Moneycontrol
May 19, 2017 11:56 AM IST | Source: Moneycontrol.com

Top 5 stocks which can give up to 9% return based on technicals in short term

Engineers India, Hexaware, and Ashok Leyland, among others, are likely to give out such returns

 
 
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Pritesh Mehta

IIFL Wealth & Asset Management

Lack of broad-based participation and deteriorating index breadth meant that bulls were always walking on a tightrope atop mount 9,500. A sell-off in US markets overnight and a domino effect across the globe finally knocked down the bulls off the top perch on Dalal Street on Thursday.

Thursday’s session was the first instance of a correction in the previous five months. Retracement on the downside could extend further after the index closed below the three-digit gann number of 9,460 and also below the 360-degree move from the low of 9075 (which is placed around 9470).

The first line of defense as per the gann rule of 8 is placed around 9,330 (from the base of the rally which began on 26th December 2016).

The Nifty Midcap100 index lost 2.2 percent in Thursday’s trade, as it reversed lower from the upper-end of current gann channel placed around 1849(0) and in the process it broke below the support of an ascending trendline, suggesting stocks from the midcap space are likely to correct sharply in the near term.

Here is a list of top five stocks to buy which can give up to 9% upside in the short term.

Engineers India: SELL | Target: Rs 152| Stop Loss: Rs 174| Return: 9%

It is a classic case of a false breakout. In Wednesday’s trade, it confirmed a breakout above Rs173 following a prolonged period of consolidation at the top. The stock was moving in a range between Rs 163-173 for last one month.

However, it failed to provide a follow-up move on the upside and in the process, it fell below the three-digit gann number of 169. Lack of follow-through movement on the upside post breakout followed by reversal suggests that the stock is likely to go through a strong period of correction. A move below Rs163 would also result in a range breakdown.

The risk reward ratio for initiating short positions from current levels remains favorable. Based on above rationales, we recommend traders to create shorts in Engineers India May Fut below Rs168 with a stop loss of Rs174 for a target of Rs152.

Reliance Capital: SELL | Target: Rs 625| Stop Loss: Rs 670| Return: 4.9%

Reliance Capital had seen a strong run-up from the low of Rs 407 back in December 2016 to the peak of Rs 691. The stock found this level too hard to breach which resulted in a period of consolidation as the stock digested the strong upmove.

However, its inability to hold on to the midpoint of its three-digit gann channel placed around 677 resulted in a reversal. A negative divergence on the daily RSI was confirmed after the price broke below the recent low of Rs663, suggesting strong move on the downside.

We expect the stock to complete the shift in the orbit towards Rs625 in the near term. So, traders are advised to create short below Rs655 with stop loss of Rs670 for a target of Rs625.

Hexaware: BUY | Target: Rs 274| Stop Loss: Rs 248| Return: 7.4%

A rally of 2 percent in a weak market set up of Thursday’s trade has ensured that the price managed to close above the resistance area of Rs250, thus signaling bullish breakout from the Flag pattern.

Since the second week of May 2017, the stock had been trading in a narrow band. However, despite sideways movement, it continued to trade above its 21-DEMA. Breakout in Thursday’s session has paved the way for smart upmove in the medium term.

Earlier in February 2017, the stock provided a strong breakout from base building pattern, which suggests that the stock is in a strong uptrend. Every consolidation or a decline is providing a buying opportunity.

Breakout from flag consolidation is likely to ignite buying momentum once again. Traders are advised to buy Hexaware above Rs256 with a stop loss of Rs248 for a target of Rs274.

LIC Housing Finance: SELL | Target: Rs 640 | Stop Loss: Rs 688| Return: 5%

The momentum in Housing Finance companies have cooled off in last few weeks and among the space, LIC Housing Finance looks set to retrace lower. Weakness is attributed in this counter after it failed to clear past the hurdle of three-digit gann number (i.e 729), incidentally, the stock made a peak of Rs728 on 5th may.

Since then, it has been gradually moving lower. In Thursday’s trade, it also fell below the midpoint of its current gann channel placed at 677.

Analyzing the stock from a harmonic perspective, the stock is currently on the last leg of ABCD pattern, an extended move on the downside suggests could see the stock attempting Rs640 in the near term.

Based on above parameters, we recommend traders to short LIC Housing Finance May Futs below Rs673 with a stop loss of Rs688 for a target of Rs640.

Ashok Leyland: BUY | Target: Rs 94| Stop Loss: Rs 84| Return: 9.3%

It has provided a reversal from gann number of 81 and in the process staged a breakout above the downward sloping trendline on the short-term charts. Earlier in the month of February 2017 from the peak of Rs97, the stock went through a sharp corrective phase.

Thereafter, it found support around 61.8% retracement of the earlier upmove and began a process of consolidation. A move above Rs89 would result in a breakout from a rounding bottom pattern.

Analyzing the stock from the harmonic perspective, the stock is currently in the last phase of the ABCD pattern, which suggest a possible move towards Rs94 in the medium term. Based on above rationales, we recommend traders to buy Ashok Leyland above Rs87 with a stop loss of Rs84 for a target of Rs94.

Disclaimer: The author is Head of Technical Research – IIFL Wealth & Asset Management. The views and investment tips expressed by investment experts on Moneycontrol are their own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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