Dharmesh Shah ICICI Direct.com Research
Equity benchmarks surged to fresh lifetime highs boosted by strong global cues and domestic earnings. The weekly price action formed a strong bull candle with a higher high and a higher low signalling continuation of the positive momentum.
The entire up move in the Nifty during the previous month from the low of 10,557 was well-channeled signalling sustained demand at elevated levels. However, a sharp up move of more than 450 points in just nine sessions has led to daily stochastic oscillators to the overbought territory with a reading of 97.
Thus, a temporary breather (in the form of minor profit booking) from a higher band of the rising channel (11400) cannot be ruled out. However, we believe such a cool-off would make markets healthy.
Hence, any dips towards lower band of the channel (11200) should be used as an incremental buying opportunity as during this channelized up move intermediate corrections have not exceeded more than 153 points. Thus a lower band of the channel (11200) would act as key support.
In the coming week, we expect continuance of stock specific action amid the ongoing Q1FY19 result season. On the higher side key level to watch out in Nifty is placed around 11400 levels as it is the confluence of the following technical observation:
a) up move from May low (10417) would achieve equality with April rally (9950-10930=980 points) at 11397
b) 123.6 percent retracement of 2018 decline (11171- 9950), at 11459
The formation of higher high-low on all time frames indicates a robust price structure. The overall structural improvement makes us confident on upgrading support base at 11200 as it is:
a. the positive gap area 11210-11167 (recorded on July 27)
b. the lower band of the weekly rising channel is placed around 10200
c. according to change of polarity concept, January high of 11172 would now act as support
Structurally, on expected lines, Nifty midcap, small-cap approached higher band of falling wedge pattern. A falling wedge is a bullish reversal pattern. The overall structural improvement augurs well for breaking out of a falling wedge pattern, around 19000 and 7500, respectively.
The key thing to watch out in the current rally is Nifty midcap and small-cap rallies are getting elongated along with contracting declines (as the current rally is bigger than early July pullback) underpinned by improved market breadth and volumes.
Hence, stock-specific action would continue as we expect quality midcap stocks to continue with its strong up move
Here is a list of top three stocks which could give 8-19% return in 1-6 months:
UltraTech Cement: Buy | CMP: Rs 4,193 | Target: Rs 4,690| Stop loss: Rs 3,910 | Return 12%| Time frame: 6 months
UltraTech Cement is the largest player in India with a capacity of 96.5 MT and market share of over 23 percent. Within a secular uptrend, the stock has undergone a secondary phase of correction.
The recent breakout from the downward sloping channel (as shown in adjacent chart) signifies termination of the secondary phase of consolidation that augurs well for the resumption of the primary uptrend, thereby providing a fresh entry opportunity.
The up move since March 2015 has been captured in a well-defined rising channel (drawn adjoining highs of 2015-16 high of Rs 3398–4130 and 2015 low of Rs 2,531).
After hitting a lifetime high (Rs 4600) in January 2018 the stock witnessed a gradual corrective decline and tested the lower band of the channel in June 2018. Since then, the stock has formed a strong base formation around Rs 3600 as it is the 61.8 percent retracement of the last major up move (3050-4600), around Rs 3640.
The past three month’s price action resembles a Morning star candlestick pattern on the monthly chart. The occurrence of Morning star candlestick pattern at the lower band of rising channel shows base formation and accumulation by stronger hands that augur well for the resumption of the primary uptrend.
Time wise, during the recent up move, the stock retraced entire nine week’s decline (4175-3563) in just five weeks. The faster pace of retracement highlights robust price structure that bodes well for an acceleration of momentum, going ahead.
In a nutshell, we expect the stock to resume its primary uptrend and gradually head towards 4690 as it is implicated target of past three months consolidation. The immediate support is placed around Rs 3815 as it is 61.8 percent retracement of recent up move (3563-4230).
Sun Pharma: Buy | CMP: Rs 574 | Target: Rs 622 | Stop loss: Rs 546 | Return 8% | Time frame: 1 month
The share price of Sun Pharma has seen a sharp rebound in the first half of June 2018 after forming a bullish double bottom around Rs 435. In the last six weeks, it is seen consolidating in a narrow range thus forming the base for the next up move.
The stock during mid-June 2018 has registered a resolute breakout above the falling trend line joining the high of August 2016 (Rs 855) and February 2018 (Rs 609) placed at Rs 540 levels.
The stock is seen resuming up move in the current week after consolidating in the last five weeks above the trend line breakout area and the 52 weeks EMA signalling higher base formation in the stock.
Weekly MACD in an uptrend and has recently moved into positive territory thus supports the bullish bias in the stock. We expect the stock to head towards Rs 622 levels in the coming month as it is the 61.8 percent retracement of the entire CY 2017 decline (Rs 729 to Rs 433).
L&T Finance Holdings: Buy| CMP: Rs 176 | Target: Rs 210 | Stop loss: Rs 156 | Return: 19%| Time frame: 6 month
The share price of L&T Finance Holdings has recently registered a resolute breakout above the falling trendline joining the high of October 2017 (213) and May 2018 (184) which is currently placed at Rs 170 levels signaling a reversal of the corrective trend and resumption of fresh up move.
The breakout from the trendline was accompanied with the strong volume of almost three times the 50-weeks average volume of 2.6 crore per week signalling larger participation at breakout area thereby providing a good entry opportunity.
On the monthly chart, the stock has formed a bullish engulfing candlestick pattern during July 2018 as it recouped its previous two months decline signalling reversal of the corrective trend prevailing since October 2017 all-time high of Rs 213.
The short-term support for the stock is placed around Rs 155-160 levels being the confluence of the following technical observation:
a) the 61.8 percent retracement of the last two weeks up move from Rs 141 to Rs 185 is placed around Rs 157 levels
b) 52 weeks EMA is also placed around Rs 161 levels
Time-wise, the stock took just two weeks to retrace its previous decline of 10 weeks from Rs 184 to 141. Faster retracement of the major falling segment in less than half the time interval confirms positive price structure
We expect the stock to continue its positive trend and head towards Rs 213 being the price parity of previous up move (Rs 142 to Rs 185) as projected from the recent trough of Rs 173 which also coincides with an all-time high of Rs 213.
Disclaimer: The author is Head Technical at ICICI Direct.com Research. The views and investment tips expressed by investment expert 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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