It is better to remain stock-specific and opt for stocks that have potential to rise rather than the ones that are overbought
The Nifty spot index has been struggling to clear the 12,150–12,200 zone, which was the potential reversal zone of a bearish harmonic AB=CD pattern.
The index has undergone a corrective move in three out of four trading sessions so far this week. Even the market breadth remained in favour of declining counters, which indicates profit booking in individual stocks.
At this juncture, it is trading this week with a loss of around 0.31 percent. On the other hand, the Nifty Bank index too suffered some selling and is trading with a loss of 0.73 percent from its previous week’s close.
Looking at the weekly chart of the Nifty spot, it can be construed that the index is trading in the 11,900–12,150 range, which is similar to the previous week.
The short-term trend would be dented only on a breach of the 11,900 mark. Thus, for some more time, we feel traders should adopt the mean reversion technique in the coming week.
On the upside, only a sustainable breakout above 12,150 would propel the index towards higher levels. In the near term, the market may remain positive and could rise further. This opportunity should be used by traders to start booking short-term profits in long positions in coming weeks.
Another reason for this view is that there is a negative divergence in the weekly RSI of the Nifty spot, which could trigger some consolidation or profit booking.
Going forward, it is better to remain stock-specific and opt for stocks that have the potential to rise rather than the ones that are overbought.
On the downside, 11,900 would now act as a sheet anchor for the markets. A move below this level could start the corrective move sooner than expected.
Here is a list of top three stocks that may return 5-8% in the next 1-3 weeks:
Bajaj Finserv: Sell| LTP: Rs 8,970| Target: Rs 8,500| Stop-Loss: Rs 9,300| Downside: +5.55%
The larger degree chart of Bajaj Finserv depicts that the stock is hovering below the resistance of the long-term rising trend line.
For the past three weeks, the stock has been finding it difficult to clear this level.
The candlestick pattern of the last two weeks seems to be an indication of some profit booking. At this juncture, the risk-reward ratio for going short is lucrative.
Traders are advised to sell the stock near Rs 9,040 for the target of Rs 8,500 with a stop-loss of Rs 9,300. (1–3 weeks).
Container Corp: Buy| LTP: Rs 568| Target: Rs 615| Stop-Loss: Rs 544| Upside: +8.27%
Considering the line chart of CONCOR, we observe that there was a range breakout in the stock above Rs 560 during the month of Sept 2019. The stock then rallied towards Rs 660 very swiftly.
Now, the stock is back to the same breakout zone and has been consolidating over many sessions.
The price action of the recent sessions along with the volumes reflects accumulation. Further, the placement of the daily RSI smoothened oscillator indicates fresh rally from this zone.
Traders are advised to buy the stock near Rs 567 for the upside target of Rs 615 with a stop-loss of Rs 544 (1–3 weeks).
Larsen & Toubro: Buy| LTP: Rs 1,302| Target: Rs 1,380| Stop-loss: Rs 1,260 | Upside: +5.99%
Since May 2019, whenever Larsen and Toubro reached the zone of Rs 1,300, we have witnessed strong buying interest in the counter, which triggered a sharp rally.
Once again the stock is hovering near that demand zone, which is supported by a rising trend line formed by joining the important swing lows of Rs 644 (February 2016) and Rs 1,186 (February 2019).
Also, there is a placement of the 100 -week EMA near the Rs1,320 mark, which could provide support to the stock in the coming sessions.
Traders are advised to buy the stock near Rs 1,300 for the upside target of Rs 1,380 with a stop-loss of Rs 1,260 (1–3 weeks).
(The author is Sr. Technical Analyst, IndiaNivesh Securities Limited)Disclaimer: 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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.