Moneycontrol
Last Updated : Jun 14, 2018 10:30 AM IST | Source: Moneycontrol.com

Historically midcaps have not corrected more than 20-30%; stagger investments

"We believe that the broader market will undergo time wise base formation, which, in turn, will create a launch pad for the next leg of the upside," says Dharmesh Shah of ICICIdirect.

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Dharmesh Shah

The Nifty formed a Long Legged Doji candlestick pattern on the weekly chart last week, carrying a higher high and identical lows as that of the previous week, indicating strong support at lower levels.

It continued its positive momentum in the current week as it maintained a higher high-low formation, highlighting strength in the index.

After more than a 340 point upmove from last week’s low (10,550), the Nifty has currently entered overbought territory with a stochastic reading of 86 on the daily chart. This can lead to 2-3 sessions of a breather going forward.

The bias continues to remain positive and any breather would in turn assist the Nifty to form a higher base and extend the current upmove towards 10,930 levels, which is the confluence of:

a) 80 percent retracement of the major decline seen in February-March (11,172 – 9,952), at 10,927

b) May’s high of 10,929

Since CY15-16, historical evidence suggests that midcaps and smallcaps have not corrected over 20 percent and 30 percent, respectively. At present, both midcap and smallcaps have corrected 17 percent and 25 percent, respectively. As a result, they are approaching their price-wise maturity, underpinned by oversold placement of stochastic oscillator, signifying limited downside.

We believe the broader market will undergo time-wise base formation, which will create a launch pad for the next leg of the upside. At current levels, we advise investors not to panic and utilise any decline from here on to accumulate quality stocks in a staggered manner.

As the price structure remain positive we have revised our short term support base higher towards 10,650 as it is a confluence of:

a) Placement of the upward sloping trend line drawn adjoining 9,952– 10,418 placed around 10,650 levels
b) 61.8% retracement of the current upmove from 10,550-10,893 placed around 10,680 levels

c) Bullish gap area of July 7 is also placed around 10,684 levels

Here are top 3 stocks that could return 6-14 percent in the next 6 months:

Bajaj Finserv: Buy| CMP: Rs 6,074| Target: Rs 6,400| Stop loss: Rs 5,860| Return 6%| Time frame: 3 months

The share price of Bajaj Finserv is in a strong uptrend forming a higher peak and higher trough in all time frame indicating positive bias in the stock. It has formed a lifetime high of Rs 6,156 during the end of May 2018.

The sideways consolidation of the last four sessions has helped the stock to work off the excesses built in the previous rally. The sharp rebound during the last week trade from the support level of Rs 5,700 highlights positive bias and provide fresh entry opportunity.

We have revised the short-term support for the stock higher towards Rs 5,860 levels being the confluence of the following technical observation:

a) 61.8 percent retracement of the current up move Rs 5,683 to Rs 6,148 placed at Rs 5,860 level

b) The rising 21 days EMA which is currently placed at R 5,864 levels

c) The trendline support joining previous two lows are placed around Rs 5,860 levels

Among the oscillators, the daily 14 period’s RSI remains in a positive trend and has recently generated a buy signal by moving above its nine period’s average thus supports the positive bias in the stock.

Based on the above technical observation the stock is likely to continue with positive bias and head towards Rs 6,400 levels being the 161.8 percent external retracement of the immediate previous decline (Rs 6156 – 5682)

Raymond: Buy| CMP: Rs 987| Target: Rs 1,102| Stop loss: Rs 928| Return 12%| Time frame: 1 month

The share price of Raymond has been undergoing a secondary phase of consolidation in the range of (Rs 1140–866) post witnessing a robust rally in the CY-17 (Rs 492-1142).

The stock during last week found support from upward sloping trend line drawn adjoining lows of May 2017 (598) and March 2018 (866) and formed a Hammer-like candlestick pattern in the weekly chart, indicating bullish reversal and offers fresh entry opportunity with favourable risk reward set up.

Time-wise, the stock has already taken five weeks to retrace just 61.8 percent of last five weeks rally (Rs 866-1152). The shallow correction along with similar time-wise consolidation indicates a strong price structure.

Also, the stochastic oscillator found support from oversold territory and witnessed a bullish crossover, indicating a positive bias.

We expect the stock to continue its buoyancy and gradually head towards Rs 1,108 levels as it is 78.6 percent retracement of the last leg of decline (1153-942) placed at Rs 1,108 levels

Torrent Pharmaceuticals: Buy| CMP: Rs 1,404| Target: Rs 1,595| Stop loss: Rs 1,345| Return 14%| Time frame: 1 month

The stock has been consolidating, after witnessing a resolute breakout from a downward sloping trend line (drawn adjoining Oct-16 and Jan-18 high).

Past couple of months price action showcase that the rallies are getting elongated along with shallow correction. Time-wise, the stock has retraced last four weeks’ decline in a single week, indicating robust price structure.

We believe the stock has strong support around Rs 1,345 as it is a confluence of:

a) The 80 percent retracement level of the last leg of up move (Rs 1304 – 1488)

b) 52 weeks EMA is placed around Rs 1343

The weekly 14 period’s RSI continues to remain in an uptrend and is seen sustaining above its nine period’s average thus supports the positive bias in the index.

We expect the stock to continue its up move and head towards Rs 1,595 levels as it is 80 percent retracement of the last leg of decline (Rs 1699-1142) placed at Rs 1,588 levels

Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. The views and investment tips expressed by investment experts 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 Jun 14, 2018 10:30 am
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