The ongoing secondary corrective phase forms part of the larger degree uptrend and provides incremental buying opportunity to accumulate quality stocks in a staggered manner.
ICICI Direct.com Research
The Nifty posted a strong rebound after attracting demand at the key support area of 9700 regions during last week’s correction. The confluence of the breakout area of June 2017 consolidation and 61.8% Fibonacci retracement of the last rising segment (9448-10137) placed around 9700 regions made this a key value area for the index.
The overall price structure remains positive as the index continues to form rising peaks and troughs on all time frames. We believe the ongoing secondary corrective phase forms part of the larger degree uptrend and provides incremental buying opportunity to accumulate quality stocks in a staggered manner.
The index is now poised at an intermediate hurdle placed around 9,900 region being last week’s bearish gap area and 50% retracement of the decline from life high of 10,137 to 9,685.
We believe a decisive close above 9,900 will open further positive options for continuance of the up move towards 80% retracement of the current decline placed around 10,050 region over the coming weeks
The key observation in current weeks up move is the build-up of strength across the beaten down broader markets as the mid cap and small cap indices that corrected sharply during last week have posted a strong rebound after attracting strong demand near the May 2017 bottom.
It highlights the resumption of buying momentum across the broader markets and validates the presence of strong demand at the earmarked value area of 9700.
Going forward, we expect the mid cap and small cap space to remain in flavour and relatively outperform the benchmark. Among sectors, we expect Auto, Banking, FMCG and Metal indices to trade with a positive bias.
Here is a list of top 4 stocks which can give up to 29% return in 6 months:
Maruti Suzuki: BUY| CMP – 7700| Target Rs8440| Stop Loss Rs7200| Return 11%| Time Frame 6 month
The share price of Maruti has been a strong outperformer in the auto space as it strides northward in a rising peaks and troughs manner on the long term chart amid continued investor participation at elevated levels.
Considering the strong bullish price structure, recent secondary corrective consolidation has helped the stock work off overbought conditions on momentum oscillator and created an attractive entry opportunity to ride the secular bull trend.
The secular bullish trend in the stock is clearly visible from the rising peak and trough formation on all time interval chart. Significantly, the cornerstone of the entire rally since March 2016 has been that the rallies are faster and larger in magnitude while corrections have remained shorter and shallow.
Such behaviour of the price pattern points towards the growing appetite to own the stock generating steady demand
The entire up move since November 2016 low (Rs4766) has occurred in a well-defined rising channel highlighting a structured up move and persistent demand at elevated levels.
The stock after hitting its life-time high (Rs7920) on 1st of August 2017 witnessed a gradual corrective decline in the last two weeks and almost tested the lower band of the rising channel during previous week placed at Rs7350 levels.
The stock during current week trade resumed its fresh up move and we believe it is attractively poised after the recent consolidation and provides a fresh entry opportunity with a favourable reward/risk set up to ride the next up move.
We expect the stock to resolve higher from here on and head towards Rs8440 over the medium term being the 138.2% extension of the previous up move from Rs7155 to Rs7920 as projected from the recent trough of Rs7380 which also coincides with the upper band of the rising channel in placed since November 2016
Reliance Capital: BUY| CMP – 791| Target Rs920| Stop Loss Rs690| Upside 17%| Time Frame 6 month
The NBFC space has been one of the most favoured sectors among investors over the past many years as it has consistently produced winners that have created good wealth for the market participants.
Within the NBFC space, the share price of Reliance Capital has remained a prominent laggard over the last many years as it had been under an elongated consolidation phase.
The recent price action suggests a larger degree structural turnaround as the share price has finally emerged out of a major consolidation phase spanning over seven years since 2011 till date. We believe this presents a good investment opportunity from a medium term perspective.
The entire price movement since 2011 till recently, saw the share price move sideways in the broader range of Rs690 to Rs230 levels. The stock underperformed vis-à-vis the market as well as its peers from the NBFC space during this phase.
However, the share price witnessed the change of fortunes since the start of CY17 as it actively participated in the market wide rally and outperformed the benchmark in absolute terms.
The price up move in the last month saw the stock post a resolute breakout past the upper band of its seven-year consolidation range above Rs690 levels.
It has sustained above the breakout level of Rs690 in the current month and has strengthened further thereby confirming the larger degree structural turnaround implying the end of the long term consolidation phase and the start of a fresh uptrend.
As per the Dow Theory principle of Change of Polarity, we believe the major resistance of last seven years and the recent breakout area of Rs690 will reverse its role and act as major value area for the stock going forward.
We expect the stock to enter into a sustainable uptrend from here on and head towards the target of Rs930 over the medium term as it is the 138.2% Fibonacci extension of the January to May 2017 up move (Rs407 to Rs692) measured from the June 2017 higher bottom of Rs523 projects upsides towards Rs930 levels.
Bata India: BUY| Target Rs730| Stop Loss Rs632| Upside 10%| Time Frame 1 month
The share price of Bata India has registered a resolute breakout past its key overhead hurdle placed around Rs610. Over the last two years, the level of Rs610 had acted as a major barrier for the stock as all the major swing highs since July 2015 are placed around the same.
The resolute thrust past the key overhead barrier of Rs610 signals a turnaround in price structure and opens the room for further upsides, going forward.
The breakout on price front was accompanied by strong participation as the weekly volumes spurt to 1.3 crore shares which is significantly higher than the 52-week average volume of 25 lakh share per week.
Strong participation in the direction of trend highlights the strength in the price breakout and augurs well for the stock going forward.
We expect the stock to remain in rising trajectory and head to challenge its previous life time high placed around Rs748 region over the coming months. The 123.6% Fibonacci price extension of last major up move (Rs399 to Rs592) measured from June 2017 higher bottom of Rs510 also projects upsides towards Rs748 levels.
HEG: BUY| CMP-468| Target Rs608| Stop Loss Rs402| Upside 29%| Time Frame – 6 months
The share price of HEG has witnessed a major turnaround in the long term price structure as it resolved out of a multiyear consolidation during July 2017. The price structure points towards a structural bull phase, going forward.
The share price surged above its previous major peak of January 2010 (| 412), in July 2017 thereby triggering a breakout past seven-year consolidation.
During these seven years, the share price oscillated in the broad range of Rs400-150 while it retraced 2009- 10 rally (94-412) by 80%. The seven-year consolidation against one year rally has resulted in a major price higher bottom formation on long term charts.
The recent breakout from the seven-year consolidation indicates a resumption of structural bull phase for the stock. The sharp up move since the start of the CY17 has seen the stock completely retraced its major decline consuming 28 quarters from March 2010 high of Rs412 to December 2016 low of Rs144 in just three quarters.
The rally was also supported by strong volume participation of more than three times the 12-month average (10 lakh shares) highlighting larger participation in the direction of the trend.
Faster retracement of the major falling segment backed by strong volume participation confirms the positive turnaround in price structure and reinstates the bullish momentum
We believe the stock is well placed to continue its upward trend over the coming months. As the current rally is extending in magnitude we expect the share price to head towards the target of Rs608 as it is the 123.6% extension of preceding rally (251 – 441) as projected from the recent trough of Rs387. It also coincides with the all-time high of January 2008 placed at Rs 608 levels.Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. 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.