Technicals
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :
Nifty gained 206.95 points or 1.93 per cent since last Thursday's close and formed long shadows and the small body candle as it witnessed 400 point volatility in the last five trading sessions. The three days of upmove and two days of downside move brings the market into a highly volatile zone. After the Finance Minister’s stimulus package announcement and FPIs surcharge removal, Nifty bounced sharply from the 10637 level to the level of 11142 in just three days. With Thursday’s fall, it retraced more than 38.2 per cent.
Technically, Nifty is trading below all short and medium- term moving averages. It failed to form a higher high in the background of three days of euphoric rally. It closed on the downward sloping trendline today, which acted as a resistance earlier. The RSI is clearly in the downward channel, indicating that further fall is imminent. As we mentioned earlier, there are several resistance points between 11140-11200 zone. At 11140, there were many supports and resistance earlier. 11181 is swing high of the recent past. As long as these levels are violated, market will be in the grip of the bears. In case it closes below 10900 on a weekly basis, there are higher chances of retesting the prior lows.
NIFTY DERIVATIVES:
The Nifty lost 379.50 points or 3.35 per cent in August series. But the leading sectoral index Bank Nifty lost 2160.60 points or 7.33 per cent in August series. The rollovers are 54.34 per cent only and are below the threemonth average. The Put-Call Ratio (PCR) for the September 5 weekly contract is at 0.56, which is indicating a temporary pause in the fall. But the September monthly series PCR is at 1, which is near to the bearish zone. For the next week, the maximum Call open interest (OI) is seen at 11100 strike. The 11000 and 11200 strikes attracted the next level of high OI. The 11000 Put has the highest OI. There are huge shorts build-up in 10800 to 11150 Call strikes. And long build-up is being witnessed in 10750-10950 Put strikes. Short covering is seen above 11050 strikes. The current derivative data is indicating that the max pain is at 11000.
STOCK STRATEGY
UNITED SPIRITS ............................ BUY ............................. CMP Rs.616
BSE Code ...... 532432 Target 1 .... Rs.655 | Target 2 .... Rs.684 | Stoploss .... Rs.580(CLS)
✓ Current Observation: United Spirits has closed above all resistances. The stock also retraced and closed above the 61.8 per cent of December- February fall, and also retraced 50 per cent of the December 2017 to October 2018 fall. Interestingly, it has broken the double bottom pattern with higher volumes. The stock is making higher highs and lows from February onward. Since then, the RSI has never been in an oversold condition. The RSI is in the bullish zone now and has broken out of the downward channel.
✓ The stock is trading above all the short and long term moving averages. The MACD line has crossed the signal line above the zero line.
✓ Its relative price strength is as high as 84, with EPS strength of 93 and ROE of 23 per cent meeting all the CANSLIM characteristics too.
✓ Buy this stock at Rs. 616 with stop loss of Rs. 580. The initial target is placed at Rs. 655. Above this level, continue your position with a trailing stop loss for the target of Rs. 684.
REVIEW OF STOCK STRATEGY
We had recommended buying the stock of Hindustan Unilever at Rs 1869 in issue no. 44 (dated August 26, 2019). The stock remained in a range as benchmark indices traded with high volatility while trading in a broad range. However, the stock has the potential to scale higher. We remain bullish on the stock as the stock has witnessed a decent breakout of 36-week flat base pattern. Hence, we would advise to hold this stock for the target of Rs 1950.