Technicals
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty breached the 11900 level and closed below the 8-EMA. As we were suspecting, the index witnessed 6-day range breakout on June 3 with relatively lower volumes. Due to the lack of follow-up buying next day, Nifty formed an inside bar and bearish harami pattern at the lifetime highs. This has given the first caution to the long positions. When the index is making new highs, the major indicators are unable to move above the prior swing highs. This negative divergence has been persisting for the last four swing highs. Even as the price is moving higher, the MACD histogram is coming down for the last 6 days. This is another evidence to identify the downward momentum. The RSI has also come down to below 60 level and into the neutral zone. The stochastic oscillator’s %K just crossed the %D, which is a bearish sign. The price is down by more than 1.4 per cent on increased volumes. This is a clear case distribution. We had earlier anticipated the correction to be sharper, which we witnessed on Thursday. Another evidence is that Nifty closed below the June 3 (range breakout day) low, which is also earlier resistance area on the hourly chart. Another significant technical fact is that Nifty (spot) closed below the April 18 high of 11856.15. Generally, earlier resistance points work as supports when the market corrects, but this time, the support did not hold. With these evidences, the market may witness further correction as long as it trades below the 11960 level. The next major support level is placed at 11615-11630, which is also 50-DMA. This is not the time to take fresh longs, and if at all someone wants to go long on the index, wait till it moves above the 11960 level.
NIFTY DERIVATIVES: The Nifty future was down by 58.9 points or 0.49 per cent since the close on May 30. It witnessed 289 points volatility in the last five trading sessions. On Thursday, on weekly options expiry day, Nifty fell about 1.5 per cent and the open interest (OI) rose by massive 5.45 per cent, which indicates that the shorts were build-up in the index. As the Put-Call Ratio (PCR) is at 0.94 per cent, it is in the neutral zone, which suggests that Nifty may witness some sideways to a negative movement for the next few days. In this first week of June series, the rollovers are as low as 4.07 per cent. Huge call writing was witnessed in 12000 strike with OI of 2,730,825. The next highest call writing was witnessed in 12100 strike. The 12000-12100 level is going to be a stiff resistance level for the market in the near future. Call writing was seen in almost all the strike prices from 11500 to 12500. On the Put side, maximum OI was seen at 11800 strike with OI of 1468725. On the Put side, longs were build-up in 11500 to 12000 strikes. The current derivatives data for June 13 week suggest that the max pain is at 11900. In case Nifty future closes below the 11820 level, the next major support is at 11640. As the danger of breaking 11820 is clearly evident, it is wise to be away from the long positions.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
HINDUSTAN UNILEVER .............................. BUY ................. CMP Rs. 1836.55
BSE Code ...... 500696
Target 1 .... Rs. 1900
Target 2 .... Rs. 1930
Stoploss ...Rs. 1790
✓ Current Observation: Technically, it is trading just one per cent to the life-time highs and previous pivot. It formed a 25-week cup with 11.74 per cent depth. The volumes are above average for the past two weeks, which shows that accumulation is happening at higher levels.
✓ All the indicators are suggesting a bullish strength in the stock. The MACD is above the zero line and signal line for the past 12 trading sessions. The histogram is suggesting that the momentum is picking up. For the last three days, it is trading out of the big triangle. The stock is also trading above all moving averages. The ADX (23.14) is above the -DI and +DI is also above the -DI.
✓ With the highest return on equity (ROE) of 79 per cent, the stock looks attractive fundamentally at the current levels.
✓ This indicates the strength of the trend is very strong. Buy this stock at Rs 1836.55 with a stop loss of Rs 1790. The initial target is Rs 1900 and, above this level, it can reach Rs 1930.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of V-Guard Industries at Rs 234 in issue no. 32 (dated June 3, 2019). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 247.35. We had given a ‘Book Profit’ message at the level of Rs 242.45 through our SMS service on June 4, 2019. Thus, investors who had taken positions according to this strategy would have made decent profit.