Technicals
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty closed almost flat since the last expiry with a marginal gain of 21.10 points. After retracing 38.2 per cent of the July 5-10 fall, the benchmark index was unable to move above the 11700 level and fell sharply on Thursday to close below the prior day low. As we had suspected that the last 7-day upmove was only a counter-trend consolidation move, which has been vindicated by the flag pattern. Now, the breakdown below the 11570 on a closing basis with higher volumes will confirm the continuation of the prior downtrend. On the upside, Nifty must close above 11670 and sustain for at least two days. Then the target on the upside is 11800, where it can face stiff resistance. But closing below 11570 on a weekly basis will lead to a test of the recent low of 11467 first and then a further fall up to the level of 11344. The Thursday fall with higher volume and added distribution day indicates that there are higher chances of bearish flag breakdown. The prior two days of positive close with lower volumes and lower Open Interest indicated the unwinding of long positions in the market. The negative market breadth is a big worry now and more and more stocks hitting new 52-week lows is another factor to take a serious note regarding the market structure. As we expected, as of now, there are no earnings surprises and no positive trigger points on the economy front. Be cautious about the long positions.
NIFTY DERIVATIVES: Nifty added another distribution day with 0.62 per cent fall and 5.56 per cent increase in Open Interest (OI) and higher volumes than the prior day. The Nifty spot closed below the important psychological level of 11600. The rollovers are 21.32 per cent, which are a little on the higher side than the average. The Put-Call Ratio (PCR) is in a neutral zone at 0.84. For July monthly expiry, there is a total of 23,713,800 OI of all strikes, which is higher than the Puts at 21,885,300 OI. There are shorts build-up of Calls in 11400 to 11800 strikes and long build-up in Puts in the same strikes. The highest Call OI is at 12000 strike at 3,487,200 and 11700 strike has the next highest OI at 3,035,175. On the Put side, the maximum OI is at 11300 strike at 2,609,775. An interesting observation is that the traders are selling Out of the Money or Deep Out of the Money options. With the current derivatives data, the max pain for July expiry is at 11650. For the next week, 11800 may act as a stiff resistance and 11300 may act as a support.
STOCK STRATEGY
HOUSING DEVP. FINANCE CORP. .................... BUY ................ CMP Rs2338
BSE Code ...... 500010
Target 1 .... Rs2430
Target 2 .... Rs2450
Stoploss ....... Rs2285 (CLS)
✓ Current Observation: Housing Development Finance Corporation (HDFC) closed at a new lifetime high. The price is clearly making higher highs and higher lows on long-term and short-term charts. After consolidating for nine trading sessions, the stock has broken out of prior pivot high.
✓ The RSI also closed above the prior high and there is no negative divergence even in the weekly chart. The MACD line reached above the signal line after a brief period and the positive momentum picked up in the stock.
✓ Technically, the stock is trading above all the shortterm and long-term moving averages. The stock is meeting Mark Minervini’s trend set-up characteristics for investments. The 200-day, 150-day and 50-day moving averages are in an uptrend.
✓ Short term traders can buy this stock at Rs. 2338 with a stop loss of Rs. 2285. The short-term target is open towards Rs. 2430 - Rs. 2450.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of PVR Ltd at Rs 1730.45 in issue no. 38 (dated July 15, 2019). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 1784. We had given a ‘book profit’ message at the level of Rs 1781.80 through our SMS service on July 17, 2019. Thus, investors who had taken positions according to this strategy would have made decent profit.