Technicals

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : Nifty lost almost 410 points in the last five trading sessions. The 22-day consolidation range has broken downside with huge distribution. As we expected, a move on either side of the range will lead to a sharp move. The downside breakout is creating sharp declines since last four trading sessions. This decline is with huge volumes and sell-off from the institutional investors. For the first time after February 28, Nifty closed below the 50DMA. This shows that the market’s uptrend is under pressure. The RSI also has broken out of the historical support of 40 on Thursday. Interestingly, there is no short covering visible on a weekly expiry day. As we mentioned earlier, many a time, the negative divergences do not give any confidence to the bulls to move further upside. After testing 11,761 level several times, it has broken the support of 11,550. Any range breakout is generally sharper in nature and the same is reflecting now. The MACD histogram is suggesting the downside momentum is picking up day-by-day. As the stochastic oscillator has already reached extremely oversold situation and the fall has extended to six days (the maximum was eight days earlier), the downside move may be limited in the short term. Nifty may try to consolidate for the next few days before taking another dip. The strong support is placed at 11230. In any case, if it falls below this level, Nifty will test the 11000 very fast. To move upside, the bulls need to move above 50DMA once again and sustain for at least two to three days. Only then the bulls will gain confidence. At the same time, bears need to protect 11550 to control the market..



NIFTY DERIVATIVES: Nifty lost 422 points since last weekly expiry and has broken downside from the 22-day range-bound activity. In the last week’s expiry, most of the out of the money (OTM) Put options gave good returns and OTM calls expired worthless. The Nifty open interest rose by 2.4 per cent on Thursday, which shows that the shorts were built-up in the market. Currently, the open interest-wise Put-Call ratio (PCR) is at 1.03, which is almost near to the neutral zone. The Bank Nifty open interest PCR is at the lowest in recent times at 0.51, which indicates the probability of short covering bounce very soon. The highest open interest is at 11,500 strike Calls and after that 11400 strike. On the Put side, the open interest is lower than the Calls. The highest open interest was seen at 11000 strike at 1,09,0500, which is much lower than the Call open interest. The PCR is indicating that the downside is limited for now. The Call writing is witnessed from 12000 to 11000 strikes. At the same time, most of these strikes witnessed Put long build-up and short covering. Another three weeks left for the monthly expiry. The rollovers are at 5.66 per cent. With current derivative data, the max pain point for the next expiry is placed at 11400. Avoid fresh shorts in the market as long as Nifty protects the Thursday’s low.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY

BLUE STAR .......................................... BUY ..................... CMP Rs. 758.85

BSE Code ...... 500067
Target 1 .... Rs. 810 |
Target 2 .... Rs. 844 |
Stoploss ...Rs. 700 (CLS) 



✓ Current Observation: Technically, it has broken out of 53-week cup and handle, which has 39 per cent depth. The breakout registered with huge volumes and the uptrend in the volumes is continuing for the second week. It has also broken out of the inverted head and shoulders and ascending triangle pattern with huge volumes.
✓ The stock has also moved above 50DMA and 200DMA and a golden crossover has also been witnessed, i.e. 50DMA crossover of 200DMA, which is a bullish.
✓ The 20 period RSI is in the bullish zone at 64.17 and forming higher highs and higher lows. The MACD line is above the signal line and zero line. The MACD histogram is indicating continuing upside momentum. The -DI is below +DI and the ADX and the ADX is turning upside at 17.79, which shows the strength of the trend. Its price strength is at 91 and EPS rank is at 79 and with greater buyer demand and good group rank (24), the stock is meeting CANSLIM characters. Its EPS has grown at 56% in the March quarter and sales have grown at 9 per cent. The ROE is at an attractive level of 22 per cent.
✓ Buy this stock at Rs 758.85, with a stop loss of Rs 700. The targets are open towards Rs 810 and then Rs 844.



REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Reliance Industries Ltd at Rs 1405.10 in issue no. 28 (dated May 6, 2019). Post our recommendation, the stock did not sustain at higher levels as selling pressured emerged in the market and the stock slipped below the stop loss level. We recommend our readers to exit with a loss. We had recommended exiting the stock at Rs 1344.55 on May 7, 2019.