Technicals Analysis

WHAT LIES AHEAD : NEAR-TERM PICTURE

SPOT NIFTY : During the last five days, wild moves triggered multiple positional stop-losses on both sides as Nifty opened with up and down gaps in each of the last five trading sessions.

The weekly series opened with a gap-down and registered 'Black Friday’ with a loss of more than 500 points. Nifty Futures closed with a loss of 17 points since the last expiry. Nifty has oscillated in the range of nearly 800 points since the last expiry. Last Friday, it opened with a 209-point gap-down and lost i.e. ended down by 568.20 points. The next three days’ gap-up openings helped the index to fill Friday’s gap. However, on Thursday again with a 219-point gap-down opening, it wounded the long positions badly. This means that the two days of huge gap-downs and three days of gap-up opening created jitters among the positional traders.

Technically, from expiry to expiry (last Thursday’s close to this Thursday), it has changed a little. Nifty actually failed to close above the last Thursday's high, for second consecutive sessions and thus, can be considered as a failed breakout. Last Thursday’s high was also a minor swing high. To resume the uptrend, it needs to close above the 15,176-15,273 zone of resistance. While on the downside, a close below the prior day low would empower the bears and they would begin dominating the market.

Interestingly, Nifty witnessed a surge of about 4.23 per cent from last Friday’s low to this Wednesday’s high, but the ADX remained below the +DMI and -DMI and it is continuously declining. MACD histogram failed to enter the positive territory. This structure shows that the strength in the trend was not enough to push the price to new highs.

Going ahead, keep a close eye on the RSI level of 60. If the RSI moves above 60 on a daily closing basis, then Nifty could turn positive. On Wednesday, it faced resistance at 60. On Thursday, Nifty formed a long upper shadow small body candle, resembling a shooting star. In any case, if it closes above 15,176 on Friday, the previous week's bear-ish engulfing implications would still be valid for the next week as the weekly bearish engulfing candlestick pattern high is at 15,431.75 and the implication of bearish engulfing would only start to wane if Nifty closes above the level of 15,431.75. As the market has turned highly volatile, it is better to avoid aggressive positional trades.

NIFTY DERIVATIVES:
Nifty Futures gained just 7.5 points since the last weekly expiry. It recovered 586 points from the low of 'Black Friday'.

India VIX shows that the volatility has increased to almost March 2020 levels. It broke out of the last 11-month range last Friday but with three gap-up openings, it cooled off a bit. Today, it closed above the 200-DMA, which indicates that an impulse price action is about to be witnessed in the near future. Nifty Futures fell by 1.25 per cent while the open interest rose by 26.71 per cent, which means that the short positions were built up in the market. The highest level of increase in the open interest is the sign of bears taking a grip on the market direction. The first week of March series shows 11.9 per cent of rollovers. The monthly OI put-call ratio (PCR) is at 1.75, and for the next week, the PCR is at 0.78. The monthly PCR shows that the market is at a swing high. As the next week's PCR is at a lower end, the market may witness a short-term bounce because of low PCR, which may give another round of selling opportunity.

Meanwhile, Nifty registered a distribution day. The highest open interest was seen at 15,000 strikes on both, calls and puts. Interestingly, on monthly series, at-the-money (ATM) options have a lesser open interest. As the out-of-the-money (OTM) call options have very little open interest, the traders believe that the upside is minimal. For the next weekly series, the highest open interest is seen at ATM (15,000 strikes). The 15,200 strike calls have a high open interest while 15,000 strike puts have a high open interest. These levels may act as immediate support as well as a resistance for the next week. For the next weekly series, Max Pain is at 15,100, which shows that the probability is closing around here, as per the current derivative data.

TECHNICAL RECOMMENDATION

STOCK STRATEGY 

IG PETROCHEMICALS LTD .......... BUY ............ CMP Rs 529.00

BSE Code : 500199
Target 1 : Rs 610
Target 2 : Rs 625
Stoploss :Rs 460(CLS)

Current Observation:
✓IG Petrochemicals Ltd has broken out of 12-week cup & handle with the above weekly average volume. The stock had eroded 90 per cent from January 2018 during the mid and small-cap collapse by March 2020. After two years of decline, the stock recovered by 58 per cent since March 2020. During the last year, it gave over 530 per cent returns as it has risen from Rs 81 to Rs 520.
✓The previous two-quarter of extraordinary performance on fundamentals attracted institutional interest. With a whopping EPS in the recently concluded quarter, the stock is trading at 16 PE, which looks attractive even at current levels.
✓Technically, as mentioned above, the stock closed above the pivot level and has given a fresh entry signal. Its relative price strength (RS) is as high as 90, which means that it is outperforming 90 per cent of the listed stocks.
✓As the stock is at a new high, it is trading above all the long-term moving averages. After taking support at 45-period average, the RSI is seen bouncing and indicates the breakout's strength on a weekly chart. The ADX (39.17) is showing an extraordinary strength in the trend. It is above the +DMI while -DMI is a positive directional sign. MACD is about to give a buy signal.
✓In a nutshell, the stock has registered a bullish pattern breakout along with volume confirmation. A sustainable move above Rs 520 is positive, and it can test Rs 610, followed by Rs 625 in the short-term. Maintain a stop-loss at Rs 460.

REVIEW OF STOCK STRATEGY

We had recommended our readers to buy the stock of Ceat Ltd at Rs 1,658.05 in issue no. 19 (dated March 01, 2021). Post our recommendation, the stock has witnessed consolida-tion along with a low volume. The stock is still trading above its short and long-term moving averages while other technical parameters of the stock still look promising. We would advise our readers to hold this stock with a stop-loss of Rs 1,540 on a closing basis, as the stock is likely to move higher from the current levels.