Technicals

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY : Nifty has reached the point of multiple resistance zone. After four days of positive close, on the fifth day, Nifty traded in a 60-point range and formed an indecisive small body candle. As we mentioned earlier, Nifty is facing multiple resistances at 11140-11200, and it is the time to be cautious on the positive side. On an hourly time frame, Nifty reached overbought levels and is turning down. Some of the indicators have already reached the overbought condition and there is hidden negative divergence on an hourly chart. On the hourly chart, Nifty is forming an inverted head and shoulders and, at present, the right shoulder is in formation. Before the neckline of this inverted head and shoulders pattern, there is a sloping trendline resistance. 

On Wednesday, Nifty faced resistance exactly at this line. Moreover, Nifty future formed a small shooting star kind of pattern at a swing high. The Wednesday’s high of 11055 is critical for the bulls to continue the rally. If it is unable to surpass this level, then there are chances of resuming the downward move. Any close below 11000 will lead to a retesting of previous low. It is time to be cautious on the long side trade and wait for a clear bearish move to take a short position. Watch out the levels of 11055-11140 on the upside and a close below 11000 level for the short position. 

NIFTY DERIVATIVES: Nifty future formed a shooting star kind of bearish pattern after five days of upmove. In these five days of the rally, the volumes were consistently coming down. Most of the stocks were also witnessed in the short covering. 

For this reason, most of the beaten-down stocks have rallied and outperformed the index. In the last four trading sessions, Nifty gained 163.40 points or 1.50 per cent. Currently, a day before the weekly expiry, the Nifty Open interest (OI) is at 3.52. The rollovers were seen at 6.51 per cent. The OI-wise Put-Call Ratio (PCR) for the current week is at 1.46, which is an extreme overbought condition. For the September series, the OI-wise PCR is at 1.23. The volume PCR is also at a higher side at 1.07 for the current week, and for the monthly expiry, it is at 1.11. So, all are indicating overbought condition and heat in the market. The highest OI is witnessed at 11200 Call strike and 10900 Put strike. The levels will act as support and resistance for the near term. On the Call side, shorts build-up is seen from 11000 to 12000 strikes. All these out of the money contracts have seen prices fall and OI going up. On the Put side, the shorts have built-up from 10650 to 11400 levels. As the volatility decreased, Nifty implied volatility also declined to 12.67. The current derivative data is indicating that the max pain for this weekly expiry is at 11000. 

STOCK STRATEGY

TATASTEEL ................................... BUY ............................. CMP Rs.367.10

BSE Code ...... 500470 Target 1 .... Rs.390 | Target 2 .... Rs.405 | Stoploss .... Rs.350(CLS)

✓ Current Observation: Tata Steel has broken out of a small double bottom kind of pattern and closed above the 8-DMA, 13-DMA and 20-DMA. 

✓ The stock also retraced almost 23.6 per cent of the recent fall. The narrowed Bollinger Bands are suggesting a big move in the stock. The RSI is coming out of the bearish zone and is near to the 50 zone. 

✓ The RSI has also cleared the downward sloping resistance line. The MACD is above the signal line and the rising histogram suggests a bullish momentum in the stock. 

✓ The metal index is also showing signs of a pullback rally. Importantly, the stock also formed a rounding bottom. It is like Steve Bigalow’s scoop pattern. The recovery from the bottom of Rs. 320 level with reasonably good volumes indicates smart money is coming in. 

✓ The other indicator set-ups are also suggesting some more up move in the stock. The 50-EMA is placed at Rs. 405. This could be a target for the short to medium term. Buy this stock at Rs. 367.10 with a stop loss of Rs. 350. The target is open towards Rs. 390-405.

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Dr. Reddy’s Laboratories Ltd at Rs 2681.45 in issue no. 46 (dated September 9, 2019). Post our recommendation, the stock moved higher in line with our expectation and went on to touch the level of around Rs 2778.40. We had given a ‘Book Profit’ message at the level of Rs 2767.95 through our SMS service on September 11, 2019. Thus, investors who had taken positions according to this strategy would have made decent profit.