Technicals
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Finally, Nifty closed with a modestly negative bias after seven trading sessions and traded within a range of just 47 points whole day. Recovery in select IT stocks and the late bounce in banking stocks reduced the decline in Nifty on Wednesday. The volumes are shrinking since last four days. Nifty50 is still making higher highs, indicating positive momentum, but it is making hesitant or bearish patterns on the top, which is creating some suspicious indications. As long as Nifty maintains the supports and forming higher highs and higher lows, do not worry about long positions. If it closes below the previous bar, only then think about exiting longs and consider short opportunities. On the upside, Nifty may encounter resistance at the 11,630-11,650 zone. Nifty’s latest swing is 20 bars old and has advanced by 9.05 per cent from the February 19 lows. Earlier, the bigger swing from June 28 to August 28, 2018, had sustained for 41 bars with small retracements. Prior to that, there was another swing of 35 bars with 8.15 per cent gain. In terms of percentage gain, the current swing is sharper than the prior ones. Generally, any asset price cannot move in a straight line for a longer period. It has to follow the trend rules that every rise will be followed by a corrective move. As the momentum in Nifty is waning since last four days, we can only wait for a bearish confirmation. As the major indicators are in overbought condition, the index may witness a sharp throwback anytime and it may retest the recent breakout level. Among all the indicators, MACD had moved far away from the zero line after June 2014 and January 2018. This is another way of calculating the overbought condition present in the market. The RSI is turned down and has made a swing high yesterday. If Nifty future is unable to move above the Tuesday‘s high of 11581, we can assume that the upside is capped and a swing high has formed. At this juncture, it is better to avoid fresh longs in the index, but one can continue the existing longs as long as Nifty maintains the higher lows.
NIFTY DERIVATIVES: The put-call ratio (PCR) still at the higher side at 1.47. The open interest increased by 1.38 percent. Decline in price and rise in Open Interest also an indication of shorts built up in the market. Another one week to expiry the rollovers reached 13.75 percent. If you look at the 28th March Option chain, the interesting thing is all the ITM, OTM and ATM option premiums were eroded including Put premiums. Though some of the deep in the money options premiums increased, will have no impact on the future course of action. The Max Pain at 11500 level with available option data. This means for the next five days left in this series may witness sideways to negative action.
LEGEND : EMA – Exponential Moving Average. MACD – Moving Average Convergence Divergence RSI – Relative Strength Index
STOCK STRATEGY
PIDILITE INDUSTRIES .................... BUY ......................... CMP Rs. 1171.05
BSE Code ...... 500331 Target 1 .... Rs. 1365 | Target 2 .... Rs. 1455 | Stoploss ...Rs. 1130 (CLS)
✓ Current Observation: Pidilite Industries is trading near the life-time highs and just 3 per cent away from its pivot. It is in the formation of an inverted head and shoulders pattern, which is bullish in nature and any close above the pivot will result in the breakout of the pattern.
✓ Last week, it recorded above 50-week average volumes, which indicates that the accumulation is in full swing. The last week’s positive close resulted in MACD crossover above the zero line.
✓ The RSI also has broken out of the inverted head and shoulders pattern and is in bullish structure. The trend strength indicator ADX is also fairly valued at 17.17 on the weekly chart and 10.84 on the daily chart and the -DI is much below the ADX as well as +DI, which is a typical bullish structure. Since last 14 weeks, it is trading in the flat base and now above the 50-DMA and 200-DMA.
✓ Finally, it is meeting practically all of William O Neil’s CANSLIM criteria. Accumulate this stock between Rs 1165-1180, the stop loss for the long position should be placed at Rs 1130. The targets are Rs 1365 for the short term and Rs 1455 for the medium term.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Aurobindo Pharma at Rs 778.30 in issue no. 21 (dated March 18, 2019). Post our recommendation, the stock has been witnessing consolidation along with low volumes. The stock is still trading above its pivot and above the short-term and long-term moving averages. The technical parameters of the stock still look promising. We would advise our readers to hold this stock with a stop loss of Rs 755, as the stock is likely to move higher from the current levels