Moneycontrol
Last Updated : Jan 14, 2019 10:14 AM IST | Source: Moneycontrol.com

'Gap between major moving averages narrowing, track RSI to get early indication of breakout'

Traders should keep watching lower time frame oscillators like RSI on hourly price for early indication of the side in which breakout will ultimately happen

Moneycontrol Contributor @moneycontrolcom
 
 
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Shabbir Kayyumi

Narnolia Financial Advisors

The journey of Nifty within narrowing major moving average of 50 days and 100 days continues. The 50-day moving average has proved support for the market for the last 30 trading sessions and this support line is gradually inching up. The 100-day moving average has consistently provided resistance and this is gradually inching down.

While the price range between the two key moving averages was 450 points when the current sideways market movement had started, now the difference has narrowed to a mere 150 points. The 50-day moving average presently is at 10,710 and the 100-day moving average is at 10,860.

Along with narrowing market movements, other key technical parameters have also gone docile. ADX indicator is falling continuously since November 2018 and is currently trading lower around 16.50 indicating the complete absence of any trend in the market.

At the same time volatility index, VIX is trading in a tight range of 16.50- 15.20 since last two weeks. But now as the trading zone has narrowed substantially, a breakout can be expected over next 1-2 weeks.

The two Nifty levels 10,710 and 10,860 are major support and resistance during the current sideways market. And trader can take decisive trending call only once a confirm breakout happens.

Immediate resistance if breakout happens on the upside is 11,000 where maximum open interest in Nifty Call is. Similarly, if breakout below the current support level happens then immediate support would be 10,500 where maximum open interest in Nifty Put is.

Traders should keep watching lower time frame oscillators like RSI on hourly price for early indication of the side in which breakout will ultimately happen.

Bank Nifty 

Banking index is trading in rising wedge pattern having lower side support around 26,950 and upper trend line resistance placed near 27,500. Recently, Bank Nifty has witnessed a golden crossover which suggests bullish bias in mid-term and one should trade with buy on dip strategy, however, immediate trading range remains around 27,700-26,900 range.

NCC | Rating: Buy around Rs 89 | Target: Rs 99| Stop loss: Rs 82.80 | Upside: 11 percent

After hitting the peak of Rs 134, the stock slipped at lower levels from where chances of developing of demand are higher. Prices took support from the previous support on the daily chart. As of now, the formation of Cup and Handle on the daily chart is giving cues to accumulate this stock at lower levels. The RSI also has bounced from the oversold zone and it has shown a steep rise on the weekly chart.

As long as it sustains above Rs 82.80, the possibility of moving on the upside is higher and it can hit our target of Rs 99. Buy around Rs 89 with a stop loss of 82.80 for the target of Rs 99.

Axis Bank | Rating: Buy around Rs 660 | Target: Rs 730| Stop loss: Rs 620 | Upside: 11 percent

Axis Bank is moving in a well-defined ascending channel with multiple touch point and appears to be having strong support around Rs 620-630 as it has bounced back couple of times from the demand line. It has also maintained its uptrend on the long-term chart and is trading well above its short and long-term moving averages. The momentum oscillator, RSI also favours the price pattern.

One can accumulate the stock around Rs 660 for an upside target of Rs 730 and a stop loss below Rs 620.

ITC | Rating: Buy around Rs 290 | Target: Rs 320| Stop loss: Rs 273| Upside: 10 percent

ITC has been moving in a strong bull trend since long. Few days ago, it has given trendline breakout on daily charts that suggests a strong momentum on the upside.

Now it is moving above all its important moving averages. Sustainability of RSI above 60 is also favourable for the scrip. One can buy the scrip around Rs 290 with a stop loss of Rs 273 for the target of Rs 320.

HDFC Standard Life | Rating: Buy around Rs 400 | Target: Rs 440 | Stop loss: Rs 383 | Upside: 10 percent

HDFC Life has corrected from the peak of Rs 548 and has shown signs of bottoming around Rs 379. Formation of Cup and Handle on the weekly chart is showing positive move on the upside. Long bullish candle is near demand zone on the weekly chart. Trendline breakout is showing the possibility of bounceback further on the upside.

Moreover, MACD line has crossed the signal line in negative territory which is also indicating bullishness. With decent volume participation witnessed, we recommend a buy in this scrip around Rs 400 with a stop loss of Rs 383 for an upside target of Rs 440.

GNFC | Rating: Buy around Rs 361 | Target: Rs 388 | Stop loss: Rs 347 | Upside: 7 percent

GNFC has corrected from the peak of Rs 395 and has shown signs of bottoming around Rs 327. Formation of the ascending triangle on the daily chart is showing positive move on the upside.

Long bullish candle is near the point of polarity on the weekly chart showing the possibility of a bounceback further on the upside. With decent volume participation witnessed, we recommend a buy in this scrip around Rs 361 for an upside target of Rs 388 with a stop loss of Rs 347.

The author is Head - Technical & Derivative Research at Narnolia Financial Advisors.

Disclaimer: 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.
First Published on Jan 14, 2019 10:14 am
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