broader market.
Not a single indicator is giving bearish signals. Only the price is moving mischievously for the last four days. We may get clear signals on August 5 (Friday). A negative close will give us the first signs of a reversal of the trend. In fact, the current trend is already over-extended. The exhaustion needs to get a confirmation for bearish implications. The weekly close may give some clarity on the trend continuation. Only a close below the zone of 17,040-100 will give a reversal signal. It's better to be with the trend as long as it forms a higher high bar.
NIFTY DERIVATIVES:
Nifty futures gained 414.80 points or 2.44 per cent since the last weekly expiry. Though it escaped a distribution day by declining just 0.21 per cent, the massive volume indicates that there was unwinding taking place in the market. On a small decline day, the open interest increased by 5.59 per cent. The put-call ratio (PCR) stands at 1.37 for the monthly series while for the next weekly expiry, PCR is at 0.99. The volatility also increased during the week. India VIX climbed 16.36 per cent in the last four days and 13.19 per cent since the last weekly expiry. The implied volatility (IV) increased to 18.15 from 14.31. This shows that the coming days are going to be highly volatile to trade
For the next weekly expiry, the total call open interest is at 6,97,375 while the total put open interest is at 6,87,833. On the call side, the 18,000 strike has the highest open interest of 64,950, followed by 17,500 strikes with 64,351 OI. The 17,600 strike has an open interest of 46,385. On the put side, the 17,000 strike has the highest open interest of 64,265, followed by 17,300 strikes with 42,032 OI. The 17,200 strike also has a significantly high open interest of 33,250. Across the strikes, the call selling has been witnessed. All the strikes have witnessed a short built-up. The 17,450 strike saw a 319 per cent increase in the open interest. On the put side, a long built-up was seen from 17,750 to 17,150 strikes. The 17,450-strike has seen the highest increase in OI at 455 per cent. The derivatives data shows that Max Pain is at 17,300 while VWAP stands at 17,348.
STOCK STRATEGY
ADANI POWER LTD. ............. BUY ............ CMP ₹347.10
BSE Code : 533096
Target 1 : ₹380
Target 2 : ₹414
Stoploss : ₹325 (CLS)
• Current Observation: Adani Power Limited, a part of the diversified Adani Group, is India's largest private sector thermal power generator. The company has a power generation capacity of 12,450 MW comprising thermal power plants in Gujarat, Maharashtra, Karnataka, Rajasthan, and Chhattisgarh along with 40 MW solar power project in Gujarat. The company has another 1,600 MW capacity, which is in various stages of construction. It had achieved a plant load factor of 70 per cent last year. It has the capacity to handle 49 MMTPA coal and six MMTPA fly ashes.
• Technically, the stock has broken out of a nine-week cup pattern of Stage-2 with above-average volume. The stock is trading 87 per cent above the 200-DMA and 20.45 per cent above the 50-DMA. The 50-weekly moving average acted as strong support in the recent decline. As the stock is trading above the prior pivot, it is also above the Anchored VWAP resistance. The weekly MACD has given a fresh buy signal. The 20-period RSI is in a strong bullish zone. The ADX (53.93) shows strong trend strength. The Elder Impulse System has formed a series of bullish bars. The RRG Relative Strength ratio is strongly at 134.
• In short, the stock has broken out of a base. Accumulate the stock above Rs 344-Rs 355. Maintain a stop-loss at Rs 325. The short-term target is placed at Rs 380 while the medium-term to long-term target stands at Rs 414.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Federal Bank Ltd at Rs 107.35 in issue no. 41 (dated July 28, 2022). Post our recommendation, the stock hit a swing high of Rs 111.95, which is over 4 per cent from our recommended price. However, it faced nominal profit booking at higher levels and has corrected slightly. The technical parameters are intact, and the stock trades above all its key moving averages. Moreover, the strength of the stock is good. Thus, we recommend HOLD.