A negative indication of both the mentioned patterns are still intact and the Bulls need to pull the Nifty above 10100 - 10150 zones to resume its broader uptrend.
Nifty has slipped into a consolidation phase and it appears that markets are awaiting some strong trigger to confirm the clear direction in the near term, Jay Purohit, Technical & Derivatives Analyst at Centrum Broking Limited said in an exclusive interview with Kshitij Anand of Moneycontrol.
Q) The Nifty formed a ‘Hanging Man’ kind of pattern on the daily charts for the week ended 8 September? How is coming week expected to pan out for investors?
A) In the week gone by, the Nifty breached the winning streak of previous three weeks and concluded the week with a loss of 40 points over its penultimate week’s close.
Except for a strong selling pressure on Monday, the Nifty traded within the Monday’s trading territory for remaining four sessions with a positive bias and thus formed a small ‘Hanging Man’ pattern on weekly chart.
Generally, the formation of such pattern can be a reversal trigger; but since the Nifty is moving in a sideways direction from last four weeks, we won’t give much weight to this pattern.
Currently, the Nifty has slipped into a consolidation phase and it appears that markets are awaiting some strong trigger to confirm a clear direction in the near term. Thus, Nifty is expected to trade within the range of 9800 – 10025 in upcoming week too.
Q) How is the Nifty and NiftyBank looking on technical charts?
A) The Nifty is moving in a sideways direction from last one month. After 2008 (except the ‘fat finger’ trade from a broking firm in 2012), this is the first time, when Nifty traded within its previous weekly range for four consecutive weeks.
Due to ongoing geopolitical tensions, our market failed to get the clear direction and the intraday trading range is getting shrunk day by day and thus indicating a possibility of a breakout on either side.
The more it consolidates in the range of 9,850–10,000, the stronger will be the follow-up move post the breakout. The momentum oscillator ‘RSI’ along with short0-term moving averages (5 EMA & 20 EMA) on the daily chart are placed positively and thus indicating strength in the index.
However, the Nifty corrected from the reversal zone of a Bearish Harmonic Pattern called ‘Bearish AB=CD’ and formed the ‘Bearish Engulfing’ pattern on weekly chart.
A negative indication of both the mentioned patterns are still intact and the Bulls need to pull the Nifty above 10,100-10,150 zones to resume its broader uptrend.
The NiftyBank index started correcting from the 100 percent extension levels of its previous up move from the recent swing low of 17606.90 on the weekly chart and has formed an ‘Evening Star’ pattern in the second week of August 2017.
However, follow-up selling was not seen in the banking index. In line with the benchmark indices, the NiftyBank index too moving in a consolidation phase of 24000 – 24500 from last twelve days. The daily chart is hinting a possibility of a breakout on the higher end and we may see it moving towards its 25000 marks in an upcoming week.
Q) What should be the ideal strategy for investors?
A) During this sideways movement, a lot of individual stocks are likely to outperform (similar to what we witnessed in last week) Thus, we advise traders to focus more on stock specific moves with a proper exit strategy.
However, the right strategy is to adopt in the current market situation is to invest or trade longs with downside protection using Nifty Hedges. A Nifty 10000 December 2017 hedge (Put) is available at a cost of 2.50% in Nifty terms, which can be handy especially if the Nifty corrects anytime in the next 4 months below 10000.
Q) What are the key indicators suggesting?
A) The momentum oscillator ‘RSI – Smoothened’ is placed positively on the daily chart and thus indicating strength in the Nifty. At the same time, we witnessed a positive crossover of ‘5 EMA’ and ‘20 EMA’ on daily chart in penultimate week and the index is sustaining above the same.
Also, the Nifty has a support of its medium term moving average (50 EMA), which is placed around 9830 levels. However, the trend following indicator ‘SuperTrend’ on daily chart depicts a strong hurdle around 10025 levels. Considering the above key indicators, a sustainable move beyond 9830 – 10025 will decide the further trend in near term.
Q) Any top five stocks which are looking good on charts?
A) In the ongoing consolidation phase, we are witnessing decent move in many stocks. Thus, we are adopting stock centric approach till we don’t get clear direction on the index. Below are few of our trading buy ideas for upcoming weeks.
Radico Khaitan (CMP: 175.95):
Last month, the stock had given a breakout from a ‘Triangle’ pattern on the monthly chart. However, post the breakout, the stock has started moving in a sideways direction. The consolidation phase of last three weeks has resulted in the formation of a ‘Bullish Flag’ pattern on daily chart.
On Friday, we witnessed a breakout from the mentioned pattern with healthy volumes. Considering the strong chart structure; we won’t be surprised to see 200 marks on the counter. Thus, we advise traders to buy the stock at current juncture and on declines to 170 with a stop loss 160.
Eid Parry (CMP: 340.55):
The stock is moving in a strong uptrend and the best part of the ongoing rally is that it is not a strident rally and have decent corrections in-between, which is a healthy sign for a sustainable move as straight rallies generally fizzles out soon on account of profit booking.
Currently, the stock is moving in a sideways direction from last four months. The stock is on the verge of giving breakout from the consolidation phase.
Since the ‘RSI’ oscillator on both daily and the weekly chart is placed positively along with ‘moving averages’; we are anticipating a continuation in the ongoing optimism in the counter.
Thus, long positions can be taken for a target price of 377 and 389 in upcoming weeks. The stop loss for the trade should be kept at 324.
Berger Paints (CMP: 256.35):
After a sharp rally from 189 to 265.90, the stock has started moving in a sideways direction. The stock had continuously taken support around the ‘200 DMA’ in the recent past and bounced back piercingly.
The consolidation phase of last four months has resulted in the formation of ‘Bullish Flag’ pattern on weekly chart. The mentioned pattern is a bullish continuation pattern. Last week, we witnessed a breakout from the said pattern with decent volumes.
Also, the ‘RSI’ oscillator on the daily chart has given breakout from the ‘Falling Trendline’ and thus indicating strength in the counter. Thus, traders are advised to buy the stock at current juncture for a target of 285 - 290 with a stop loss of 240.
Tata Sponge Iron (CMP: 891.60):
The stock has shown notable resilience in the recent past and made a new ‘52 weeks high’ on Friday. In last week, the stock had given a ‘Falling Trendline’ breakout on the daily chart and we had initiated a buy call at that time at 844 on Wednesday.
The positive momentum continued for next two sessions and as a result, we witnessed a breakout from the consolidation phase on the weekly chart. Since overall chart structure is quite strong, the stock can be added at current levels too for a target of 965 – 975 levels in upcoming sessions. Traders should keep a stop loss of Rs848 for this trade.
Muthoot Finance (CMP: 489.95):
The stock has been moving in a range of 435 – 480 from last three months on a closing basis (daily line chart). Last week, the stock gave a breakout from the consolidation phase with remarkable volumes and managed to sustain above the same.
Thus, we are expecting the ongoing optimism to continue in upcoming days too. Hence, we advise traders to buy the stock for an upside target of 520 – 525 with a stop loss of 474.
Q) How are FIIs placed in September expiry?
A) FIIs, who sold equities of around Rs. 16000 crores in August, continued to curb liquidity in September too. They are seller worth more than Rs. 4200 crores in cash market segment in the first six sessions of September expiry.
While they cumulatively shorted index futures to the tune of Rs. 847 crores in September series with the rise in open interest, indicating the formation of short positions in index futures.
As a result, their ‘Long Short Ratio’ in index futures has decreased from 71.40% to 63.30%. Also, decent amount of index put buying was seen from FIIs desk in a current month.Considering overall derivative activity, we are advising our clients not to trade aggressively in the index at current juncture and hedge their long portfolios with Nifty 10000 Put option of December 2017 expiry.