Technicals

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY : The market did not move anywhere in the last five trading sessions on a net basis. After a big fall on the last weekly expiry day, the Nifty formed three small body candles for three consecutive days. These small body Doji formations indicated the indecision on the upmove. The Nifty was unable to close above the 61.8 per cent retracement level as there is no buying support from the traders. The overall market recorded the negative market breadth over the last one week. Nifty faced strong resistance at 11830-40 levels earlier, and now it is taking support for several occasions in the last 12 trading sessions at the same level. Once again, Nifty formed a hammer pattern at the same support.

The 20-DMA is placed at the same 11830 level. With these parallel supports or lows, Nifty formed lower highs. This price set-up is a descending triangle, and most of the characteristics, like descending volumes, are meeting the pattern criteria. As per the pattern rules, any breakdown of the 11840-30 support zone will lead to a sharper fall. At the same time, any breakout above the resistance line or closing above the 11960 level will lead to a similar sharp move on the upside. Even though Nifty recovered 100 points from the low point of the day, the volumes did not improved much. We are suspecting the price action since June 3 breakout and cautioning about the long positions in the index. We would like to reiterate the same stance, as long as Nifty sustains below the 11960 level on a closing basis, better avoid fresh long positions. At the same time, once it breaks the support of 11830, go short aggressively, with marginal stop loss for the target of the gap area of May 20.



NIFTY DERIVATIVES: The Nifty gained just 35.45 points since the close of the last expiry and formed small body candles for the last five trading sessions. The Open Interest (OI) has gone up by 3.11 on a volatile and flat day. The sharp recovery in the last two hours from the technical support of 11830 level forced most of the short positions to be covered. Now, the Put-Call Ratio (PCR) is 1.29 for the June contracts, which is in the bearish zone. The rollovers were seen at 6.6 per cent. The interesting thing in the June 20 Nifty option chain is that all the option values, Put and Call, were eroded as the market closed flat. The maximum OI has been seen at 12000 strike on the Call side and 11800 strike on the Put side. This range has been sustaining for the last two weeks and will work as support and resistance for the next week too. The next highest OI was at 11900 strike on the Call side. With increased OI and price, the fall indicates shorts build-up across all strikes. This happened on both the sides. This unique situation may lead to a volatile session next week. The max pain is at 11900 level.



TECHNICAL RECOMMENDATION

STOCK STRATEGY 

BATA INDIA ................................... BUY .......................... CMP Rs. 1437.50

BSE Code ...... 500043
Target 1 .... Rs. 1490
Target 2 .... Rs. 1510
Stoploss ....... Rs. 1395(CLS)



✓ Current Observation: Technically, the stock has broken out of 'W' or a double bottom pattern with good volumes. Currently, it is in a 7-week flat base pattern. After a recent correction from the lifetime high, it formed a base at Rs. 1300 level. Now, it has retraced about 78 per cent from the bottom and it is making higher highs and higher lows.
✓ The leading indicator RSI (64.44) entered into the bullish zone. The MACD line is much above the signal line and histogram is showing that the momentum is picking up. The ADX is at 19.90 and +DI is above the -DI, indicating that the trend is in good strength.
✓ Its EPS is consistently growing above an average of 30 per cent for the last 8 quarters with stable sales growth. With return on equity of 19 per cent, the stock looks attractive at the current level. The number of FIIs holding this stock rose by 40 to 337 in the March quarter and the number of mutual funds increased by 11 to 103. The total institutional holdings marginally increased to 32.73 per cent from 32.7 per cent. With this buyer demand, the stock is meeting all the CANSLIM characteristics.
✓ The stock may retest the recent valley high in the double bottom or a W pattern breakout level of Rs. 1404. Any dip towards this level will be a buying opportunity. Buy this stock at Rs. 1437.50, with a small stop loss of Rs. 1395. The target is open towards Rs. 1490, followed by Rs 1510.

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Hindustan Unilever at Rs 1836.55 in issue no. 33 (dated June 10, 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 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 1790, as it is likely to move higher from the current levels.