From the swing high of 18,114 on April 4, the Nifty has fallen almost 2,000 points to 16,142. The Nifty has been declining for the last four weeks and this week, too, has started on a bearish note.
The Nifty is trading below its 20, 50, 100 and 200- day simple moving averages (DMAs), which indicates that the positional trend has turned bearish.
Bearish trends also have pullbacks and short-covering rallies after some oversold setup on the short-term charts. The 14-day relative strength index (RSI) has reached 33 level, which is near the oversold zone.
The 14-day RSI for Nifty smallcap and midcap indices reached 23 and 31 levels, respectively. The Nifty smallcap index has reached the crucial support level, derived from the previous swing low of 9,286, registered on February 24 this year. Disparity Index from 20- DMA also indicates short-term oversold setup.
Catching a falling knife is always risky in the equity markets, especially when bears are dominating the trend.
Considering the recent fall and short-term oversold condition, going short doesn’t provide favourable risk-reward ratio.
In such a scenario, traders should exit the prevailing short positions and wait for the pullback to short it again around the resistance area.
The Nifty has got strong resistance at its 200-day exponential moving average (EMA) placed at 16,850, around which traders can again initiate fresh shorts with 17,200 stop-loss.
We are of the view that markets could bounce back towards 16,850 in the short term. However, the positional trend is bearish and traders should adopt “sell-on-rallies” approach. The positional support for the Nifty is at 15,800.
Here are three buy calls for the next two-three weeks:
TCS: Buy | LTP: Rs 3,445 | Stop-Loss: Rs 3,300 | Target: Rs 3,680 | Return: 7 percent
The stock has reached the demand zone derived from previous swing highs and lows on the weekly charts. The daily Stochastic oscillator is in the oversold zone below 20 levels.
The RSI on the daily chart seems to be forming a positive divergence, which indicates the probability of a short-term pullback. The stock is placed above all important moving averages, indicating a bullish trend on all time frames.
Power Mech Projects: Buy | LTP: Rs 985.35 | Stop-Loss: Rs 930 | Target: Rs 1,060 | Return: 7.6 percent
The stock has broken out from the downward sloping trend line on the weekly charts. It has been finding support at its 20 and 50-day EMA.
The stock has been forming higher tops and higher bottoms on the daily chart. Indicators and oscillators like RSI, directional movement index (DMI) and moving average convergence divergence (MACD) are pointing to strength in the current up move.
NOCIL: Buy | LTP: Rs 245.60 | Stop-Loss: Rs 227 | Target: Rs 270 | Return: 10 percent
On May 9, the stock rose more than 5 percent, with a significant jump in volumes. The stock is on the verge of a breakout from bullish Inverted Head and Shoulder pattern on the weekly chart.
Any level above Rs 248 will confirm the neckline breakout. The stock is placed above 20, 50 and 200-day EMAs, which indicate a bullish trend on all time frames. Indicators and oscillators like RSI, DMI and MACD have been showing strength in the current up move.
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