Technicals Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :It was yet another day of gapup opening, and Nifty filled the gap during the day. As weekly options expiry was scheduled on Wednesday instead of Thursday, the option writers were busy on capturing the theta value. Nifty formed a bearish hanging man kind of candle near the resistance area. It’s still within the broader range.
The +DMI moved above the -DMI, and it is seen rising, which is a positive sign. However, the ADX is still in declining trajectory, which shows that the strength is yet to pick up. Interestingly, on the weekly chart, the positive movement indicator i.e. the +DMI is at the lowest level since Budget day. The daily RSI is forming an inverted head & shoulders pattern. Watch for the level of 60 closely as a move above this level will lead to a resumption of an uptrend after a decent consolidation.
Bollinger Bands are still moving at a parallel distance. As Nifty is above the 20-DMA, be with a positive bias as long as it trades above it. The MACD histogram shows that the bearish momentum declined significantly. The five-day exponential moving average stands at 15,070 levels and Wednesday’s low of 15,100 are likely to act as a support level in the near term. A decisive move above 15,273 will give a big boost to the bulls to resume the uptrend. The major indicators are showing different pictures on the daily and the weekly charts. Even the MACD histogram is declining and is about to move below the zero lines. There are several contradicting signs, which have not given any clues about the near future direction. As Nifty has not formed a lower low, we cannot be completely bearish until it breaks below the level of 14,467.
NIFTY DERIVATIVES:
Nifty Futures ended up by 97.55 points since the last weekly expiry. One day of gap-down and three days of gap-up openings with long wicks has not been easy to execute the short-term trading during this period. For the last two days, though the index is moving higher, the open interest is declining. The decelerating open interest does not show any conviction on the trend. Nifty Futures volume is the lowest since February 15. On Wednesday, most of the options premiums melted like ice. Theta erosion because of four sessions’ weekly expiry, instead of five sessions weekly expiry. PCR is still near the higher levels at 1.54. For the next weekly expiry, the PCR is at 0.87. The rollovers were seen at 11.53 per cent. Bank Nifty rollovers, which stood at 27.08 per cent, are above the average. The open interest for the next weekly options is a little lower than the average level. The ATM (15,200) call option has just 21,838 lots, while the put option has 10,259 lots in the open interest (OI). After this, the out-of-the-money option strikes of 15,500 call option have the highest open interest of 18,862 lots, and 15,000 strike put option has 14,819 lots in the open interest. The remaining strikes do not have much open interest. For the next week, the level of 15,500 and 15,000 is likely to act as resistance and support levels. Even in the next week, the market may continue its consolidation phase before getting triggers to take a decisive trending move.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
MINDTREE LTD​ .......... BUY ............ CMP Rs 1,896.00
BSE Code : 532819
Target 1 : Rs 2,050
Target 2 : Rs 2,150
Stoploss :Rs 1,720 ((CLS)
Current Observation:
✓Mindtree has broken out of a six-week flat base. The stock is consistently moving higher in a base-by-base manner.
✓ After breaking out of a downward channel in July 2020, the stock registered two flat bases. It has given over 165 per cent gains since the low of May 2020. As the stock is at a new lifetime high, all the short and long-term averages are trending up.
✓ The trend strength is very strong as ADX is at 61, and it is above the +DMI & -DMI while the weekly MACD is about to give a buy signal. The weekly RSI has given a buy signal as per Andrew Cardwell's rules. The current flat base depth is about 15 per cent. The relative price strength is decently at 75, and its EPS strength is at 94, which is outstanding.
✓ Fundamentally, the company has operating revenue of Rs 7,909.00 crore on a trailing 12-month basis. Annual revenue growth of 10 per cent is good while the pre-tax margin of 11 per cent is healthy. Consistency in earnings and ROE of 19 per cent is exceptional. Meanwhile, the company is debt-free. Institutions have increased their stake in the company by 18.47 per cent in the last quarter.
✓ In a nutshell, the stock registered a fresh bullish breakout. A move above Rs 1,820 is positive, and it can test the level of Rs 2,050, followed by Rs 2,150 in the short-medium term. Maintain a stop-loss at Rs 1,720.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of IG Petrochemicals Ltd at Rs 529 in issue no. 20 (dated March 08, 2021). Post our recommendation, the stock marked a high of Rs 558.50 and thereafter, slid into consolidation along with a low volume. Currently, it is hovering around the horizontal support level. However, we can expect to see smart upmoves if it closes above the level of Rs 540. We would advise our readers to hold this stock with a stop-loss of Rs 460 on a closing basis, as the stock is likely to move higher from the current levels.