Technicals Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :
During the week, Nifty bounced from the support line to the resistance in a brief span of 5 days. Even after seven attempts, two of them tested above 14,880 levels but Nifty failed to close above the multiple resistance area convincingly. Finally, it closed at 14,894, with just less than a quarter per cent gain. In fact, Nifty fell 150 points from the day's high on the monthly expiry day.
Nifty opened above the 14,880 zones of resistance and closed on the resistance line. After retracing a little over 100 per cent of the prior swing, it failed to sustain at the higher levels. The current upswing is the sharpest among three up-swings in the counter-trend consolidation phase. The earlier swings are 9 and 8 sessions, but the current swing is of just 5 sessions with a 6.31 per cent rise. The length of prior swings is 6 per cent and 5.05 per cent, respectively. So, this sharp swing needs follow-through days to continue further. Interestingly, the downswings are almost equal time-wise and price. Two downswings are with 8 days of length while one is 9 days long. All of them declined with an average of 6 per cent.
This time and price movement is a shred of evidence that the current swing is at a mature stage. It is time to be cautious, as many of the indicators are in the overbought condition in a shorter period time-frame. During the last one month, Nifty traded mostly within the zone of 14,880-14,265. It tested these support and resistance levels several times. This tight range breakout on either side will lead to the sharpest possible move. It also tested the swing high of April 8 of 14,984 and moved above the 15,000 levels too. However, it did not sustain and closed below the opening level.
On a monthly chart, Nifty is forming a hanging man candle after an indecisive Doji candle. Besides, on the weekly chart, the previous week's morning star got the confirmation by opening with a gap and closing at a two-week high. A decline in ADX (21.71) indicates the lack of strength in the index. The +DMI moved above the -DMI. As the market is lacking the conviction to continue the rally, we need to wait for a decisive close above the 14,900. In any case, if Nifty closes below 14,880 or 14,800, it will give us negative clues for the market direction.
NIFTY DERIVATIVES:
In the April series, Nifty Future was up by 563 points or 3.93 per cent. Since the last weekly expiry, it gained 493.5 points or 3.43 per cent. The open interest is up by 36 per cent as the new series begins but it's below the previous monthly expiry day level. The rollovers have been witnessed to be at 61.91 per cent, and they are much below the three and six-month averages of 79.07 per cent and 78.21 per cent, respectively. The lack of conviction about the move reflects in the rollovers. The volumes of Nifty Futures are below the average and are declining for the last seven days. May series put-call ratio (PCR) is at 1.7 while the sixth May weekly expiry PCR is at 1.01.
For the next weekly expiry, the highest call open interest is at the deep out of the money strike of 15,500 with 23413, followed by at the money (ATM) 15000 strikes with 20,138. On the put side, deep out of the money 14,500 strike has the highest open interest of 21,013, followed by 14,000 strikes with 17,985. The 14,400 strike has an open interest of 13,180 and the 14,500 strikes with 19,387. At the money strike, 14,900 Put has an open interest of 11,161. The derivative data suggests that the Max Pain for the next weekly expiry is at 14,900 level. Meanwhile, the volume-weighted average price (VWAP) level is at 14,918.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
BAJAJ FINSERV​........ BUY ............ CMP Rs11,184.60
BSE Code : 532978
Target 1 : Rs 11,956
Target 2 : Rs12,050
Stoploss : Rs 10,526 (CLS)
✓Current Observation: Bajaj Finserv is the holding company for the financial service companies of Bajaj Group. The company provides solutions for asset acquisition through financing, general insurance, life & health insurance, retirement, and saving solutions. Bajaj Finserv, as a holding company, has the stakes in several companies of Bajaj Group. It has Bajaj Finance with a 52.74 per cent stake, Bajaj Allianz General Insurance with 74 per cent stake, Bajaj Allianz Life Insurance with 74 per cent, Bajaj Finserv Health Ltd and Bajaj Finserv Direct with 100 per cent each operating in the diversified financial services. The stock’s EPS strength has improved to 83, which means that its earnings are better than the 83 per cent of the listed stock.
✓Technically, the stock has broken out of a 10-week consolidation with an above-average volume. The stock is also trading at a new lifetime high. Its relative price strength is as high as 75 and is trading above all the short and long-term averages. For the last three weeks, its volumes are above average.
✓On the weekly chart, the MACD has given a fresh buy signal. The ADX (23.41) shows a reasonable strength in the trend. The weekly 14-period RSI has broken out of a squeeze and is in a super bullish zone. The Elder impulse system has given a buy signal.
✓On the daily chart, the MACD histogram is showing a gradual increase in the bullish momentum. In short, the stock has registered a long-term bullish breakout. The short-term target is Rs 11,956 and medium-term target is Rs 12,050. Maintain a stop-loss at Rs 10,526.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Mastek Ltd at Rs 1,392.65 in issue no. 27 (dated April 26, 2021). Post our recommendation, the stock moved higher in line with our expectations and went onto touch the level of Rs 1,600. We had given a ‘book profit’ message at the level of Rs 1,484.55 via our SMS service on April 27, 2021. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit.