In the coming week, we expect Nifty to hold the Friday’s panic low (10,866) and gradually extend the ongoing pullback towards 11,300
ICICI Direct.com Research
Equity benchmarks extended their decline for the third successive week amid elevated volatility led by a sharp decline in the NBFC stocks. The weakness in the rupee against the US dollar and rising crude oil prices added to the negative sentiment.
Contrary to our view, Nifty breached the support of 11,200 on last Friday’s trade and witnessed a sharp decline to form an intra-day low of 10,866.
The index thereafter traded with high volatility as it retested the Friday’s panic low on Tuesday’s session and then witnessed a sharp recovery to move above 11,000.
In the coming week, we expect Nifty to hold the Friday’s panic low (10,866) and gradually extend the ongoing pullback towards 11,300 as it is a confluence of:
a) 50 percent retracement of recent decline (11,760–10,866), at 11,313
b) Downward sloping trend line is drawn adjoining highs of 11,752– 11,523, at 11,300
In the coming sessions, the volatility is likely to remain on an elevated level amid expiry of September series derivatives contracts, the outcome of US Federal meeting and domestic news flow on current account deficit.
Time wise, since January, each directional leg in the Nifty has lasted for seven to eight weeks. In the current scenario, Nifty has maintained the rhythm as it has entered into a corrective phase after eight weeks of the rally (July- August) from 10,807-11,760.
In the coming weeks, we expect the index to enter a consolidation in the broad range of 10,800-11,300 amid stock specific activity.
Structurally, the July-August rally in the Nifty is larger in magnitude (1156 points) than the April 2018 rally (977 points) signalling positive price structure as rallies are getting bigger.
Thus, we believe 10,800 will act as a key support in the short-term as it is the confluence of the following technical parameters:
a) Friday’s panic low at 10,866
b) 80 percent retracement of July-August rally (10,557-11,760) at 10,798
c) Trendline connecting major lows of December 2016 (7,893) and March 2018 (9,951) around 10,800
d) 200 EMA is currently placed at 10774
Here is a list of top two stocks which could give 16-18 percent return in next six months:
Jindal Steel & Power: Buy| LTP: Rs 231| Target: Rs 268| Stop Loss: Rs 215| Return: 16 percent| Time Frame: 1 month
The share price of Jindal Steel & Power has recently registered a resolute breakout above the downward sloping trend line joining the highs of January 2018 (Rs 294) and May 2018 (Rs 265).
This signals positive bias and resumption of the upmove, thus offering a fresh entry opportunity to ride the next up move in the stock.
During the previous month, the stock rebounded taking support at the 200-week EMA and 80% retracement of the previous major up move (Rs 158-294) signalling a positive price structure.
The immediate support for the stock is around Rs 218 levels as it is the trendline support joining previous low since July 2018 and the 61.8 percent retracement of the previous up move (Rs 203 to Rs 246).
We expect the stock to continue its positive momentum and test levels of RS 270 as it is the 80 percent retracement of the entire decline (Rs 294 to Rs 177) at Rs 270.
Alkem Laboratories: Buy| LTP: Rs 2,065| Target: Rs 2,440| Stop Loss: Rs 1,930| Return: 18 percent| Time Frame: 6 months
The share price of Alkem Laboratories has seen a strong up move during July 2018 and is seen consolidating in the last two months. The up move was from the major support area of Rs 1,700-1,750 as it is the lower band of the last one year’s consolidation.
The stock is currently forming a higher peak and higher trough on monthly chart highlighting a robust price structure.
The stock is at the cusp of a major consolidation breakout of the last 17 months signalling the resumption of the up move after the recent consolidation thus offering a fresh entry opportunity to ride the next up move in the stock.
The up move during July-August 2018 is supported by a strong volume of more than twice the 10 weeks average volume of 3.6 lakhs shares per week signalling larger participation in the direction of the trend.
Going ahead, we expect the stock to hold the strong support area of Rs 1,940 being the trendline support joining the CY16 (Rs 1,152) and April 2018 (Rs 1,726) placed at Rs 1,940.
Based on the above technical observation we expect the stock to continue its positive momentum and test Rs 2,440 as it is the price parity of the previous up move from Rs 1,802 to Rs 2,242 as projected from the recent trough of Rs 2001 which also confluence with the all-time high placed around Rs 2,469.Disclaimer: The author is Head Technical at ICICI Direct.com Research. The views and investment tips expressed by investment expert on moneycontrol.com are his 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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