Technicals Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE 

SPOT NIFTY : It was a historic day on D-Street as Sensex crossed the milestone level of 50,000 for the first time ever! However, the street, which was seen celebrating with high-fives and fist bumps in the first half of the trading session, turned mournful all of a sudden as the street was gripped by nerve-wracking volatility on the eve of the weekly options expiry. In the last hour alone, Nifty witnessed a movement of 220 points. At close, Nifty ended the session with a modest loss of 0.37 per cent but from the day’s high, it fell nearly 163 points. The fall in the broader markets was much more severe with Nifty Mid-cap and Small-cap losing 1.22 per cent and 0.64 per cent, respectively. All the sectoral indices ended in red with the PSU Bank index emerging as a top laggard, followed by Nifty Realty and Nifty Metal.

Thursday’s volatility definitely reminds us of a quote from George Soros, who used to say, “Short-term volatility is greatest at turning points and diminishes as a trend becomes established”. The price action of the day has formed a bearish candle as the closing was below the opening level. Despite sharp volatility, which was witnessed during the second half of the trading session, the index had managed to hold above the prior session low. Besides, at the same time, it did not breach the short-term moving average of 5-EMA. Though the volatility created a sense of nervousness in the markets yet structure-wise, there isn’t much harm done.

Having said this, there are some grave concerns, which one should not ignore at all. Nifty has rallied nearly 95 per cent from the lows of March. With this, the index is currently trading up by 28 per cent from the long-term moving average i.e. 200-DMA, and nearly 7 per cent up from the 50-DMA. This indicates that the price is trading too far away from its mean. If we can take some cue from history, such instance leads to a formation of the top as all the major tops were formed between 20 per cent and 30 per cent from the 200-DMA, earlier in the past.

We would advise the traders to keep a trailing stop-loss of identical low of Wednesday and Thursday’s session, which is placed around 14,500 while on the upside, immediate resistance is seen around the zone of 14,750-14,800.

NIFTY DERIVATIVES: Nifty Futures has gained 11.70 points or 0.07 per cent since the last weekly expiry. On January 15, 2021, Nifty Futures has witnessed a distribution day as the index fell more than 0.2 per cent from the previous day’s close along with relatively higher volume. For January monthly series, the open interest wise put-call ratio (PCR) is at 1.15. For January monthly expiry, the highest call open interest is at 15,000 strikes with 39,34,875 OI, followed by 14,700 strikes with 25,12,500 OI. On the put side, 14,000 strikes have 28,34,100 open interest, which is the highest. Today, the highest addition in the open interest was seen at 14,700 calls of January monthly expiry with 9,48,225 OI while on the put side, 14,600 puts have seen the highest addition of the open interest with 10,20,150 OI. The total call open interest for January monthly series is 3,23,84,250 and the put open interest is 3,71,98,425. The current derivative data suggest that the Max Pain is at 14,500 for the monthly expiry.

TECHNICAL RECOMMENDATION 

STOCK STRATEGY

SUPREME INDUSTRIES LTD .................... BUY ............ CMP Rs 1,765.00

BSE Code : 509930
Target 1 : Rs 1,860
Target 2 : Rs 1,900
Stoploss : Rs 1,660(CLS)

✓ Current Observation: Supreme Industries Ltd manufactures industrial & engineered molded products as well as storage and material handling crates. The company also manufactures chemicals, multilayer sheets, multilayer films, packaging films & expanded polyethylene foam, PVC pipes & fittings, molded furniture and disposable EPS containers.
✓ Technically, the stock is trading in a rising channel since the last 41 trading sessions. Recently, the stock has bounced from the edge of lower trendline of the rising channel and coincides with the 50-day SMA level. The reversal from the support zone is justified with relatively higher volume.
✓ All the moving averages-based trade set-ups are showing a bullish strength in the stock. Daryl Guppy’s multiple moving averages is suggesting a bullish strength in the stock. The positive crossover on the daily RSI and the stochastic is also supporting the overall bullish price structure.
✓ Interestingly, in the recent correction, the stock has witnessed a hidden positive divergence between the daily RSI and the stock price, which is a sign of trend continuation. The hidden positive divergence occurs when the price is making a higher low but the indicator is showing a lower low.
✓ Based on the above observations, we expect the stock to move higher from the current levels and test the upper trendline of the rising channel, which is currently placed at Rs 1,860, followed by Rs 1,900 in the short-term. The stop-loss can be maintained at Rs 1,660 level on a closing basis.

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Neuland Laboratories Ltd at Rs 1,240 in issue no. 13 (dated January 18, 2021). Post our recommendation, the stock moved higher in line with our expectation and went onto touch the level of around Rs 1,442.85. We had given a ‘book profit’ message at the level of Rs 1,315.70 via our SMS service on January 18, 2021. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit.