By Jigar S Patel, Senior Manager - Equity Research at Anand Rathi
Recent profit booking has had a significant impact on the market, leading to a sharp decline of over 1.5 percent in the benchmark indices. The Nifty 50 index, after achieving a new all-time high of 25,333, has entered a consolidation phase. However, profit-taking over the last two trading sessions has pulled the index back to the 24,800 level. From a technical perspective, this correction was anticipated due to the negative divergence observed in the Relative Strength Index (RSI) on the daily chart of Nifty 50. A negative RSI divergence occurs when the index continues to rise, but the RSI shows a weakening trend, signalling a loss of momentum and an impending pullback.
In addition, the long-short ratio of foreign institutional investors (FIIs) in index futures, which had reached 70 percent, indicated early signs of market exhaustion. This high ratio suggests that most FIIs were holding long positions, leaving little room for further upside without a correction. As both the RSI divergence and the FIIs' positioning played out, Nifty 50 saw a decline. The formation of a Bearish Engulfing pattern on the weekly chart further suggests that the index may have reached a temporary peak. Should the index fall below the 24,800 level, it could potentially slide further to the 24,600–24,500 range in the coming sessions. As a result, a "sell on rise" strategy is advisable until the market confirms a new high, making it too early to initiate fresh long positions.
Similarly, the Nifty Bank index has experienced a similar correction, falling by over 1.5 percent this week and currently standing around the 50,500 mark. The index has broken a key trend line on the daily chart, which signals a potential further decline toward the 49,800 level in the near term. As with Nifty 50, a "sell on rise" strategy is recommended for Nifty Bank until it surpasses its recent high of 51,700. This cautious approach is in line with the broader market sentiment, which suggests a period of consolidation and potential downside before any sustained upward movement resumes.
Here are three buy calls for short term:
SBI Cards and Payment Services | CMP: Rs 800.65
On a weekly chart, SBI Cards and Payment Services' stock consolidated within a range of approximately Rs 680 to Rs 750, signalling a phase where the stock price remained confined within these levels, neither breaking down nor rallying. This period of consolidation occurred near a potential reversal zone, with the lower boundary of the consolidation being around Rs 680. Such zones often indicate that the stock is nearing a point where its trend may shift, either resuming an uptrend or reversing from a prior decline. During this consolidation, SBI Card formed a triple bottom pattern, a bullish reversal structure that indicates strong support at the lower end of the range. This pattern, coupled with bullish divergence on the daily Relative Strength Index (RSI), further reinforced the likelihood of an upward move. Bullish divergence on the RSI indicates that while the stock's price may have been declining or remaining flat, momentum was building in the opposite direction, suggesting growing buying pressure.
Following this consolidation, SBI Card successfully broke out of the Rs 750 zone and has sustained above it, confirming the strength of the breakout. The stock is now positioned for further upward movement, with a target price of Rs 900. Investors are advised to take a "buy on dip" approach, entering the stock at levels till Rs 770 for potential upside gains. To manage risk, a stop-loss should be set at Rs 740 on a daily closing basis, ensuring downside protection in case the stock fails to maintain its momentum. This technical setup, backed by the triple bottom pattern, RSI divergence, and the breakout, makes the SBI Card a favourable long position for traders and investors.
Strategy: Buy
Target: Rs 900
Stop-Loss: Rs 740
Gujarat Ambuja Exports | CMP: Rs 143
Over the past year, Gujarat Ambuja Exports has established a robust support level within the range of Rs 130-132, undergoing multiple tests that have demonstrated its resilience in the face of downward pressure. Recently, there has been a significant development as Gujarat Ambuja Exports broke above a bearish trendline that had constrained its movement for the past 4-5 months, and notably, it has sustained this breakout. This suggests a fundamental shift in market sentiment towards the stock.
Furthermore, on the indicator front, the weekly RSI has surpassed its own bearish trendline, signalling bullish momentum in the short to medium term. Considering these technical indicators, we have advised traders and investors to initiate long positions in Gujarat Ambuja Exports within the range of Rs 140-144. We have set an upside target of Rs 174, indicating our bullish outlook on the stock's potential for appreciation. To manage risk, we recommend placing a stop-loss order near Rs 126 on a daily closing basis, aiming to protect against adverse movements in the market.
Strategy: Buy
Target: Rs 174
Stop-Loss: Rs 126
Laxmi Organic Industries | CMP: Rs 307
Over the past 7-8 weeks, Laxmi Organic Industries has been trading within a relatively narrow range of approximately Rs 235-270, indicating a period of consolidation. However, the stock recently broke out of this range and is now positioned near the Rs 280 mark, signalling a potential shift in its trend. This breakout is particularly noteworthy because it has also violated a bearish trendline that has constrained the stock's movement for nearly three years along with volume picking up. The length of time it took for this breakout to occur makes it a significant event, suggesting a potential change in the stock's long-term trend.
Additionally, the RSI, a momentum indicator, has consistently remained above the 50 level throughout this period. This is a sign of strength, indicating that despite the consolidation, the stock has maintained positive momentum. Considering these technical factors, we recommend taking a long position in Laxmi Organic Industries within the price range of Rs 305-310. The upside target is set at Rs 350, reflecting the potential for further gains following the breakout. To manage risk effectively, a stop-loss should be placed near Rs 286 on a daily closing basis.
Strategy: Buy
Target: Rs 350
Stop-Loss: Rs 286
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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