Technicals

WHAT LIES AHEAD: NEAR-TERM PICTURE



SPOT NIFTY: Indian benchmark indices continued drowning with a sharp decline in NBFC stocks, which form a major part of the benchmarks. Further, the default by IL&FS, the infra development and finance company, dragged the sentiments down with many stakeholders like LIC and listed banks being asked to fund the company's bailout of Rs 91000 crore loan. Considering all this, the country lost the tag of Asia’s best stock market. The benchmark indices tumbled more than 2%, but the broader market indices underperformed badly, with the Mid-cap and Small-cap indices plunging 5.4% and 8%, respectively. Among the sectors, barring IT, all other sectors ended in the red, with Realty being hit the most with almost 11% loss.

Technically, Nifty hit below its crucial support zone of 19225- 19235, which is also a trend reversal level. However, it recovered every time on a closing basis and is now consolidating at the lower levels. Hence, if the provisional bottom is made, it would either continue to consolidate or bounce back. In case of a bounce due to short-covering, we hold 11145-11205 as the resistance levels, followed by 11310-11345. For now, we do not see immediate reversal. However, higher volumes and oscillators still tilted southward point to some more downside for now. Further, Nifty also breached its 100-day EMA support. Hence, in case Nifty continues to fall, we hold 10935- 10860 as the crucial support levels, below which 10780-10735 would act as supports.

NIFTY DERIVATIVE: The Indian Volatility Index (VIX), a gauge for market’s short term expectation of volatility, dipped about a per cent to 16.92. Nifty October 2018 future last price stood at 11,043 at a premium of 65.45 points over the spot closing of 10,977.5. Nifty November 2018 future last price stood at 11,080 at a premium of 102.45 point over the spot closing of 10,977.55. The Nifty Put-Call Ratio (PCR) Open Interest-wise stood at 1.05 for October month contract. Among Nifty calls, 11,500 strike price from the October month expiry was the most active Call. Among Nifty Puts, 11,000 strike price from the October month expiry was the most active Put. For the October series, the maximum OI outstanding for Puts was at 11,000 strike price, and that for Calls, it was at 11,500 strike price.

LEGEND:
EMA - Exponential Moving Average
MACD - Moving Average Convergence Divergence
RSI - Relative Strength Index

STOCK STRATEGY

VEDANTA LTD. ............... BUY ............... CMP Rs.240.40

BSE Code: 500295
Target 1: Rs.260 Target 2: Rs.267
Stoploss: Rs.226(CLS) 

Current Observation: The stock, after registering high of Rs 355.70 as on January 29, 2018, marked a sequence of lower tops and lower bottoms and marked a low of around Rs 200.65 in the month of July 2018.

Recently, the stock witnessed breakout of resistance trendline on the daily time frame chart along with robust volumes. Additionally, the stock formed a sizeable bullish candle on the breakout day, which adds strength to the breakout.

The stock is trading above its important short-term moving average, i.e. 20-day SMA, which is positive for the stock.

The daily 14-period RSI is trading in bullish zone.

The stock has strong support around the level of Rs 226 and the same can be maintained as a stop loss level.

On the upside, the stock has potential to test the levels of Rs 260, followed by Rs 267.

Conclusion: We expect the stock to continue its positive momentum and test the level of Rs 260 as it is the 38.2 per cent retracement level of the entire decline (Rs 355.70- 200.65) followed by Rs 267 in the short to medium term. Readers can maintain a stop loss of Rs 226 for this recommendation.

REVIEW OF STOCK STRATEGY

We had recommended to our readers buying the stock of Muthoot Finance Ltd at Rs 458.35 in issue no. 49 (dated September 24, 2018). Post our recommendation, the stock opened higher on the next day and continued its upmove to mark fresh high of around Rs 479. However, the fierce sell-off seen in the markets on Friday, September 21, 2018 dragged the stock lower and this resulted in the stock hitting the stop loss level for the trade. We had recommended our readers through our SMS service to exit the recommendation with a loss.