Technicals Analysis
WHAT LIES AHEAD : NEAR-TERM PICTURE
SPOT NIFTY :
Nifty has gained 209.55 points or 1.42 per cent in the last five trading sessions. It fell sharply by 231.2 points from Tuesday's high and traded in the range of 545 points during the same time period.
Meanwhile, Nifty closed below the 38.2 per cent retracement level of Monday and Tuesday’s rally. After two days of euphoric move and a breakout, it failed to sustain the momentum. The low-volume breakout failed to get follow-through days. It closed below the swing high of May 10 and tested the prior multiple resistance line of 14,880. With this, an ascending triangle and the inverted head & shoulders pattern breakout failed.
Barring PSU Banks and realty indices, all other sectoral indices declined while the negative market indicates an inherent weakness in the market. On a weekly chart, though there’s still one more day left, Nifty is forming a shooting star candle, as it has already declined over 50 per cent of the current candle. It closed below the 5-EMA but took support at 8-EMA.
A close below the 14,850 on Friday will be a breakdown of an ascending triangle. As this pattern has already failed, the breakdown repercussions will be extremely bearish. In this background, Friday's weekly closing is very critical.
In a bull case scenario, if Nifty closes above 14,970, the index will regain the short-term strength. Wait for the weekly bar to close to find out a direction for the near future.
NIFTY DERIVATIVES:
Nifty Futures advanced by 231 points or 1.57 per cent since the last weekly expiry. Its volume declined continuously for the last five days. Because of the weekly expiry, the open interest was up today. The put-call ratio (PCR) declined to 1.16 from 1.54 in the last five days. This is indicating that the market is entering the neutral zone again. For the last five days, the open interest is declining. Usually, this trend is seen in the last week of the month as the monthly rollovers begin. A week before the monthly expiry, the overall volumes are below the average.
The total call open interest is 5,38,545 while the total put open interest is 6,27,242. The deep-out-of-the-money options are still hav-ing a higher open interest. This is a new trend for the last two weeks. The traders probably expect a lottery to win, or traders have become the market makers by selling deep-out-of-the-money options to get limited profits for unlimited risk. The 14,000 strike put option has the highest open interest of 66,848 while 13,500 strike has an open inter-est of 46,054. Even the 13,000 strike has an abnormal open interest of 32,083 whereas at-the-money 14,900 strike has only 26,293 open interests. The 14,800 and 14,700 strikes have 38,441 and 34,281 OI, respectively.
On the calls' side, the 15,000 strike has the highest open interest of 55,985, followed by 15,500 strikes with 42,738 open interests. The 15,100 strike also has a 40,100-open interest. Interestingly, the 16,000 call has 36,375 open interests.
There are huge short built-ups in the 14,550 to 15,250 call strikes barring 14,650 and 14,550 strikes, which have seen the long unwind-ing. On the put side, the 15,250 to 15,050 strikes have seen the long unwinding while the 15,000 to 14,550 strikes have the long build-up.
The above derivative data shows that the monthly series may expire around 14,900. Besides, the VWAP is at 14,906.
TECHNICAL RECOMMENDATION
STOCK STRATEGY
PHILLIPS CARBON BLACK LTD..................BUY ................... CMP Rs 232.50
BSE Code :5 06590
Target 1 : Rs 270
Target 2 : Rs 287
Stoploss : Rs 214 (CLS)
Current Observation:
✓RP-Sanjiv Goenka Group company, Phillips Carbon Black Limited has played a pioneering role in the carbon black industry for over six decades.
✓With the current production capacity of 6,03,000 MT per annum and generating 76 MW per hour of green power, the company is the largest carbon black manufacturer in India as well as a strong global player. It has strategically located four state-of-the-art manufacturing facilities along with R&D centre.
✓Technically, the stock has broken out of a 10-week flat base with a massive volume. The stock is trading above the pivot. Currently, it is about 14 per cent above the 50-DMA and 11 per cent above the 20-DMA. The stock has given a 326 per cent return since March 2020 low. The stock is seen moving in the staircase method with small bases. Its price relative strength is at 77 showing a stronger price performance in the market. The stock is currently testing 78.6 retracement levels while the RSI is in a bullish zone as well as above the 45-period average. Meanwhile, the weekly MACD is about to give a buy signal. The trend strength indicator i.e. the ADX (34.64) is in a strong trend while the +DMI is above the -DMI. The Elder impulse system has given a bullish signal. In a nutshell, the stock is in a strong bull trend and has registered a bullish breakout. Accumulate the stock above Rs 230 with a stop-loss of Rs 214. The short-term target is placed at Rs 270 while the medium-term target is at a previous high of Rs 287.
REVIEW OF STOCK STRATEGY
We had recommended our readers to buy the stock of Ramkrishna Forgings Ltd at Rs 640.75 in issue no. 30 (dated May 17, 2021). Post our recommendation, the stock marked a high of Rs 670, and thereafter, it is seen moving in a sideways manner along with low volume. The stock is still trading above its 20-DMA and it's currently hovering around the breakout level. We can expect to regain its momentum once it manages to close above the level of Rs 655. We would advise our readers to hold this stock with a stop-loss of Rs 575 on a closing basis as the stock is likely to move higher from the current levels.