Technicals
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : As exit polls had predicted, the BJP-led NDA has won a majority in the general elections. On such a very positive event, Nifty made a high of 12041.15 (spot) but did not sustain at that level. On this positive day, the market lost its momentum towards the end and closed with a loss. The fall from the top is sending negative signals technically as Nifty formed a big bearish shooting star candle pattern on the weekly chart. As we mentioned earlier, this is a situation like 'Buy on Rumour and Sell on News'. Interesting thing is, on May 16, 2014 also, Nifty did not sustain at the higher levels and formed a shooting star pattern. The same pattern repeated again on the election results day, with a similar result. When the BJP came to the power for the first time with full majority, Nifty made a new high. But later it corrected 50 per cent of the prior swing. Now since May 14, Nifty moved from 11108 to 12041 on May 23. The most interesting part is Nifty has already retraced 38.2 per cent of the prior lifetime high close. It exactly touched the resistance and fell sharply. Even meeting the market expectation about the NDA government formation, the market did not respond to it. Now, 11820 will act as a critical resistance for further upmove. If it fails to sustain above this level, Nifty may fall up to 11575 again, as per the past history. In any case, if Nifty falls below 11464, it will fill the gap of May 20. Then the 11426-11308 zone will act as a critical support for the market. The new government formation, particularly the finance ministry and other key ministries allocations, will impact the market sentiment. As we had forecasted earlier, the Nifty target of 12000-12200 has been reached. Now, fundamentals will lead the market to go above these levels. As the full budget will be scheduled in another two months, it will be a game changer for the market. The final conclusion is, as long as Nifty trades below 11820, better avoid aggressive long positions.
NIFTY DERIVATIVES: Nifty gained 287.95 points or 2.52 per cent since the last weekly expiry. But it formed a big bearish shooting star pattern on the weekly chart. As we mentioned in the last derivative analysis, the India VIX collapsed from the 30.18 to 19.41 level as the event is over. Almost all the strike options collapsed as soon as the event risk was over. The rollovers are seen at 18.28 per cent. On a falling day, the open interest increased by 10.63 per cent. The highest open interest was seen at 12000 strike Call options at 57,28,200. There were many short build-ups in this strike. The next high-level shorts were build-up at 12200. On the Put side, the highest open interest was seen at the 11500 strike at 24,30,000. Nifty open interest-wise PCR is at 0.84 and volume-wise open interest is at 0.80. This indicates Nifty has entered into a neutral zone. The current derivatives data shows that the max pain is at 11700 for the May expiry. For the next week also, most of the option prices will melt as they are mispriced with high premiums.
STOCK STRATEGY
HDFC AMC ......................................... BUY ...................... CMP Rs. 1742.85
BSE Code ...... 541729
Target 1 .... Rs. 1820
Target 2 .... Rs. 1850
Stoploss ...Rs. 1672 (CLS)
✓ Current Observation: The only listed asset management company in India, HDFC AMC closed above the prior pivot level. It is also reached the listing price level after a severe correction from the Rs 1970 level.
✓ After forming a bottom at Rs 1250 level, it retraced more than 62 per cent from the bottom. The stock is trading above the short and medium term moving averages.
✓ The leading indicator RSI (73.21) is in the bullish zone. The MACD has just crossed above the signal line and is above the zero line. The ADX (23.14) indicates that there is strength in the trend.
✓ The stock is also meeting all the CANSLIM criteria with its price strength (RS) at 91, EPS strength is at 85 and with great (A+) buyers demand and 30 per cent return on equity, it is attractive for investment at the current level. The institutional investors stake in the company has increased by 4.65 per cent in the March quarter.
✓ Buy this stock at Rs. 1742.85, with a stop loss of Rs. 1672. The target is open towards Rs. 1820 and Rs. 1850
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Titan Company at Rs 1192 in issue no. 30 (dated May 20, 2019). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 1262.80. We had given a ‘Book Profit’ message at the level of Rs 1230.10 through our SMS service on May 20, 2019. Thus, investors who had taken positions according to this strategy would have made decent profit.