Technicals

WHAT LIES AHEAD : NEAR-TERM PICTURE

 

SPOT NIFTY : The Indian stock market, after commencing the week on a flat to positive note, gradually gathered pace and marked four-month high on Wednesday ahead of the RBI policy meet. On Thursday, bouts of volatility were seen in the initial part, however, once the RBI announced a rate cut of 25 bps, the market gained momentum, but in the end, profit-booking was seen, but it continued with its winning streak as it extended its upward march to the sixth straight session. On the global front, after a decent run-up on Wednesday, the US stocks ended with modest cuts as the markets digested a host of mixed earnings, while the nation’s trade deficit narrowed to $49.3 billion in the month of November, where analysts had been looking for a less constructive showing. After continuous struggle and facing supply around the 10,987 mark for about two months, Nifty on Wednesday finally broke out on the upside. In this process, Nifty recorded a resolute move from broad consolidation and went to touch its 11,000 mark; however, it failed to sustain at higher levels as market participants preferred to take profits off the table after a decent run-up. Going ahead, the zone of 10,950-10,987 is likely to act as a strong support area for the index as per the change in polarity as the resistance level once breached becomes a support level and as long as Nifty remains above the 10,950 mark, the breakout will remain in force. On the upside, the level of 11,180 is likely to act as a resistance zone. In the coming days, we do not rule out the possibility of some consolidation happening, in which case, sustaining above 10,950 is crucial. 

NIFTY DERIVATIVES: The Indian Volatility Index (VIX), a gauge for market’s short term expectation of volatility, dipped by 1.28 per cent to end at 15.43. Nifty February 2019 future last price stood at 11,083.25 at a premium of 29.15 points over the spot closing of 11,054.10. Nifty March 2019 future last price stood at 11,111.30 at a premium of 57.20 point over the spot closing of 11,054.10. The Nifty Put-Call Ratio (PCR) Open Interest-wise stood at 1.59 for the February month contract. Among Nifty Calls, 11,200 strike price from the February month expiry was the most active Call. Among Nifty Puts, 11,000 strike price for the February month expiry was the most active Put. For the February series, the maximum OI outstanding for Puts was at 11,000 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 

PIDILITE INDUSTRIES .............. BUY ............. CMP Rs 1161.80

BSE Code ...... 500331
Target 1 .... Rs 1230  
Target 2 .... Rs 1250 
Stoploss ... Rs 1095 

✓ Current Observation: The stock on daily time frame registered high of Rs 1211.45 on December 19, 2018 and, thereafter, it witnessed a correction. During the phase of correction, the stock took support near 100- day SMA couple of times and witnessed a bounceback. At present, the stock witnessed a breakout of downward slopping trendline resistance 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 EMA, which is positive for the stock. The 14-period RSI on the daily chart is in the rising trajectory and the fast stochastic line is trading above its slow stochastic line, which suggests a bullish bias. The level of Rs 1095 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 1230, followed by Rs 1250. 

✓ Conclusion: Considering the breakout of the downward sloping trendline and the stock trading above its 20-day EMA, we recommend buying this stock for the target price of Rs 1230, followed by Rs 1250, with stop loss at Rs 1095 level on a closing basis. 

REVIEW OF STOCK STRATEGY 

We had recommended our readers to buy the stock of Infosys Ltd at Rs 749.60 in issue no.15 (dated February 4, 2019). The stock moved higher post the breakout and went on to touch the level of Rs 769.45. We had given a ‘Book Profit’ message at the level of Rs 768 through our SMS service on February 7, 2019. Thus, investors who had taken positions according to this strategy would have made decent profit.