The "V-shaped" reversal rally has helped benchmark indices climb back to almost the 88.60 percent retracement of the entire downswing seen from January 2020 (top) to March 2020 (bottom).
Nifty50, on the weekly chart, has completed the bearish bat harmonic pattern and is currently trading below its potential reversal zone.
Moreover, the index has breached its upward slanting trendline on the daily chart which indicates bears are likely to overtake bulls in the coming trading sessions.
The gap down opening of September 4 drifted the index below its 21- day exponential moving average which acted as a critical support zone at a couple of occasions previously.
On September 9, Nifty witnessed a gap down opening following its global peers and later on formed a sharp V-shape reversal rally on an intraday basis and closed above 11,200 mark.
For the past couple of trading sessions, market breadth has been in favour of bears.
Bank Nifty has formed a bearish dark cloud cover candlestick pattern on the weekly chart and neglected its previous week’s bullish candle.
On the weekly chart, there is a cluster of exponential moving averages (50, 100,200) hanging around 24,000 –25,000 zone and Bank Nifty has taken resistance in the same zones.
One can say there is a cluster of bearish patterns hanging around the benchmark index Nifty and one may initiate a bear put spread strategy on the benchmark index.
On the downside, initial support is placed at 11,100 which is supported by a 50- day exponential moving average on the daily chart. The initial up-move is likely to be capped around 11,500 level for Nifty.
Here are two buy and one sell call for the next 2-3 weeks:
Berger Paints India | Buy | LTP: Rs 561 | Target price: Rs 600 | Stop loss: Rs 535 | Upside: 7%
In the first week of August, the stock prices managed to surpass the multiple resistance zones around Rs 540–550 levels, which eventually confirmed a triangle pattern breakout on the weekly interval.
Since that breakout, the stock has taken a breather and witnessed a throwback near its trendline support.
The strong reversal in RSI (14) from 30 levels has set up a V-shape reversal. It is currently reading near 50 levels with positive crossover on the weekly interval.
By observing Relative Strength (RS) on a monthly horizon, one can observe that stock has been outperforming the benchmark index since April 20.
Traders can accumulate the stock in the range of Rs 561-563 for the target of Rs 600.
HCL Technologies | Buy | LTP: Rs 722.60 | Target price: Rs 800 | Stop loss: Rs 675 | Upside: 11%
HCL Tech has been trading against the wind, outperforming the benchmark index on majority of timeframes.
On the weekly chart, the stock has been moving in the range for the last few trading sessions and made an attempt to move higher.
The key technical indicators on the near-term timeframe are in buy mode. The stock has the potential to continue the current up-move and will test higher levels.
The counter is trading above its 21 and 50-day exponential moving averages on the daily timeframe which is a positive.
Traders can accumulate the stock in the range of Rs 720-724 for the target of Rs 800.
On the weekly chart, Hero MotoCorp has formed a bearish engulfing candlestick pattern which is also clubbed with a smaller degree double top pattern.
The counter has witnessed a rising channel pattern breakdown on daily intervals and is trading below its trendline resistance.
Furthermore, prices have drifted below its 21-day exponential moving average.
Moreover, the Nifty Auto index has formed a bearish hanging man candlestick pattern on the weekly timeframe which is also clubbed with rising channel pattern breakdown on the daily interval.
Traders can short the stock in the range of Rs 2,900-2,910 for the target of Rs 2,740.
(The author is a technical analyst at Bonanza Portfolio)
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