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'Mid & smallcaps begin to bottom out; 3 stocks that return up to 10%'

Monthly advance-decline ratio on BSE has been positive for the last four months on the trot

December 31, 2019 / 10:48 AM IST
 
 
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Nandish Shah

Nifty50 continued its northward journey for the second day on the trot on December 30 as it closed with the gains of 10 points at 12,256 levels.

The Nifty50 took support at 12,118 last week, in the expected support range of 12,100 where Puts were written and reversed northwards.

During that correction, Nifty managed to hold its 20-Days SMA and EMA. Currently, the 20-days SMA is placed at 12,093, while 20-Days EMA is placed at 12,122.

Nifty50 is placed above all important moving average parameters with Momentum Indicators and Oscillators showing strength. The Nifty50 has been trading in the upward sloping channel and the upper trend line of that channel projects an immediate resistance around 12,350.

Close

If the index closes above 12,350, the rally is likely to extend towards 12,735, which happens to be 100% Fibonacci extension levels by taking a swing of 10,004(Bottom Oct-2018), 12,103(Top - June 2019) and 10637(Bottom Aug-2019).

In the Derivatives’ segment, we have seen a long build-up in the Nifty and Bank Nifty Futures. Amongst the Options, we have seen Put writing at 12,100-12,200 strike prices, indicating that 12,100 is likely to act as strong support going forward.

Moreover, we are beginning the January series with lower Nifty Futures, Bank Nifty Futures, and stock futures Open Interest that indicates markets are lighter as compared to the December series which augurs well for the markets going forward.

The Advance decline ratio is positive for the last three trading sessions which clearly indicates market breadth is improving. Moreover, the monthly advance-decline ratio on BSE has been positive for the last four months on the trot.

This has happened the first time after 2017. This clearly indicates that the small and the mid-caps are beginning to bottom out and one should continue to focus on Midcap & Small-cap stocks as they are likely to do well.

Considering the technical and derivatives evidence discussed above, we believe that 12,100-12,150 has emerged as strong support and unless that level is breached the trend for the market would be considered bullish.

Therefore, our advice would be to accumulate longs in the Nifty with a stop loss of 12,100 levels.

The immediate resistance is seen in the vicinity of 12,300-12,350 levels, and any close above 12,350 could push the index towards the targets of 12,500 and 12,735

Here is a list of top three stocks that could give 9-10% return in the next 3-4 weeks:

Varun Beverages: Buy| LTP: Rs 715| Target: Rs 790|Stop-Loss: Rs 680| Upside 10%

Varun Beverages has broken out on the daily charts by closing above the earlier resistance level of Rs 713 to close at the highest level since 04-December.

The primary trend of the stock is bullish where the stock price is trading above its 50, 100 and 200-Day SMA. Oscillators and momentum Indicators like RSI and MACD have turned bullish on the daily charts.

Therefore, we recommend buying Varun Beverages for the upside target of Rs 790, and keep a stop loss placed below Rs 680.

Sudarshan Chemicals: Buy| LTP: Rs 414| Target: Rs 450| Stop-Loss: Rs 390| Upside 9%

After taking support around 50-Day SMA for multiple times during the last few days, Sudarshan Chemicals has broken out from the last two-month trading range to close above the resistance level of Rs 610 levels.

Volumes were also sharply higher as compared to the last one month average indicating strength in the breakout.

Primary Trend of the stock is bullish where the stock price is trading above its 50, 100 and 200-Day SMA Oscillators and momentum Indicators like RSI and MACD have turned bullish for the stock on the daily and weekly charts.

Therefore we recommend buying Sudarshan Chem for the upside target of Rs 450 and keep a Stop Loss placed below Rs 390.

UPL: Buy| LTP: Rs 589| Target: Rs 640| Stop-Loss: Rs 560| Upside 9%

The stock price has broken out from the downward slopping trend line, adjoining the high of 05-July and 05-November 2019. The stock price also broke out on the daily chart by closing above the resistance level of 581 to close at the highest level since 06-Nov.

The stock price has been taking support at 20 day SMA. Oscillators and Momentum Indicators have been showing strength on the daily and weekly charts. Therefore we recommend buying UPL for the target of 640 and keep a stop loss below Rs 560.

(The author is Technical & Derivatives Analyst, HDFC Securities)

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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