Moneycontrol
Aug 10, 2017 09:27 AM IST | Source: Moneycontrol.com

Nifty has strong support at 9850; 4 stocks which can give up to 26% return in 6 months

Going forward, we expect the index to consolidate between the broad range of 9,850 and 10,100 levels while the focus will be on stock specific activity amid the ongoing quarterly earnings season.

Nifty has strong support at 9850; 4 stocks which can give up to 26% return in 6 months

Dharmesh Shah

ICICI Direct.com Research

The Nifty formed a smaller bear candle which maintained a lower high lower low compared to the previous session as the index extended losses for the third consecutive session.

The index has taken a breather on expected lines as the five-week strong rally of over 7 percent since June 2017 lows pushed the weekly momentum oscillators into overbought zone.

Historically, since 2013 it has been observed that the index has not formed more than five consecutive bull candles on a weekly scale.

The Nifty respected this tendency as it has entered into a cool off mode after forming five bull candles in a row.

Going forward, we expect the index to consolidate between the broad range of 9,850 and 10,100 levels while the focus will be on stock specific activity amid the ongoing quarterly earnings season.

We believe a round of consolidation from here on will make the market healthier and create fresh buying opportunities within the larger degree uptrend.

We believe the immediate support base for the index has shifted upwards to 9,850 regions as it is the confluence of 38.2% retracement of current up move which also coincides with percentage wise equality with the last falling segment measuring 2.7% placed around 9860 regions.

Here is a list of top five stocks which can give up to 26% upside in next 6 months:

Tata Steel: BUY| Target Rs718| Stop Loss Rs568| Upside 19%| Time Frame 6 month

The share price of Tata Steel has recently registered a resolute breakout past its key hurdle of Rs580 backed by a strong set of Q1FY18 numbers, thereby triggering a larger degree structural turnaround and provides good buying opportunity from medium term perspective.

The two major yearly lows formed in 2013 and 2015 placed at Rs200 region represent a major Double Bottom formation as highlighted in the adjoining price chart.

A double bottom formation is a bullish reversal pattern comprising of two distinct lows and an intermediate high between them which represents the neckline/breakout level of the pattern.

It carries positive implications for the share price upon resolute breakout above the neckline of the pattern. The strong up move in the current month backed by a good set of quarterly result has propelled the stock past the neckline of the pattern and yearly high of 2014 placed at Rs580 levels.

The resolute breakout above the neckline of major Double Bottom reversal comprising the price action over the last four years signals a larger degree structural turnaround and augurs well for the stock going forward.

We expect the stock to head towards Rs718 levels over the medium term as it is the confluence of 138.2% reciprocal retracement of the 2014 and 2015 fall (580 to 200) placed at Rs718 and yearly swing highs of 2010 and 2011.

Sundaram Finance: BUY| Target Rs1990| Stop Loss Rs1590| Upside 15%| Time Frame 6 month

The share price of Sundaram Finance registered a resolute breakout past two-year consolidation range above Rs1650 in July 2017 thereby signalling the end of an elongated corrective phase and resumption of the primary uptrend.

The key observation on the price chart is that the strong up move since the start of CY2017 has resulted in a faster retracement of the 2015-2016 correction as the 21-month decline from Rs1640 to Rs1102 was completely overhauled in just three months.

Faster retracement of the major down move highlights a structural turnaround implying resumption of the bullish momentum. The entire up move since January 2017 till date has occurred in a well defined rising channel as the stock continues to attract persistent demand at elevated levels and augurs well for the continuance of the up move going forward.

We believe the stock is set to embark upon its next major up move towards Rs1990 over the medium term as it is the 161.8% external retracement of the entire corrective consolidation since the year 2015 from Rs1640 to Rs1102 placed at Rs1990 levels

HEG: BUY| Target Rs608| Stop Loss Rs421| Upside 26%| Time Frame 6 month

The share price of HEG has witnessed a major turnaround in the long term price structure as it resolved out of a multi-year consolidation during July 2017.

The share price surged above its previous major peak of January 2010 (Rs412), in July 2017 thereby triggering a breakout past seven-year consolidation. During these seven years, the share price oscillated in the broad range of Rs400-150 while it retraced 2009- 10 rally (Rs94-412) by 80%.

The seven-year consolidation against one year rally has resulted in a major price higher bottom formation on long term charts. The recent breakout from the seven-year consolidation indicates resumption of structural bull phase for the stock

The sharp up move since the start of the CY17 has seen the stock completely retraced its major decline consuming 28 quarters from March 2010 high of Rs412 to December 2016 low of Rs144 in just three quarters.

The rally was also supported by strong volume participation of more than three times the 12-month average (10 lakh shares) highlighting larger participation in the direction of the trend.

Faster retracement of the major falling segment backed by strong volume participation confirms the positive turnaround in price structure and reinstates the bullish momentum.

We believe the stock is well placed to continue its upward trend over the coming months.

As the current rally is extending in magnitude we believe the share price is set to head towards Rs 608 as it is the 123.6% extension of preceding June – July 2017 rally (251 – 441) as projected from the recent trough of Rs387. It also coincides with the all time high of January 2008 placed at Rs608 levels.

Relaxo Footwear: BUY| Target Rs575| Stop Loss Rs445| Upside 17%| Time Frame – 6 months

The stock is in long term uptrend and witnessed a stupendous multi fold rally during December 2013- July 2015 rallying from a low of Rs85 to Rs615 in just 20 months.

The stock entered into a secondary corrective phase thereafter to work off the excesses of the preceding rally. The price wise and time wise behaviour during the corrective phase highlights the overall positive price structure.

Price wise, the stock retraced its 2013-2015 up move precisely by 50% (| 350) as the lows of March and November 2016 around the same level indicating accumulation by stronger hands at major retracement support.

Time wise, the stock spent over 24 months under consolidation against the preceding rally of 20 months. Limited price wise correction and elongated time wise consolidation form the key ingredients of a healthy corrective phase within a structural uptrend

Over the last four months the stock has been consolidating in the range of Rs510-450 levels and during the current week, it has rebounded from the support area of Rs450.

We believe the consolidation phase over the last four months has approached maturity thus signalling the resumption of the primary uptrend.

We expect the stock to resolve higher and test Rs575 levels in the medium term being the upper band of the rising channel in placed since November 2016

Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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