By Dharmesh Shah ICICI Direct.com Research
The Nifty formed an inside day pattern as it remained confined within previous session's high/low range on Wednesday. The lack of follow through below Tuesday’s bear candle signals continuance of sideways consolidation amid the stock specific action.
The index has so far retraced about 80 percent of its preceding six session's corrective decline 9,698 to 9,448) in just three trading sessions.
The current pullback highlights the presence of strong demand at the earmarked value area of 9,500-9,450 region as it is the confluence of 38.2% retracement of the major up move between March to June 2017 and the rising 50-days moving average.
Going forward, we expect the index to extend the ongoing consolidation and oscillate between 9,500 and 9,700 levels while the focus has shifted to sector/stock specific action with limelight being on GST beneficiaries, the progress of monsoon and the onset of quarterly earnings season.
The recent developments on price front have signalled the onset of a secondary consolidation phase within the larger degree uptrend.
The Nifty has registered first negative monthly close in CY17 after a strong rally of over 18 percent in the first five months.
The violation of an up trending channel encompassing the up move since February 2017 and last leg of fall getting bigger in magnitude compared to preceding intermediate declines which had not measured more than 200 points is a sign of a pause in the momentum.
We believe the current breather will make the market healthier by hiving off overbought conditions developed after the five-month rally. Hence, it presents a good opportunity to enter into quality midcaps and frontlines with strong quarterly earnings.
Here is a list of four stocks which can give up to 29% upside in 6 months:
Bharti Airtel: BUY| CMP Rs376| Target Rs432| Stop Loss Rs352| Upside 15%| Time Frame 6 months
The stock has been consolidating for the last 12 months in the broad range of Rs380-280 while adjusting to the major transformation in the Indian telecom industry over the last year. We believe the sideways consolidation over the last year is approaching maturity.
The entire consolidation over the last 12 months from July 2016 till date appears to have taken the shape of a well-defined Cup & Handle pattern.
A Cup & Handle formation is a bullish continuation pattern having a positive implication on the price front upon resolution above the neckline of the pattern.
The stock has recently registered a breakout above the neckline of the Cup and Handle pattern placed at Rs375 levels signalling conclusion of the secondary correction and thereby offers a fresh entry opportunity to ride the next up move from a medium-term perspective
We believe the stock is set to embark upon its next directional up move towards Rs438 over the medium term as it is the price wise parity with the previous up move (Rs288 to Rs401 =113 points) measured from the recent higher bottom of Rs325.
Zee Entertainment: BUY| CMP Rs499| Target Rs590| Stop Loss Rs472| Upside 18% Time Frame 6 months
The stock remains in a well-established uptrend and has generated stable returns for long term investors on a consistent basis over the past many years.
Within this secular bull trend, the stock has undergone periodic phases of secondary corrections, which have provided fresh entry opportunities for investors.
The entire up move since May 2015 has occurred in a well-defined rising channel highlighting a structured up move and persistent demand at elevated levels.
The stock is currently consolidating above the lower band of this up trending channel placed around Rs480 region which also coincides with the long term 52 weeks EMA currently placed near Rs 490 levels.
We believe the stock is attractively placed at key value area and offers a favourable risk-reward setup to ride the next up move over a medium term horizon.
We expect the stock to resolve higher from here on and head to challenge its previous life high placed at Rs590 levels over the coming months
Godrej Industries: BUY| CMP Rs657| Target Rs785| Stop Loss Rs594| Upside 19% Time Frame 6 months
The stock continues its uptrend after successfully taking out its 2008 peak making the long-term price structure more robust amid multiple tailwinds from diversified businesses.
Rallies becoming stronger with shallow intermediate corrections corroborate the bullish price structure and signal continuance of the upward momentum over the medium term.
We expect the stock to extend the current up move and head towards Rs785 levels over the medium term being the 161.8% retracement of 2008 decline (Rs501 to Rs46)
Greaves Cotton: BUY | CMP-160| Target Rs207| Stop Loss Rs139| Upside 29%| Time Frame 6 months
After the strong breakout rally from Rs115 to Rs177 in just three months, the stock entered into sideways consolidation mode and has oscillated between the broad range of Rs177 and Rs145 over the last three months. This consolidation has occurred precisely above the key value area of Rs145.
We believe the current consolidation above the key value area has laid the platform for the next up move being the confluence of long term 52 weeks EMA, 50% retracement of the preceding major up move and the previous Double bottom breakout area placed around Rs145 region.
We believe the stock is well placed to continue its upward trend over the coming months and, therefore, offers an opportunity to ride the same with the favourable risk-reward setup.
The price equality with the last rising segment (Rs115 to Rs177= 62 points) measured from a recent trough of Rs145 projects upsides towards Rs207 levels (Rs145+62=207) over the medium-term.
Disclaimer: The author is Head Technical, AVP at ICICI Direct.com. The views and investment tips expressed by investment experts on moneycontrol.com are their 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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