Technical Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY : Nifty is trading in the zone for the past 20 trading sessions. Except on April 16, it could not decisively move above the 11,761 level. Since August 2018, it has tested to move above that level several times. This hide and seek game will end very soon. The volatility is picking up since April 16. It is witnessing at least 100 point move every day. The ability to protect the 13-EMA in the past 20 trading sessions, except for two days, is another positive signal. With this narrow trading zone, the Bollinger Bands are contracted and any close below the 11,660 will lead to the 11,550 level once again. At the same time, the leading indicator RSI formed lower lows and lower highs with negative divergence. If the price closes below 11,669, the RSI may breach its recent low. This is also a negative signal for the Nifty. The MACD is still below the signal line. 

Another interesting observation is that the volumes are more on 'down' days as compared to 'up' days. There were eight down days in the last 11 trading sessions and these were all distribution days. The Williams Accumulation and Distribution indicator is also suggesting that the distribution is high at the resistance points and, at the same time, accumulation is taking place when it approaches the support. As there is no confidence in the market direction, the volatility persists and traders may not get clear signals on either side. As long as Nifty does not close above 11761 and sustains for at least two days, better avoid long positions. One can short on Nifty below 11669 with a stop loss of 11761 for the target of 11550. As the risk-reward ratio is not so convincing, it is better avoid any positional trading in Nifty.

NIFTY DERIVATIVES: Nifty futures lost 48.1 points in the last three trading sessions. In this truncated week, the volatility increased as there was no clear direction visible. Nifty formed another small body candle, which looked like an inside bar. As the Theta (time value) is very less and the market has not moved in any direction, the At the Money (ATM) and Out of the Money (OTM) options ended worthless in the weekly expiry. Bank Nifty ATM and OTM options too ended in a worthless manner. The open interest in Nifty rose by 2.25 per cent indicating the short build-up. The Put-Call Ratio (PCR) is at 1.19 per cent. In the first week of expiry in May, the rollovers were seen at 4.81 per cent. The highest open interest was seen for the next week in 11,800 strike call option at 16,17,375, up by 93,493 contracts. On the Put side, 11,700 saw the high open interest. All the OTM Call strikes have seen short build-up with higher open interest. Even on the Put side, short build-up for strikes from 11,200 to 12,200 was seen with increasing open interest. This indicates that the sideways action will continue even next week. The short straddle and strangle are the most optimal strategies in this sideways market. As per the available derivative data, the max pain is at 11,700. So, apply the neutral options strategies to get maximum returns

TECHNICAL RECOMMENDATION

STOCK STRATEGY

RELIANCE INDUSTRIES ......................... BUY ..................... CMP Rs. 1405.10

BSE Code ...... 500325
Target 1 .... Rs. 1465
Target 2 .... Rs. 1485
Stoploss ...Rs. 1370 (CLS) 

✓ Current Observation: The stock is consolidating for the last 32 trading sessions. It is trading decisively above the 200-DMA, 150-DMA and 50-DMA. During this consolidation phase, the stock tested the support or earlier breakout point at least four times. Now the price has reached resistance point for the third time.
✓ The indicators are suggesting that the probability of a range breakout towards the upside is high. The MACD indicator just crossed over the signal above the zero line. The histogram is suggesting that the momentum is picking up. 

✓ In the process of consolidation, the RSI never breached the 50 level. Whenever the RSI reached the 50 level, the bounce price is clearly visible. Now the RSI has breached the resistance line and moved into the bullish zone by crossing 60.
✓ The ADX has turning upside in the consolidation and it is much above the -DI. The +DI is also above the -DI and ADX, which indicates that the positive trend is likely to emerge.
✓ Buy this stock at Rs 1405.10 with a stop loss of Rs. 1370. The targets are open towards Rs. 1465-1485.

REVIEW OF STOCK STRATEGY

We had recommended buying the stock of Dr Reddy’s Laboratories at Rs 2930 in issue no. 27 (dated April 29, 2019). The stock remained in the range as the benchmark indices traded in a narrow range. However, the stock has the potential to scale higher. We remain bullish on the stock as it has witnessed a decent breakout of 12-week consolidation pattern. Hence, we would advise to hold this stock for the target of Rs 3100.