Technicals Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY : The benchmark indices fell sharply over one per cent, with distribution day combined with negative breadth. Nifty fell by 154.25 per cent or 1.04 per cent and settled at 14,696.50. In fact, it fell 270.40 points or 1.81 per cent from Monday's high.
The market gave up all its recent strength that was built in the previous week. Our premonition about the recent upmove with no trend strength has turned into reality. The failed breakout combined with confirmation to the evening star clearly affected the market trend.
Nifty declined below the 50-DMA and took support at 20-EMA. With all probability, on a weekly chart, it’s going to be a bearish candle dark cloud cover this weekend. On Wednesday,Nifty also fell into a falling channel. The RSI faced a stiff resistance near the zone of 58 and turned down. On a weekly chart, it has formed a new lower swing high.
In any case, if the weekly RSI (58.81) falls below 55, it would indicate a solid bearish signal. Besides, the negative divergence is still valid. The momentum turned towards the downside. The breadth of the index and the broader market has also turned negative. Meanwhile, the negative directional indicator, -DMI once again moved above the +DMI while the ADX declined further. These directional indicators have given signs of weakness in advance. On a 75-minute chart, the MACD fell below the zero line while the MA ribbon turned down. The above technical evidence is showing bearish signs. Currently, avoid fresh long positions in the index and apply bearish strategies while focusing only on stock-specific activity.
NIFTY DERIVATIVES: During this truncated week, Nifty Futures declined 159.50 points since the last weekly expiry. On this expiry day, it closed at 14,710.05, after declining by 168.20 points or 1.13 per cent with a 2.01 per cent increase in the open interest.
Nifty premium declined to just 13.55 points. The highest volume was recorded after February 26, when Nifty had slipped over 522 points. This is a clear indication that the market is in a mood to break out of a consolidation zone. The PCR is still higher at 1.54. The next weekly expiry PCR is at 0.75. The rollovers were seen at 7.7 per cent while India VIX declined to 20.08 from 20.82.
The total call open interest is at 2,77,433 and the total put open interest is at 2,08,464. Like last week, the deep-out-of-the-money strike open interest is higher. The 15,500 and 16,000 strike call open interest is at 28,160 and 21,757, respectively. The out-of-the-money 15,000 strike call has an open interest of 23,309. Interestingly, the at-the-money strike 14,700 call open interest is much less i.e. at just 14,900, followed by 14,800 strike with 19,425 open interest.
On the put side, the highest open interest is at 14,000 strike of 18,792, followed by at-the-money strike 14,700 with an open interest of 14,212, which was followed by 14,500 strike with 16,330 along with 14,200 strike with 10,125 open interest. Generally, the calls have a long built-up at the beginning of the week while the puts comprise a short built. However, this time, the scene is exactly the reverse. From 14,350 to 15,050, all the call strikes have a short built-up, except 14,950 while all put strikes have a long built-up. Meanwhile, the Max Pain is at 14,800.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
RAMKRISHNA FORGINGS LTD ..................BUY ................... CMP Rs 640.75
BSE Code : 532527
Target 1 : Rs 725
Target 2 : Rs 765
Stoploss : Rs 575 (CLS)
✓Current Observation: Ramkrishna Forgings Limited caters to various sectors such as automotive, railways, farm equipment, bearings, oil & gas, power and construction, earthmoving & mining, both in Indian & overseas markets.
✓The company is also a critical safety item supplier for screw coupling, bolster suspension, side frame keys, and draw gear assembly for railway coaches & wagons. It is also a preferred supplier to original equipment manufacturers (OEMs) for Tata Motors, Ashok Leyland, VE Commercial and Daimler in India while for Volvo, Mack Trucks, Iveco, and Ford in the global markets.
✓Technically, the stock is trading at a two-and-a-half-year high and has broken out of a 14-week consolidation with the highest weekly volume. It is also trading above the 20-DMA, 50-DMA, and all the short moving averages. The 20-period weekly RSI is above the 60 zone while the MACD is about to give a buy signal. The ADX (28.05) has a very strong trend strength. The positive directional indicator, the +DMI is rising above the -DMI. The Elder impulse system has given a buy signal.
✓Its price relative strength (RS) is as high as 90, which means that the stock price is performing better than 90 per cent of the listed stocks. In short, the stock is a bullish structure. Buy this stock in the zone of Rs 620-Rs 645 with a stop-loss of Rs 575. The short-term target is at Rs 725 while in the medium-term, it can test the previous high of Rs 765.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Sun Pharma Advanced Research Company (SPARC) at Rs 181.40 in issue no. 29 (dated May 10, 2021). Post our recommendation, the stock moved higher in line with our expectations and went on to touch both the targets which we had mentioned in our recommendation. We had given a ‘book profit’ message at the level of Rs 195 via our SMS service on May 10, 2021. Thus, investors, who had taken positions, according to this strategy, would have made a decent profit.