The narrow range index movement of last one week hints at the criticality of a stock specific approach given that Nifty has not witnessed a broad-based rally.
IIFL Private Wealth
The Nifty has been on a roll in 2017, rallying by about 18 percent making new highs with almost effortless ease, thanks to the grit and gumption of the bulls. Life atop Mount 9.6k certainly sounds enthralling as corrections - both price wise & time wise - have been shallow in nature.
Having said that, a deeper probe into the 2017 corrective phases clearly highlights the transient nature of declines in the current structure.
During all corrective pullbacks in the ongoing uptrend since 26th December 2016, the index has not declined by more than 200 points.
The recent fall (from 17th May to 24th May) was limited to a mere 191 points, which undermines the market strength, and clearly, indicates that this is a ‘buy on dips’ market.
The narrow range index movement of last one week hints at the criticality of a stock specific approach given that Nifty has not witnessed a broad-based rally. Midsize private banks and FMCG are two spaces with discernibly inherent strength.
Defense of 9610 is essential for another attempt to retest zone of 9,700 mark; however, very few stocks are likely to participate in this rally. Hence, traders are advised to adopt a stock-specific approach.
Here is a list of top five stocks which can give up to 13% return in short term:
BPCL: SELL| Target Rs655| Stop LossRs725| Return 7%
Inability to break past the midpoint of the earlier gann channel placed at Rs785 resulted in a reversal. Moreover, the upside movement was seen on 29th May 2017 also turned out to be a false break as the stock retreated below the breakout point soon post the upmove.
Thereafter, the stock has been drifting lower. So signs of topping out and fatigue are clearly visible on the counter. Analysing the stock from a harmonic perspective, it made a bearish ABCD pattern and has commenced its downtrend.
A break below Rs690 would infuse the pressure on the downside. Current set-up provides an ideal risk-reward scenario to create shorts. Based on the above mentioned rationale, we recommend a short on BPCL Jun Futs below Rs705 with a stop loss of Rs725 and a target of Rs655.
Havells India: BUY| Target Rs540| Stop Loss Rs488| Return 7%
A rally of 5 percent in this week’s trade has ensured that the price managed to close above the resistance area of Rs490, thus signaling bullish breakout from the Flag pattern. Since last 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 13-DMA. This week’s breakout has paved the way for smart upmove in the medium term. Earlier in March 2017, the stock provided a strong breakout from base building pattern, 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 Havells above Rs504 with a stop loss of Rs488 and a target of Rs540.
NRB Bearings: BUY| Target Rs152| Stop Loss Rs192| Return 13%
NRB Bearings on the weekly chart has broken out of a consolidation zone above Rs125 leading to a pattern namely ‘bullish symmetrical triangle’ breakout. Last week, on the short-term charts, it had staged a breakout from a consolidation pattern at the top and the stock has been sustaining above the breakout line corroborating strength in the recent upmove.
Also, the stock has been sustaining above the gann number of 121. The amplitude of triangle projects medium term target above Rs150. The stock has witnessed a rally of 10 percent in this week’s trade.
However, confirmation of breakout both on medium term and short-term time frame corroborates our positive view in the counter, reinforcing bullish trend and any declines is likely to be met with buying interest.
Based on the technical parameters, we recommend a buy on NRB Bearings above Rs135 with a stop loss of Rs127 and a target of Rs152.
DCB Bank: BUY| Target Rs225| Stop Loss Rs192| Return 10%
DCB Bank is breaking out after a long period of consolidation at the top of its trend. This consolidation was in place after the stock successfully registered a move above its three-digit gann number of 169 and ensured a change in orbit on the upside.
Despite sideways movement at the top for previous five weeks, it continued to trade above its 35-DMA. Since it is an up trending stock, traders should always use any phase of consolidation and breakout from the same to build longs.
Moreover, the stock has the tendency to witness shallow price correction before resuming its prevailing uptrend. In this week’s trade, it formed a bullish candle on a comparatively higher volume and managed to surpass recent peak of Rs200 which warrants positive outlook for the stock.
Based on above parameters, we recommend a buy on DCB Bank above Rs203 with a stop loss of Rs192 and a target of Rs225.
Colgate Palmolive: BUY| Target Rs 1150| Stop Loss Rs1035| Return 6%
The Nifty FMCG index had staged a strong breakout trade in the month of May and thereafter it is sustaining above the same, which undermines the strength of this sector. Stocks like HUL and ITC have already delivered strong returns in last few weeks.
Technical charts suggest that Colpal could now participate in the rally in the FMCG space. Colpal saw a swift recovery from Rs900-880 zone and thereafter it has been moving above its 21 and 50-week EMA levels, which has improved its price structure from medium term perspective.
Recent price action shows positive break above the recent consolidation phase. The appearance of large bullish candle breaching above hurdle of Rs1,050 suggests that the stock has ample room on the upside.
We believe Colpal could outperform from near-term perspective. Traders can buy Colpal above Rs1,075 with a stop loss of Rs1,035 and a target of Rs1,150.Disclaimer: The author is Head of Technical Research at IIFL Private Wealth. The views and investment tips expressed by investment experts on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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