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Last Updated : Aug 18, 2017 09:58 AM IST | Source: Moneycontrol.com

Important for Nifty to surpass 9930-9960 levels; 5 stocks which can give up to 9% return

From gann perspective, whenever a confluence of support is defended, the pullback tends to be excessive. A rally of 2 percent in this truncated week’s trade clearly outlines the structural strength of the index.


Pritesh Mehta

IIFL Private Wealth

The events of last two weeks had left the bulls gasping as Nifty fell sharply to mark a low of 9,685. But, market strength is always judged on corrections.

And it didn’t disappoint on that count as Nifty defended the confluence of support around 9,700 (i.e. Point of polarity support around 9,700 and multiple gann numbers).

Close

From gann perspective, whenever a confluence of support is defended, the pullback tends to be excessive. A rally of 2 percent in this truncated week’s trade clearly outlines the structural strength of the index.

After all the ups and downs, Nifty is back around 9,900. Back in July, this was the breakout point, from where Nifty had ascended towards 10,138.

It's also placed around the three-digit gann number of 993(0). Moreover, 61.8% retracement of the entire down move is placed around 9,960. So, it's essential for the index to surpass the congestion zone of 9,930-9,960 to sustain the recent pullback.

While BankNifty was the architect of wonderful Wednesday, it was at its volatile best in Thursday’s trade, declining by 200 points to restrict the index momentum.

The Nifty made a high of 9,948 but failed to sustain at the top and eventually closed flat at 9,904. Lack of positive follow-up in BankNifty (inability to surpass the 50% retracement mark of the recent decline) contributed to intra-day reversal.

Here is a list of top five trading ideas which can give up to 9% return in short term:

KEC: BUY| Target Rs325| Stop Loss 289| Return 6%

After being in a phase of consolidation at the top of its rally, it finally attempted a breakout on the upside in this week’s trade. It is showing the trait of a stock which is in a strong uptrend since November 2016.

A move prior to recent breakout could be termed as flag pattern. Flags are considered to be a continuation pattern in nature; we expect the stock to replicate the momentum it had since first two weeks of July.

Every consolidation or a decline in this up trending counters has provided a buying opportunity. The decline seen in previous week’s trade, brought the stock back to the peak of June 2017 and thereafter it quickly regained control above the gann number of 289.

Breakout from flag consolidation is likely to ignite buying momentum once again. Traders are advised to buy KEC above Rs300 with a stop loss of Rs289 for a target of Rs325.

Canara Bank: BUY| Target Rs365| Stop Loss Rs320| Return 9%

Since the third week of July, Canara Bank had witnessed sharp correction from the peak of Rs375 to a low of Rs321. However, the stock is attempting to find a base around the point of polarity support zone around Rs320.

It is the breakout point of the previous rally seen in April 2017. The daily chart offers an escape from the chaos of last few weeks. Analyzing the chart from a broader perspective, Canara Bank is carving out a Bullish Bat pattern that began from last week of June 2017.

Bat pattern reached to its completion stage after it hit a low of Rs320 and thereby retracing ~88.6% of the XA leg. PRZ tends to provide a temporary support for the pattern.

So, traders are advised to follow the levels vigilantly. Traders are advised to buy Canara Bank above Rs333 with a stop loss of Rs320 for a target of Rs365.

Hexaware: BUY| Target Rs300| Stop Loss Rs267| Return 7.9%

A rally of 9% in this week’s trade has ensured that the price managed to close above the resistance area of Rs265, thus signaling bullish breakout from the Flag pattern. Since the second week of May 2017, the stock had been trading in a narrow band at the top.

However, despite sideways movement, it continued to trade above its 21-weekly EMA. This week’s breakout has paved the way for smart up move in the medium term.

Earlier in April 2017, the stock had provided a strong rally from the support of its 200-Weekly Moving Average, which suggests that the stock is in a strong uptrend. Every consolidation or a decline is providing a buying opportunity.

Breakout from flag consolidation is likely to ignite buying momentum once again. Traders are advised to buy Hexaware above Rs278 with a stop loss of Rs267 for a target of Rs300.

Tech Mahindra: BUY| Target Rs460| Stop Loss Rs408| Return 8%

The phase of consolidation after a sharp decline suggests exhaustion of selling pressure in Tech Mahindra. Moreover, it has reversed from PRZ of ABCD pattern, indicating an end of the corrective phase.

Also in the process, the stock took support around the three-digit gann number of 361 before gradually moving higher. Ratio chart of NiftyIT index vs Nifty shows significant underperformance of IT stocks since 2014 and during this period, ratio corrected from 1.65 to 1.05 (down by ~35%).

However, recent price structure shows that ratio has been hovering near 61.8% retracement level of the entire up move of 2009 to 2014. Positive divergence is also seen in the weekly RSI. Ratio price is attempting to breakout from downward sloping trendline.

We expect the stock to build on this week’s 5% move and attempt a rally towards Rs460. Maintain stop loss of Rs408.

Bharat Financial: BUY| Target Rs910| Stop Loss 820| Return 7%

Bharat Finance is breaking out after a long period of sideways correction. In the month of May 2017, the stock made a low of Rs651 but managed to defend the multiple gann support points and ensured a change in trend.

Despite going through a phase of correction at the top, it continued to trade above its 100-weekly EMA. Since it is an up trending stock, traders should always use any phase of consolidation and breakout from the same to build longs.

In this week’s trade, it managed to stage a breakout from the downward sloping trendline which warrants positive outlook for the stock. In the first week of August, it had staged a false breakout from the same pattern but it turned out to be a false move.

However, correction turned out to be short-lived and the stock recouped the lost ground. Based on above parameters, we recommend a buy on Bharat Finance above Rs845 with a stop loss of Rs820 for a target of Rs910.

Disclaimer: The author is Head of Technical Research at IIFL Private Wealth. 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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First Published on Aug 18, 2017 09:58 am
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