WHAT LIES AHEAD: NEAR-TERM PICTURE
SPOT NIFTY: The Indian stock market witnessed a horrible start to the week and witnessed high volatility in the next couple of days as market participants appeared cautious ahead of the US Fed monetary policy and the monthly expiry of futures and option contracts. On Thursday, the domestic market witnessed a cheerful start following strong close on the Wall Street as the Federal Open Market Committee (FOMC) kept its monetary policy stance unchanged as widely expected. However, the accompanying more dovish statement seemed to give the markets what was expected as it ruled out further gradual increases in the rates, stating that the committee will be patient. After having a cheerful start, the Nifty extended its gain and ended the January derivative series above the 10,800 mark. The Nifty after registering a high of 10,987 entered into a declining phase and halted its correction near the 38.2 per cent retracement level of the entire upmove off the October 2018 low of 10,005 to January high of 10,987. On Tuesday, Nifty formed a long-legged Doji-like candle pattern and, in the next trading which was quite volatile, Nifty managed to hold on to the low of Doji, which was placed near 10,584. On Thursday, the index formed a sizeable bullish candle and managed to close above its important moving averages, i.e. 50-day and 100-day moving averages. Going forward, the long term moving average, i.e. 200-day moving average which is placed at 10,843, is likely to act as an immediate resistance, followed by the major resistance at 10,987. On the downside, the level of 10,700 is likely to act as a strong support for the index. In the coming days, volatility is likely to remain elevated owing to the upcoming major event like Union Budget 2019.
NIFTY DERIVATIVES: The Indian Volatility Index (VIX), a gauge for market’s short term expectation of volatility, dipped by 4.09 per cent to end at 17.12. Nifty February 2019 future last price stood at 10,850.90 at a premium of 19.95 points over the spot closing of 10,830.95. Nifty March 2019 future last price stood at 10,874 at a premium of 43.05 point over the spot closing of 10,830.95. The Nifty Put-Call Ratio (PCR) Open Interest-wise stood at 1.37 for the February month contract. Among Nifty Calls, 11,000 strike price from the February month expiry was the most active Call. Among Nifty Puts, 10,700 strike price for the February month expiry was the most active Put. For the February series, the maximum OI outstanding for Puts was at 10,700 strike price, and that for Calls, it was at 11,000 strike price.
LEGEND:
EMA – Exponential Moving Average.
MACD – Moving Average Convergence Divergence
RSI – Relative Strength Index
STOCK STRATEGY
INFOSYS ................. BUY .......... CMP Rs.749.60
BSE Code: 500209
Target 1: Rs.820
Target 2: Rs.840
Stoploss: Rs.715(CLS)
Current Observation: On the weekly time frame, the stock, after registering all-time high, witnessed correction and the correction was arrested near its long term moving average, i.e. 50-week SMA. Thereafter, the stock started its upward journey and registered a high of Rs 751.30
At present, on the daily time frame, the stock had witness breakout of a flag pattern on January 31, 2019, which was supported 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 EMA, which is positive for the stock.The fast stochastic line is trading above its slow stochastic line, which suggests a bullish bias. The level of Rs 715 is likely to act as a strong support for the stock and this can be maintained as a stop loss, while on the upside, the stock is likely to touch the level of Rs 820, followed by Rs 840.
Conclusion: Considering the breakout of a flag pattern and the stock trading above its 20-day EMA, we recommend buying this stock for the target price of Rs 820, followed by Rs 840, with a stop loss at Rs 715 on a closing basis.
REVIEW OF STOCK STRATEGY
We had recommended buying the stock of Radico Khaitan at Rs 427 in Issue No. 14 (dated January 28, 2019). The scrip saw low volumes after our recommendation and is hovering around the trendline support. However, we can expect to see smart up moves if it closes above the Rs 425 level going ahead. Our suggestion would be to hold your position in the counter till next week. As we had suggested in our stock strategy, apply Rs 400 as a stop loss for this stock on a closing basis.