The Nifty50 plunged 2 percent on the first day of the week to close at 11,835 on Monday. The Nifty opened down with a gap of 68 points and ended forming a Bearish “Island Cluster Reversal” candlestick pattern on the daily charts.
The Open and high of the session remained the same for Nifty, which indicates the dominance of the bears over bulls during the session.
The Nifty50 closed below its 20, 50 and 100-Days EMA indicating weakness in the short-term. The index breached its important support placed at 11,908 on the closing basis.
The immediate support for the Nifty comes in the range of 11,750-11,783, which happens to be the support provided by the gap formed on 4th Feb 2020.
The upward sloping trend line adjoining the bottoms of 19th Sep 2019 and 3rd Feb 2020 also coincides with the gap support.
In the Derivatives’ segment, we have seen the aggressive short build-up in the Nifty and Bank Nifty. The Nifty Open Interest Put Call Ratio fell sharply to 1.12 odd levels from 1.39 levels, mainly on the back of Call writing at 11900-12000 levels Indicating 12000 levels to act as a strong resistance going forward.
On the lower side, the 11,700 level is likely to act as support where Puts have been written. This level also coincides with the 200-Day SMA support which is placed at 11680 odd levels
As far as resistance is concerned 12,000 seems to have become the ceiling for the Nifty. Considering the technical and derivatives evidence discussed above, we believe that the trend of the market has turned bearish.
The Nifty50 needs to close above 12,000 levels to violate the bearish setup. The immediate support is seen in the vicinity of 11,650-11,700 levels. Now, a close below 200-DMA would worsen the technical setup for the Nifty.
Here is a list of three stocks which could give 8-12% return in the next 3-4 weeks:
Westlife Development: Buy| LTP: Rs 484| Target: Rs 540| Stop-Loss: Rs 450| Upside 12%
The primary trend of the Westlife Development is positive where the stock is trading above its 20, 50 and 200-Days SMA.
Oscillators and momentum Indicators like RSI and MACD have been showing strength on the weekly charts as well. The stock price has already broken out on the daily charts by closing above the resistance level of Rs 455 during the early part of the February month.
The average volumes of the February month is sharply higher as compared to the last few months suggesting strength in the breakout.
Considering the technical evidence discussed above, we recommend buying the stock between Rs 484 and Rs 470 for the target of Rs 540 and keep a stop loss at Rs 450.
Hikal: Buy| LTP: Rs 131| Target: Rs 145| Stop-Loss: Rs 124| Upside 11%
After forming multiple bottoms around 117 odd levels, the stock price has broken out on the daily chart on Monday with higher volumes.
MACD has closed above its signal and equilibrium line, adding strength to the existing uptrend. The short-term trend of the stock turned positive where the stock closed above its 5 and 20-Days SMA.
Considering the technical evidence discussed above, we recommend buying the stock between 131 and 127 for the target of 141, and keep a stop loss at 124.
Bajaj Auto: Sell| LTP: Rs 2,980| Target: Rs 2,730| Stop-Loss: Rs 3,150 | Downside 8%
The stock price has broken down on the daily charts by closing below the support level of Rs 3,000 with higher volumes. In the Derivatives segment, we have seen aggressive short build-up in the Bajaj Auto Futures on Monday.
Oscillators and momentum indicators are showing weakness in the stock on the daily and weekly charts. Auto as a sector looking weak on the charts.
Considering the technical and derivative evidence discussed above, we recommend selling the stock between 2,980 and 3,050 for the target of 2,730, and keep a stop loss above Rs 3,150.
(The author is Technical & Derivatives Analyst at HDFC Securities)
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