Technicals Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : Nifty remained under selling pressure for the fifth consecutive session and ended down by only a per cent. It opened with a gap-down, following feeble global cues, and further drifted lower as the session progressed. Nevertheless, during the second half of Thursday’s session, recovery of 100 points was seen from the lower levels, which helped the index to settle above the 13,800 mark.
Among the sectors, barring Nifty Bank and Nifty Private Bank, all other sectors ended in red wherein, Nifty Realty, Nifty IT & Nifty FMCG emerged as the top losers. Interestingly, India VIX cooled off nearly half a per cent on an expiry day and turned down exactly from the zones of 25-26. This is not the first time that such a thing is happening! Lately, it has been observed that every time it nears the zone of 25-26, it takes a U-turn!
The price action of the day formed a Doji-like pattern (open & close is almost the same) with a gap-down opening. The formation of Doji candlestick pattern after a sell-off provides a hint of a bottom formation. The emergence of the reversal candlestick pattern (Doji) near the level of 13,700-13,800 reiterates the importance of 13,700-13,800 as an important support zone. The zone of 13,700- 13,800 is an important support as it’s the confluence of 61.8 per cent of the current upmove (13,131-14,753) and 50-DMA.
The index has now corrected nearly 7 per cent from the high of 14,753 to the low of 13,713. With this, it has filled the upside gap of December 28. Interestingly, since March 2020, the intermediate decline has not lasted more than a week with an average correction anywhere between the ranges of 8 and 10 per cent
In the current scenario, we have already witnessed five sessions of back-to-back sell-off and a correction of nearly 7 per cent. Besides, the formation of Doji near the confluence of support zone indicates that a pullback rally may be on the offing. Moreover, the recent fall has led the daily stochastic oscillator to an oversold territory with a reading of 10 and the RSI has reached near the 40-mark. At the same time, the RSI is placed at the upward rising trendline.
Considering a major event like Union Budget on the horizon, we would opine to be selective in buying and at the same time, suggest not carrying over leverage positions. Hence, keep your position sizing a bit light.
NIFTY DERIVATIVES: Nifty Futures has lost 190.20 points or 1.35 per cent in January monthly series. In January series, Nifty Future witnessed four distribution days as the index fell more than 0.2 per cent from the previous day’s close along with a relatively higher volume. For the next weekly expiry, the open interest wise put-call ratio (PCR) is at 0.72. For February monthly series, PCR is at 1.43.
For the next weekly expiry, the highest call open interest is at 14,000 strikes with 12,49,350 OI, followed by 14,500 strikes with 9,48,600 OI. On the put side, 13,800 strikes have 9,74,400 open interest, which is the highest. Today, the highest addition in the open interest was seen at 14,000 calls of the next weekly expiry with 10,11,300 OI while on the put side, 13,800 puts have seen the highest addition in the open interest with 5,28,075 OI. For the next weekly expiry, the total call open interest is 1,39,22,550 and the put open interest is 97,53,825.
For February monthly series, the highest call open interest is 14,500 strikes with 14,86,125 OI, followed by 14,000 strikes with 10,58,175 OI. On the put side, the highest put open interest is at 14,000 strikes with 2,30,200 OI. The current derivative data suggest that the Max Pain is at 14,000 for the monthly expiry.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
GUJARAT STATE FERTILIZERS & CHEMICALS LTD .......... BUY ...... CMP Rs 76.60
BSE Code : 500690
Target 1 : Rs 82
Target 2 : Rs 86
Stoploss : Rs 70 (CLS)
✓Current Observation: Gujarat State Fertilizers & Chemicals Limited is engaged in the development of crop nutrition solutions. The company operates through two business segments: Fertiliser products and industrial products. It offers fertiliser products, such as urea, ammonium sulphate, di-ammonium phosphate, ammonium phosphate sulphate and traded fertiliser products.
✓The stock has formed a Doji candlestick pattern as of March 27, 2020, and thereafter, marked the sequence of higher tops & higher bottoms. From the low of Rs 29.80, the stock has witnessed nearly 195.63 per cent upward momentum. However, after registering a high of Rs 88.10, the stock has witnessed a correction.
✓The correction is halted near the upward sloping trendline support formed by connecting swing lows from September 2020 and coincides with the 100-day EMA level. Further, on Thursday, the stock has formed a bullish engulfing candlestick pattern near the trendline support, which suggests that the bulls are taking control near the support zone. The reversal from the support is justified by a relatively higher volume.
✓The positive crossover on the daily RSI and the stochastic also supports the overall bullish price structure. Interestingly, the RSI has bounced exactly from the zone of 40-39, which is a bullish sign.
✓ These technical pieces of evidence indicate a strong upside in the coming days. Traders can buy the stock with a stop-loss of Rs 70 level. The initial target is placed at a prior high of Rs 82. Above this level, it can test the level of Rs 86.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Supreme Industries Ltd at Rs 1,765 in issue no. 14 (dated January 25, 2021). Post our recommendation, the stock moved higher in line with our expectation and went onto touch the level of around Rs 1,847.95. We had given a ‘book profit’ message at the level of Rs 1,818 via our SMS service on January 28, 2021. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit.