Nandish Shah
Nifty plunged 566 points, or 5.74 percent, reacting to the last two days of weak global cues, and closing at 9,294 on May 4.
This is the highest single-day fall in percentage terms since March 23, the day on which Nifty made the lowest low on the closing basis during this downtrend.
From the bottom of 7,511, registered on March 24, 2020, Nifty has risen more than 31 percent to the high of 9,889 made last Thursday.
In the April 2020 series, Nifty surged 14 percent, the highest in a decade. This was the highest series to series gain since May 2009.
Though Nifty fell sharply yesterday, it is still trading above its 20-day SMA which is placed at 9,015 levels. This also coincides with the support of 8,980, which happens to be 38.2 percent retracements of the entire rise seen from 7,511 to 9,889.
The derivative market is also pointing towards the limited downside. On the derivatives front, we have seen put writing at 9,000 levels.
Moreover, lower stock futures open interest, lower leveraged positions despite 14 percent rise in the Nifty in the April series, lower open interest in the Nifty futures in terms of the number of shares (Nifty Futures OI is at fifteen-year low) and long rollover by FIIs in the index futures segment indicates that downside is limited in the market and derivative positions are not likely to be a milestone around the neck of the market.
Therefore, we believe that 8,950-9,000 levels will act as strong support, going forward.
Use this sharp correction to accumulate long positons with SL of 8900 immediate resistance is seen around 9400 levels.
Resistance was seen around 9,970 levels, which happened to be the 50 percent retracement of the entire downswing seen from 12,430 to 7,511.
To sum it up, we believe that though Nifty has fallen sharply it has not violated any important support levels.
Any correction from hereon on the back of weak global cues is a buying opportunity for the traders, we believe.
Therefore, our advice is to accumulate long positions in the Nifty with the stop loss of 8,900 levels. On the higher side 9,390 level would act as immediate resistance. Resistance is seen at 9,730 and 9,970 levels.
Here are three buy recommendations for the next 3-4 weeks:
After taking support at 200-day SMA for multiple times, the stock price has broken out on the daily chart to close at three months high.
Oscillators like RSI and MFI are forming positive divergence on the daily chart. MACD line is placed above the central line Indicating bullish setup for the stock.
The stock has recovered more than 5 percent from the lows yesterday by taking support at the upward sloping trendline adjoining the lows of March 25 and April 28, 2020, with higher volumes.
On the daily chart, the stock price is taking support at 20-day SMA.
RSI and MFI oscillators are forming positive divergence favouring the bulls.
Tata Communications | Buy | LTP: Rs 472.05 | Target price: Rs 520 | Stop loss: Rs 450 | Upside: 10%
The stock price has broken out on the daily chart by closing above the double top resistance level of Rs 455 with higher volumes to close at three year high.
On the weekly chart also, the stock price has broken out from the downward sloping trendline.
The stock is trading above all its important moving averages.
(The author is a technical research analyst at HDFC Securities)
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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