Technically the index has been scaling higher with narrow ranged candles but the momentum indicators are diverging & indicating lack of strength.
Nifty saw another weak pattern in the form of 'Dragonfly Doji' amidst the ongoing cluster of 'Stars' which have been occurring since the last few days. But the index continues to oscillate higher within its upward sloping channel while its corresponding RSI value has been declining.
On the daily scale, the developing price structure also resembles a classic 'Wedge' formation and also exhibits its characteristics. It has managed to close above its 200 DEMA of 10,514 but has not yet witnessed a strong bull candle formation. The zone is also of major importance as it is the 61.8 percent retracement of Nifty's January-March fall.
Technically the index has been scaling higher with narrow ranged candles but the momentum indicators are diverging and indicating lack of strength. Hence, it's ideal to refrain from leverage longs and maintain a trailing stop strategy. Due to its overbought state fresh shorts are warranted only on a breakdown below 10,300 with a follow-through move below 10,180 for a move towards 10,000.
Here is the list of three stocks which can be considered for the short-term:
Buy ICICI Securities
The secular uptrend remains intact as the recent breakout from a Flag Pattern formation on the daily scale indicates price action likely to extend beyond its life high levels. The pattern indicates a target up to Rs 570 which could be achieved under 2-3 weeks span. Fresh longs could still be added with stop loss below Rs 475.
Since the last four months, the stock has been oscillating within the contracting triangle formation. The recent rebound from the lower end of the pattern support saw the occurrence of a 'Bullish Harami' candlestick pattern. The stock has breached above its 200 DEMA while the converging short-term averages near this zone indicate directional momentum in the offing. Pidilite could swing back towards its ongoing pattern resistance placed near Rs 1,520-1,540 zone, momentum longs could be deployed with a stop below Rs 1,370.
Sell Dr Reddy's Labs
The sell call is due to weak sector outlook coupled with a breakdown from an Inverse Flag formation on the daily scale. Dr Reddy's has slipped below its short term averages around Rs 3,970 mark while it subsequently closes below its 5 WEMA last week. Follow through move could push the stock towards its 20 WEMA support zone placed around Rs 3,695. Trading shorts could be considered on a pullback towards Rs 3,820 with a stop loss at Rs 3,865 for an immediate target up to Rs 3,695-3,700.
The author is DVP – Technical (Equity) at Tradebulls Securities.Disclaimer: 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.