After an over 400 points upmove in the last 9 sessions from its recent low of 10,558, the Nifty has currently entered overbought territory with a stochastic reading of 91 in the daily chart.
The Nifty continued its positive momentum as it reclaimed 10,930 for the first time since May. Our reiteration of positive bias at lower levels along with a buy on dips strategy has worked well as the index has approached our earmarked target of 10,930.
The index in this process has registered a resolute breakout above the falling trend line joining the highs of January (11,171) and May (10,929), currently placed around 10,800 levels, signalling a reversal of the corrective trend and resumption of the next leg of upmove.
After an over 400 points upmove in the last 9 sessions from its recent low of 10,558, the Nifty has currently entered overbought territory with a stochastic reading of 91 in the daily chart. This can lead to a breather in coming sessions. As the structure remains positive, such a breather should be utilised as an incremental buying opportunity. This would set the stage for the Nifty to challenge an all-time high of 11,172 in coming months.
The current leg of the rally is backed by strong participation of broader markets and improved market breadth, signalling a positive turnaround in market sentiment that bodes well for the endurance of the current upmove. This structural improvement makes us confident to upgrade our support zone from 10,550 to 10,700 levels, which is a confluence of:
a) 61.8 percent retracement of the recent upmove (10,558–10,976), placed at 10,710 levels
b) Rising trend line support drawn by adjoining major lows (March low: 9,952) placed at 10,650 levels
Price wise, the current rally off its two week’s low (10,558 to 10,976=418 points) is already greater in magnitude than the mid-June pullback of 136 points (10,837–10,701). A rally getting bigger signals a structural turn around that augurs well for next leg of upmove.
Here is a list of 3 stocks that could return 7-17 percent in the next 6 months:
ITC: Buy| CMP: Rs 275| Target: Rs 295| Stop Loss: Rs 261| Return 7%| Time Frame 6 months
ITC in the last eleven months has been consolidating around the earlier breakout area of Rs 250 levels. We believe that the stock has undergone a base building process that will act as a launch pad for the next leg of up move towards the higher band of consolidation (295), and provides a good entry opportunity for medium-term investors.
After hitting a 52-week high (368) in July 2017, the stock witnessed a gradual corrective decline and found support around Rs 250 is 80% retracement of the last leg of the rally (222-368) seen during Dec-16 to July-17.
Since then it has seen a steady base formation in a well-defined rectangle formation (as shown in adjacent chart). Currently, the stock has formed a higher high-low formation on the weekly chart for the first time in the last nine weeks, indicating termination of ongoing corrective phase.
Time-wise, the last major up move during 2016-17 (222 to 368) took eight months, whereas the index has already spent more than eleven months under the current consolidation while retracing 80% of the gains.
Limited price wise correction and extended time-wise consolidation signals the overall positive price structure. Based on the price and time wise observation, we believe the corrective consolidation has approached maturity.
The stock is likely to maintain positive bias and resolve higher from here on and test levels of Rs 295 being the confluence of 38.2% retracement of entire corrective phase (368-250) placed around Rs 295 which also coincides with the higher band of the current consolidation placed around Rs 295 levels.
Nestle India: Buy| CMP: Rs 1,019| Target: Rs 1,1450| Stop Loss: Rs 9250| Return 12%| Time Frame 6 month
Nestle India over the past eight weeks has been consolidating in a range of Rs 9450 to 10,200. We believe that the ongoing consolidation phase has approached maturity and the stock offers a favorable risk/reward from a medium-term perspective.
The entire price movement since May-17, the share price oscillated in the sideways broader range of Rs 9450 to Rs 10,200 levels. The stock outperformed the broader market as well as its peers from the FMCG space, during this phase.
With Wednesday's sharp up move, stock recorded a resolute breakout from the eight weeks consolidation backed by volume above 10 days average, indicating a resumption of the primary uptrend.
Going ahead, we believe that the stock has a strong support base around Rs 9,250, as it is a confluence of:
a) 61.8% retracement level of the last leg of up move (8660 -10198), placed around Rs 9,250
b) The 20 weeks EMA is placed around Rs 9,230
During the consolidation phase, the weekly stochastic cooled off from the overbought zone and found support from bullish support zone of 55. Currently, it is pointing upward post seeing a bullish crossover, indicating an acceleration of upward momentum.
Based on the aforementioned technical observations, we expect the stock to enter into a sustainable uptrend from here on and head towards target of Rs 11450 over the medium term as it is the 123.6% Fibonacci extension of the April to June 2018 up move (8660 to 10060) measured from the end of June 2018 higher bottom of Rs 9,500 which projects upsides towards Rs 11,450 levels.
Suven Life Sciences: Buy| CMP: Rs 221| Target: Rs 260| Stop Loss: Rs 201| Return 17%| Time Frame: 6 months
Suven Life Sciences is at the cusp of a breakout from a 28 months consolidation range of Rs 155-225 indicating a reversal of the consolidation trend and offers a fresh entry opportunity from a medium-term perspective.
The base of the last two years consolidation is placed at the major support area of around Rs 160-170 as it is the confluence of the following technical parameters:
a) the long-term rising 50-months EMA, which has acted as strong support during the entire consolidation
b) 61.8% retracement of the previous major up move (| 70-338) is placed around | 170 levels
The short-term support base has shifted higher to Rs 205 levels as it is the trend line support joining recent lows since March 2018 and 50% retracement of the recent up move (161 to 242) placed around Rs 202 levels.
Time-wise, the stock has already taken more than 28 months to retrace just 61.8% of the previous 13-months up move from Rs 70 to Rs 338.
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 monthly MACD is sustaining in positive territory and is taking support at signal line thus validates the positive bias.
Based on the above positive structure, we expect the stock to head towards Rs 264 in the medium term as it is the 61.8% retracement of the entire decline (338-145).Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. The views and investment tips expressed by investment experts on Moneycontrol are his own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.