Back in August and early September on multiple occasions, Nifty had faced resistance around supply point of 9,930-9,990.
Wednesday’s drubbing from day’s high both in index and BankNifty was the third instance since August which had resulted in a decline from the summit of 10,000.
It earmarked zone of 10,050-10,100 as the critical supply point. However, Thursday’s turnaround was even more ferocious as Nifty compensated for Wednesday’s decline by staging a rally of more than 100 points to close at 10,096.
An index reeling in congestion (9,700-10,200) invariably exhibits such contrasting movements. The architect of Thursday’s change in fortune was Reliance Industries, HDFC Bank, and auto stocks.
BankNifty managed to hold on to three-digit gann number of 241(00) and provided a strong recovery. During the intra-day trade, it made a low of 23,978 but during the turnaround process, it marked a peak of 24,393.
However, it failed to surpass Wednesday’s high of 24,460. Zone of 24,500 is acting as hurdle point since the last couple of weeks. NiftyPSU Bank index ended flat as about half of its stocks settled in red.
Meanwhile, yet again Nifty managed to defend the three-digit gann umber of 993(0) and its 21-EMA. Back in August and early September on multiple occasions, Nifty had faced resistance around supply point of 9,930-9,990.
The same area acted as a point of polarity which resulted in a sharp turnaround. Even as market participants seem puzzled, such volatile swings as market approaches critical supply point suggest that time is not right for trading on the index.
In such set-ups, one should stick to stock specific ideas until a clear, definitive bias on the index emerges. The index formed a large bullish candle and surpassed Wednesday’s high of 10,067.
It failed to provide a negative follow-up to its prior bearish candle. The Nifty breadth turned positive with 41 of Nifty50 constituents settling in green.
Here is a list of top five stocks which can give up to 10% return in the short term:
M&M: BUY| Target Rs1420| Stop Loss Rs1300| Return 6%
The stock had been on the declining path after making a peak of Rs1,434 in August 2017. The pattern of lower–top and lower-bottoms meant that the stock failed to provide any definitive sign of reversal.
The decline took shape of a falling channel pattern. However, in this week’s trade, the stock staged a breakout from the downward sloping channel, bringing an end to corrective phase.
In the process, the stock managed to regain control above the gann number of 133(0) suggesting strength in the recent comeback. Post a move of 3 percent in this week’s trade, we expect the stock to see follow-through buying.
Based on above observations, we recommend a buy on M&M above Rs1,330 with a stop loss of Rs1,300 and a target of Rs1,420.
IDFC: BUY| Target Rs73| Stop Loss Rs63| Return 10%
After marking a high of Rs92 in 2015, the stock had been on a declining curve. Brief recovery was seen during August - September period, as the stock made a peak of Rs71, but it failed to sustain at the top.
Thereafter, it fell to a low of Rs50 in December 2016. It is placed near two-digit gann number of 49; which eventually resulted into a bottom. The process post formation of a low can be termed as bottoming out. As the stock was stuck in a narrow range doing virtually nothing.
Recently, it managed to break past the downward sloping trend line, suggesting conclusion of base building pattern. We expect IDFC to build on recent gains. Buy IDFC above Rs66 with a Stop loss of Rs63 for a target of Rs 73.
Tata Chemicals: BUY| Target Rs750| Stop Loss Rs665| Return 8%
After being in a phase of consolidation at the top of its rally, it finally staged a breakout on the upside in this week’s trade. It is showing the trait of a stock which is in a strong uptrend since February 2016.
Prior to a recent breakout, it went through a phase of sideways correction as the stock took support at its third line of defense as per gann rule of 8, which coincides with the support of its rising trendline of the upward sloping channel.
Thereafter, it provided a gradual recovery and eventually, the stock broke past the previous peak of Rs666. Post this continuation pattern breakout, we expect the stock to replicate the momentum it had seen from in the first half of 2017.
Traders are advised to buy the stocks which are breaking out from consolidation pattern at the top. Based on above observations, we recommend a buy on Tata Chemical above Rs690 with a stop loss of Rs665 for a target of Rs750.
Havells India: BUY| Target Rs560| Stop Loss Rs515| Return 5%
We are right now in an environment which appears to be rewarding any particular stock which is showing signs of strength. Havells falls in that particular category.
Earlier in May 2017, the stock had marked a peak of Rs526. Failure to clear past the gann hurdle of 529 resulted in a decline.
However, the fall seen in the next two months should be termed as a corrective move as the stock took support at the third line of defense as per the gann rule of 8.
Incidentally, the low was marked near the start of the previous gann channel which resulted in the end of decline as the stock began a process of gradual recovery.
In this week’s trade, Havells managed to break above the peak of the month of May, which suggests resumption of the prevailing uptrend and concluding the phase of consolidation. So, Buy Havells above Rs530 with a stop loss of Rs515 for a target of Rs560.
BEL: BUY| Target Rs182| Stop Loss Rs163| Return 7%
BEL has been showing characteristics of a stock which is in a strong uptrend since December 2016. Recently, the stock went through a phase of correction.
However, broader structure suggests that it is just a decline in an ongoing uptrend. In September, it made a peak of Rs183 and struggled to maintain the momentum as the rally fizzled out and stock made a low of Rs158.
However, the support of rising trendline came to the rescue as the stock bounced back and in the process staged a breakout above the downward sloping trendline on the short-term charts.
In Thursday's trade, it also managed to regain control of the three-digit gann number of 169, indicating that the worst is behind on the counter.
Keeping in mind the above-mentioned observations, we recommend a BUY on BEL above Rs169 with Stop loss of Rs163 for a target of Rs182.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.