We probed into events when Nifty had provided golden crossovers on the daily chart since 2000. Our study shows there are 13 such instances, within which 7 occurrences proved to be profitable and 6 turned into losing trades based entirely on the above criteria with a success rate of 54%, Pritesh Mehta, Lead Technical Analyst - Institutional Equities, YES SECURITIES, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:
Q) The week closed on a positive note above 11,300 levels on the Nifty. What led to the price action on D-Street?
A) Though Nifty recorded weekly gains of 1.7 percent this week, Friday’s high/low range was confined to mere 56 points, which is the lowest daily range since 13th January 2020 (i.e. lowest daily range in past almost seven months).
In fact, such narrow range days and indecisive candles have become a regular feature in the last few weeks.
With the benchmark index consolidating at the top around the presence of overhead hurdles i.e. four-digit Gann number & peak of March 2020 (i.e. Tall Red Bar), it indicates a continuation of activity in the broader market.
Sector churning and profit-taking in select index biggies is clearly visible which has restricted upside momentum in the index.
Q) What are the important levels to track in the coming week based on technicals? Do you think we could retest 11500 levels?
A) Despite recent consolidation at top of the trading band around 11,400, retracement on the downside has been short-lived.
The index is gradually moving higher, witnessing a shift of base on the upside, implying index’ bullish undertone. In the recent downtick, the Nifty defended its three-digit Gann number of 111(00) and immediately bounced back.
In the last few sessions, the benchmark index has been toiling hard to clear the peak of March 2020 (Tall Red Bar). From here on, sustenance above 11,433 is essential for a move towards 11,570-11,600 zone.
Q) Nifty formed a Golden Cross on the charts (200-DMA & 50-DMA) on Friday. What does that say about the price action, and how should one treat this with other stocks which have recorded Golden Cross on the charts?
A) In technical parlance, the Golden Cross occurs when a short-term 50-DMA crosses above the long-term 200-DMA on any indices or stocks.
However, technical theory/approach when applied in any environment would usually provide varying results in every stock(s)/indices. (i.e. every stock/index vibrates to a different tune/average/indicator/number in a peculiar way).
So back-tested approach is recommended to understand the impact of such crossovers. Our extensive study on the benchmark index shows an interesting result.
We probed into events when Nifty had provided such crossovers on the daily chart since 2000. Our study shows there are 13 such instances, within which 7 occurrences proved to be profitable and 6 turned into losing trades based entirely on the above criteria with a success rate of 54%.
Since 2010, 7 instances have been recorded, out of which 4 turned out to be loss-making, and three were profitable.
Preferably, the confluence of the zone which is both dynamic & static in nature should be followed on a regular basis to play the swings on Index.
Q) Any particular strategy which one could initiate ahead of August F&O expiry?
A) Short Straddle on Nifty monthly expiry 27th Aug
Sell Strike 11300 call and 11300 put with a total spread of ~180-190 points, Target on the spread ~40/20 points on a total net spread with Stop loss of 259 on the total spread.
Rationale:
The Nifty is stuck in a broader trading range of 11,450 to 11,100 for the current series and we expect a sideways trend to continue with short vega and theta strategy likely to be profitable.
Upside massive call build-up is seen at 11,500 strikes ~3.5mn shares, which is likely to act as key resistance zone, while a fresh round of put writing seen at 11,200 will provide cushion to any downside fall.
Q) Metals and the Realty sector grabbed the attention of the bulls in the week gone by. What led to the price action?
A) Sector churning has been a dominant theme in this market. After FMCG, Pharma & Auto, the Nifty Metal index has been steadily moving higher.
After a prolonged downtrend, the ratio of Metal index vs Nifty is rebounding from its multi-year support zone. This month, the ratio has surpassed recent peak levels and has attempted to breach long-term downward slanting trendline.
The declining trend in the Dollar index also aided the momentum in the metal index (18% rally in August). In the process, it also surpassed the peak of March 2020. Any corrective move from here on would result in buying opportunity in metal stocks.
The ratio of Nifty Realty index/Nifty has bounced off from the low of February 2016, suggesting pick up in realty stocks near-term.
Q) Any top 3-5 trading ideas which investors could initiate with a time horizon of 3-4 weeks?
A) Here is a list of top 3 stocks that could give 13-24% return in the next 3-4 weeks:
Bosch: Buy| LTP: Rs 14202| Target: Rs 16,300| Stop Loss: Rs 13650| Upside 14%
Bosch has been consolidating around the upper end of the bullish anchor column made in the second week of August 2020 on the P&F chart (0.25% *3). Previous ABC breakout resulted in a throwback.
However, the stock has been holding on to support (10-column moving average & objective trendline. A move above Rs13,740 would result in a double top buy pattern and resumption of the prevailing uptrend. Bear trap reversal led to a bullish Anchor column.
We expect recent momentum to continue. Traders can buy Bosch between 14,340-14,380 with a stop loss of 13,650, and a target of Rs16,300.
Berger Paints: Buy| LTP: Rs 566| Target: Rs 640| Stop Loss: Rs 529| Upside 13%
The stock is moving higher since May 2020 and succeeded to break above Rs550-555 hurdle zone this week.
The up move is supported by upward sloping trendline and yearly mean. The sustenance above Rs560 would lead to above multi-month peak and the stock could attempt Rs 630-640 on the upside. The support is seen around Rs529.
Torrent Power: Buy| LTP: Rs 355| Target: Rs 441| Stop Loss: Rs 327| Upside 24
The stock has rallied above the peak of January 2020 following a phase of sell-off in February & March 2020. A move above three-digit Gann number of 361 would lead to a shift in orbit on the upside.
In 2019, a shift of base on the upside was seen (which acted as support). The recent chat structure indicates that similar formation could play out with upside potential placed around Rs401 & Rs441. Support for the same is seen around Rs327.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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