Technicals
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Thin volumes and bearish Hanging Man pattern on a top is indicating that the rally is exhausting. The negative breadth in the index as well as the overall market is also signalling some caution. During last week, Nifty gained over 296 points or 2.75 per cent. Nifty sustained above the 11,000 level for two consecutive days. But in the last five trading sessions, the volumes are decreasing. The stochastic oscillator is in the extreme overbought condition and it may turn down on Friday. There are many other indicators suggesting that Nifty may not close above the February 7 close of 11,142.85. The negative divergence of another important indicator MACD is still intact and, at the same time, it also reached the resistance point. The OBV, another volume-based indicator, also suggests that Nifty may not move above the recent swing high as there is serious negative divergence visible. Over the next one week, the 10986 level is going to be a Laxman Rekha for traders. If Nifty falls below this level, it will create bearish implications. This is not the time to think about the fresh long positions. Wait for a negative closing for a fresh short position. Below 10986, another downswing will start within the range.
NIFTY DERIVATIVES: The most important indicator to catch the swing high and low is Put-Call Ratio (PCR). The swing high in price and PCR also matching exactly. Whenever there is this kind of symmetry appears in price and PCR, this suggests that the opposite move will start from any moment. The current PCR for Nifty is 1.5, which is also a bearish sign. At the same time, Nifty reaching near the upper Bollinger Band developed on the basis of 20-day volatility also suggests that the upside is limited. Most out of the money call options became multibagger ideas last week. For the 14th March weekly expiry, the highest open interest in Puts was at 11,100 strike price. At the same time, 11100 strike call writing is also visible. As per the 14th March weekly option data, the max pain is at 11,050. The Open Interest gained 4.4 per cent in Thursday trading. The current preliminary rollover stands at 5.67 percent.
LEGEND : EMA – Exponential Moving Average. MACD – Moving Average Convergence Divergence RSI – Relative Strength Index
STOCK STRATEGY
RBL BANK ........................ BUY .............. CMP Rs. 623.40
BSE Code ...... 540065
Target 1 .... Rs. 652
Target 2 .... Rs. 705
Stoploss ...Rs. 575 (CLS)
✓ Current Observation: The stock broke out of the 15-week flat base pattern of stage 1b. It also reached near its life-time highs. The stock is in a clear uptrend as it is trading above all the short and long term moving averages.
✓ The leading indicator RSI shows a very strong strength and it is meeting all range shift rules.
✓ The institutional investors are acquiring this stock aggressively as FPIs have increased their stake by 1.73 per cent and the number of FPIs holding this stock rose by 9 to 194. Mutual funds holding this stock rose by 1 to 26. The overall institutional holding increased by 2.21 per cent in the December quarter.
✓ Its consistency in earnings and income growth above 20 per cent on an average is one of the main reasons for accumulating this stock by the smart investors. As per William O Neil's investing rules, its price strength is very high at 90 and EPS strength is at 89.
✓ Conclusion: With these fundamental and technical evidences, one can accumulate this stock at the current levels with a stop loss of Rs 575. The immediate target is its life-time high Rs 652. Later it can move up to Rs 705 to Rs 775 in the medium term.
REVIEW OF STOCK STRATEGY
We had recommended our readers buying the stock of Divi’s Laboratories Ltd at Rs 1651.55 in issue no. 19 (dated March 4, 2019). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 1725. We had given a ‘Book Profit’ message at the level of Rs 1710.80 through our SMS service on March 6, 2019. Thus, investors who had taken positions according to this strategy would have made decent profit.