Moneycontrol
Aug 11, 2017 08:56 AM IST | Source: Moneycontrol.com

Nifty likely to remain under pressure; top 5 stocks which can give up to 9% return

Going forward, the three-digit gann number of 977(0) would be an immediate support point, which is why sustenance above 9,770 could provide a relief rally en route 9,900-9,930 levels.

Nifty likely to remain under pressure; top 5 stocks which can give up to 9% return

By Pritesh Mehta

IIFL Private Wealth

The writing on the wall was clear since long. The tell-tale signs - lack of positive breadth (around the all-time high), weakness in BankNifty, and the presence of multiple gann points and lucas series number - ultimately caused the current predicament.

The orbit shift of Wednesday’s trade (decline below 9,930) took a mere two sessions to mark a low of 9,776, placed near three-digit gann number of 977(0). This, in consequence, completed the cycle of the impending downside move.

Thursday’s low coincides with 50 percent end to end retracement of the up move - from the low of 9449 to the all-time high of 10,138.

Also, 50-EMA support on daily charts came to the rescue even as markets managed a sharp pullback from the day’s low.

It's pertinent to note that in the case of the June 2017 decline, Nifty had sought support near the same EMA levels, before resuming a voyage towards a record high.

Going forward, the three-digit gann number of 977(0) would be an immediate support point, which is why sustenance above 9,770 could provide a relief rally en route 9,900-9,930 levels.

Here is a list of top five stocks which could give up to 9% return in short term:

BHEL: SELL| Target Rs114| Stop Loss Rs132| Return 9%

BHEL had failed to participate in the bull market of 2017. YTD returns of 5 percent in 2017 show the inability of this stock to sustain at higher levels and implies the underperformance against the benchmark index.

Back in April, the stock had recorded a high of Rs179, which coincided with its 187-weekly moving average. The appearance of an engulfing top resulted in a sharp reversal. In the ensuing decline, the stock also gave a breakdown from a rising channel pattern on the weekly chart.

Selling pressure likely to escalate on a move below Rs125. Risk reward ratio is ideal to create short positions. Based on above rationale, we recommend short on BHEL Aug Futs below Rs126 with a stop loss of Rs132 for a target of Rs114.

Ambuja Cements: SELL| Target Rs250| Stop Loss Rs275| Return 6%

The presence of multiple tops around Rs280 and failure to break past the gann number of 289 led to a reversal. In this weeks’ trade, the stock lost 4% after it gave a breakdown below the support of rising trendline.

Clear signs of distribution are visible and short-term moving averages have given a negative crossover. Whenever momentum stocks start falling down and makes a distribution pattern, it is an indication that decline could be big.

The daily RSI has given a negative crossover which could provide an immediate trigger for the down fall. Keeping in mind the above-mentioned observations, we recommend traders to short Ambuja Cements Aug Futs below Rs267 with a stop loss of Rs275 for a target of Rs250.

Bank of India: SELL| Target Rs135| Stop Loss Rs153| Return 8%

Bank of India has recently signaled trend reversal below Rs152 with a broader pattern indicating breakdown from a bearish Head 7 shoulders pattern.

Based on pattern observations, the stock could be drifting below Rs137 in the medium term.

The inability of stock to conquer ground around its recent top of Rs167, which is placed near the three-digit gann number of 169, reinforced the negative trend in the counter.

The daily RSI too has retreated lower and has a good cushion to decline, before entering into oversold terrain. A fall below Rs145 would result in a break below the midpoint of the current gann channel.

Traders are advised to create shorts on Bank of India Aug Futs below Rs147 with a stop loss of Rs153 for a target of Rs135.

Tech Mahindra: BUY| Target Rs436| Stop Loss Rs390| Return 7%

Ratio chart of NiftyIT index vs Nifty shows significant underperformance of IT stocks since 2014 and during this period, ratio corrected from 1.65 to 1.05 (down by 35 percent). However, recent price structure shows that ratio has been hovering near 61.8% retracement level of the entire up move of 2009 to 2014.

Positive divergence is seen in the weekly RSI. Ratio price is attempting to breakout from downward sloping trendline. Within the IT basket, Tech Mahindra is relatively holding ground, hence could attract bull’s interest.

The stock created strong base around three-digit gann number of 361 before going through a phase of consolidation at the bottom. In Thursday’s trade, it attempted a breakout from the above-mentioned consolidation.

We expect the stock to witness follow-up buying post the recent underperformance. We recommend traders to buy Tech Mahindra above Rs404 with a stop loss of Rs390 for a target of Rs436.

L&T Finance Holdings: SELL| Target Rs152| Stop loss Rs 174| Return 7%

On the weekly chart, L&T FH has reversed after making a top of Rs179, eventually failing to sustain above the three-digit gann number of 169, suggesting that the likelihood of further upside over the short-term has diminished.

For now, the risk/return of establishing long positions is less than ideal. Moreover, the stock has broken below the small consolidation pattern between Rs175-167. It presents a great opportunity for the traders to jump in on the downtrend.

An occurrence of this event indicates further selling and continuation of the downtrend. An Appearance of engulfing bearish line on the weekly chart indicates a possible end to the current sideways trend.

The above candlestick pattern creates a potential short-term reversal. We recommend traders to short L&T FH below Rs167 with a stop loss of Rs174 for a target of Rs152.

Disclaimer: The author is Head of Technical Research at IIFL Private Wealth. 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.
Sections
Follow us on
Available On