Dharmesh Shah
The price action formed a sizable bear candle as Nifty witnessed renewed selling pressure on the breach of its key support zone (10,500), contrary to our view.
The weakness in the rupee to a 16-month low at 68.5 against the dollar also weighed on sentiments. Since CY17, the Nifty followed a tendency of not correcting over seven trading sessions in a row.
In the current scenario, as the Nifty has already corrected for seven sessions and in the process, the short-term Stochastic has dropped to an oversold reading of 6.
As the index has extended secondary corrective phase at present, we advise investors to avoid creating aggressive short positions at the current level.
In the coming session, a follow-through strength and close above previous session’s high (10,534) would be required to pause the downward movement. This would open pullback options to head towards 10,600.
Failure to do so would lead the market to continue with its lackluster movement, amid stock specific action as we are going through the Q4 earnings season.
The Nifty has breached the sequence of the last six weeks higher high-low formation, indicating a secondary phase of consolidation to cool off the overbought situation (owing to the 10 percent rally that was seen over the past eight weeks).
Going ahead, we expect the Nifty to consolidate within a broader range of 10,300–10,600 amid stock specific action as we are going through the Q4 earnings season. We believe the Nifty has strong support base around 10300, as it is a confluence of:
- 200 days SMA placed around 10,330
- 61.8 percent retracement of last up move 9,952-10,929, at 10,325
Structurally, the index remains on a strong footing amid a robust price structure as it has been forming a higher high-low on the monthly chart for the first time since January 2018, indicating a structural turnaround.
Thus, any breather from here on would help the Nifty form a higher base formation that would set the stage for the next leg of the up move.
Here is a list of top 3 stocks which could give up to 20-24% return:
Pfizer: Buy | CMP: Rs 2,376 | Target: Rs 2,960 | Stop loss: Rs 2,165 | Return 24% | Time frame: 6 months
The share price of Pfizer India is in a strong uptrend forming a rising peak and rising trough and has recently registered a flag breakout in the monthly chart highlighting the strength in the uptrend and offers a fresh entry opportunity from a medium-term prospective.
The stock entered a sideways consolidation mode after hitting a 52-week high of Rs 2,369 in mid-February 2018 and, thereafter, oscillated in a price band of Rs 2,350 to Rs 2,050 in the last three months.
Pictorially, this sideways consolidation has taken the shape of a bullish flag pattern. The resolute breakout from the bullish flag pattern in the current month's trade, signals conclusion of the secondary corrective phase and resumption of the primary uptrend thus providing a fresh entry opportunity.
The stock has major support in the range of Rs 2,150-2,200 being the confluence of 80 percent retracement of the previous up move from Rs 2,050 to Rs 2,549 and 12 months EMA.
Time-wise, the stock has seen a faster retracement of the last falling segment as nine weeks decline (from Rs 2,369 to Rs 2,080) was completely retraced in just four weeks signaling a robust price structure.
Based on the above technical observation the stock is likely to continue with positive bias and head towards the Rs 2,978 levels being the measuring implication of the flag breakout.
The height of the pole of the flag 688 points (2,369-1,681=688) added to the breakout area of Rs 2,300 projects upside towards Rs 2,978 (2,300+ 688=2,978)
AIA Engineering: Buy | CMP: Rs 1,550 | Target: Rs 1,850 | Stop loss: Rs 1,395 | Return 20% | Time frame: 6 months
The share price of AIA Engineering is in a strong uptrend forming a rising peak and rising trough and has recently registered a breakout above the three months consolidation (Rs 1,350-1,494).
Thus, it offers a fresh entry opportunity from a medium-term prospective. The base of the last three months consolidation is placed at the major support area around Rs 1,340-1,390 as it is the confluence of the following technical parameters:
- A rising trend line support joining the major lows since September 2016 currently placed at Rs 1,390
- The long-term rising 52 weeks EMA, which has acted as strong support for the stock since April 2016
- 80 percent retracement of the previous major up move (Rs 1273-1709) is placed around Rs 1,360 levels
Time-wise, the stock has already taken 22 weeks to retrace just 80 percent of the previous 15 weeks up move from Rs 1,273 to Rs 1,709. The slower pace of retracement of the rally is a cornerstone of a bullish price structure and indicates the corrective nature of price decline.
Among the oscillators the weekly MACD has generated a bullish crossover above its signal line thus supports the positive bias in the stock
Based on the above technical parameter we expect the stock to continue with its current uptrend and head towards Rs 1,850 as it is the 138.2 percent external retracement of the entire previous decline (Rs 1,709-1,320),
Prabhat Dairy: Buy | CMP: Rs 175 | Target: Rs 216 | Stop loss: Rs 166 | Return 23% |Time frame: 6 months
The stock is seen resuming its upward trajectory after a four-week hiatus, resulting in a higher bottom at Rs 170. Technically, this is signalling the end of a corrective decline and unfolding the next up leg, thus providing a fresh entry opportunity.
A multi-month decline from a lifetime high of Rs 257 has helped the stock to work out excesses built in the preceding rally and establish a higher base near Rs 150, which is a cluster of the following technical parameters:
- A cluster of Fibonacci retracements of May-December 2017 rally
- Breakout area of November 2017, which has turned its role as a support
The immediate support for the stock remains at last four week’s lows placed at Rs 170. Most recent price action makes us confident that the stock is ready to head higher.
Therefore, the stock offers a fresh entry opportunity from a medium-term perspective offering 18% upside over a six-month period.
We project the target of Rs 216 as it is the confluence of a) equality of April 2018 rally (148-188) projected from last week’s low (170+40=210) and b) 61.8% Fibonacci retracement of entire decline (257-148) placed at Rs 216 levels.
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 his 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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