Vinay Rajani
For the last four sessions, Nifty has been moving in a narrow range. During this consolidation, Nifty formed a descending triangle on the hourly chart, which indicates the breakout above 10,350 and breakdown below 10,220.
On June 24, Nifty found resistance around 10,550, reversed south and formed bearish engulfing pattern on the daily charts.
This bearish pattern would be negated once the high of that candle is taken out.
A level of 10,550 in Nifty also happens to be 61.8 percent retracement of the entire fall, seen from 12,430 to 7,511.
Looking at the historical bear markets of 1992, 2000 and 2008 in India, we find benchmark indices never retraced more than 61 percent of the first major down move.
This time also Nifty has been finding resistance at 61.8 percent retracement of the fall seen from 12,430.
So, to negate the possibility of resumption of a major downtrend, Indian market has to surpass 61.8 percent retracements placed at 10,550 on a sustainable basis.
Nifty has been trading in the rising wedge pattern on the daily charts. The lower band of this wedge projects the strong support at 10,050-10,100 levels. Close below this support, would mean breakdown for the short to medium term in Nifty.
The 20 and 100-days EMA are placed at 10,062 and 10,070, respectively, for Nifty. These levels are coinciding with the rising wedge support on the daily chart of the Nifty.
So, this setup strengthens the probability for 10,000-10,070 range to act as strong support. However, close below this range would be considered bearish for short to medium-term trends.
From the Derivative perspective, we have seen Nifty and Bank Nifty getting rolled over 79 percent and 81 percent, respectively, which is a relatively bullish sign.
Stock futures’ Open interest at the beginning of the July series was at 280 crore shares.
It is 33 percent lower than the March 2020 series and 45 percent lower than all-time high Open Interest that we saw in February 2018.
These lower leveraged positions, despite a surge of 40 percent in the Nifty from the March low indicate that markets are still light in-terms of positions which augurs well for the markets going forward.
To conclude, the downside in market seems limited and dips should be utilised to initiate fresh long positions.
Close above 10,350 would bring fresh momentum and could push Nifty towards 10,600 levels. A level below 10,220 could extend the fall towards 10,000-10,050. Close below 10,000 could turn the medium trend from bullish to bearish.
Here are three buy recommendations for the next 3-4 weeks:
Bharti Airtel | Buy | LTP: Rs 567 | Target price: Rs 614 | Stop loss: Rs 537 | Upside: 8%
The stock has been trading in the downward sloping channel for the last six weeks.
The primary trend of the stock has been bullish with higher tops and higher bottoms on the weekly charts. The stock is placed above all important moving average parameters.
The telecom sector has been performing very well for the last couple of months. Looking at the oscillator setup, the stock is likely to break out from the falling channel pattern soon.
The stock rose more than 2 percent with a significant jump in volumes and also added 11 percent Open Interest on June 29.
The stock has broken out from the consolidation which held for the last three weeks.
The primary trend of the stock has been bullish and the stock is trading close to its all-time high of Rs 3,708. Moving average and Oscillator setup is bullish on daily and weekly charts.
JK Cement | Buy | LTP: Rs 1,360 | Target price: Rs 1,550 | Stop loss: Rs 1,225| Upside: 14%
Most of the cement companies have been posting strong quarterly numbers and the same has been reflecting positively on the stock charts.
JK Cement has outperformed with a huge margin in the month of June 2020. It has been consolidating for the last six sessions with dry volumes, which is a good sign.
The stock is likely to resume its uptrend by breaking out from the “Flag”
pattern.
(The author is Technical Research Analyst at HDFC Securities)
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