Fireworks continued on the street as Nifty50 propelled by more than 1,100 points in the last 11 trading sessions. Six gap up openings in a row have trapped the short sellers and the index settled near the 11,900 mark in the week gone by.
Though the picture on the surface looks quite cheerful, traders having positions in other than top 10 stocks are struggling to get their rate back. The Nifty is dancing to the tunes of the top five players while the gloomy part of the picture got little attention. The Nifty which reflects the strength of 50 stocks holds approximately 44 percent weightage in the top five stocks and 62 percent weightage in the top 10 stocks. Such allocation is raising a question mark on the current rally and its sustainability. The following top six components of nifty had major dominance in the recent rally on particular dates
05 Oct 2020 - TCS
06 Oct 2020 - HDFC
07 Oct 2020 - Reliance Industries
08 Oct 2020 - Infosys
09 Oct 2020 - HDFC Bank, ICICI Bank
The current rally is calling for the need of barometer which can reflect the picture of top stocks as a whole. In reality, Nifty50 is predominantly reflecting the performance of top 10 stocks while the major part of the index remained unheard with a very little contribution.
Moving ahead, the steam is still left and the bullish bias is expected to continue. The prices have taken out the high of the recent 'Doji' pattern formed on October 8, 2020, which negated the sign of bearish reversal. The momentum indicators have started trading in the bullish zone in the weekly as well as daily chart and the level of 12,050 can be expected in the near-term. The immediate support levels are emerging at 11,790 and 11,610 levels. The bullish bias is likely to be intact until the mentioned levels hold and any fall is likely to result in the participation of bulls at lower levels.
We have identified three trading ideas that could offer 8 to 12 percent return in the short term.
Larsen & Toubro: Buy | CMP: Rs 908.45 | Target: Rs 980 | Stop loss: Rs 870 | Return: 8 percent
The stock has been hammered from the Rs 1,020 odd level in the last few weeks and is now showing signs of life once again. The momentum indicators are witnessing a positive crossover and a range shift from bearish zone to sideways zone can be seen in RSI. The bullish candlestick pattern on Friday's trading session is adding confirmation that bulls are likely to have upper hands in the coming days. The prices are trading above the 20-day simple moving average which indicates a short-term rally in the counter. The 'Hammer' candlestick pattern on the weekly chart backed by follow up buying suggests that bulls have entered at lower levels. Traders can initiate buying at current market price (CMP) and on any dip till Rs 890 for the short-term gain.
HPCL: Buy | CMP: Rs 176 | Target: Rs 197 | Stop loss: Rs 168 | Return: Rs 12 percent
The stock is trading near a long-term support level and contra trend buying is expected in the coming days. The 'Dragon Doji' candlestick pattern on the weekly chart suggests that the recent fall has been exhausted and demand from current levels could result in a short-term bounce back in the counter. In the daily time frame, bullish candlestick pattern and positive divergence indicating that the recent fall is likely to get abated. Positive crossover in momentum indicators suggests that the stock is poised for a pullback rally.
Dabur India: Buy | CMP: Rs 519.10 | Target: Rs 570 | Stop loss: Rs 495 | Return: 10 percent
Retracement can be seen in the counter after a recent breakout. The momentum indicators have started trading in a bullish zone and prices are trading above major short-term and medium-term moving averages. The fresh leg of the up move can be expected in the counter in the near-term. RSI on the monthly chart is bouncing back from significant support levels where the higher top and higher bottom cycle is intact. Traders can initiate buying through a pyramiding strategy where buying positions can be initiated at current levels and more quantity can be added once the stock starts trading above Rs 528.
(Manish Srivastava is the Senior Technical Analyst (Equity & Currency) at Rudra Shares & Stock Brokers Ltd. (SEBI eg.No.INH100002524) (RA))
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