On the weekly scale, the Nifty made a high wave candle with a higher high, indicating consolidation after its recent rally
ICICI Direct.com Research
On the weekly scale, the Nifty made a high wave candle with a higher high, indicating consolidation after its recent rally. The index consolidated with a positive bias amid stock specific action as a decline in crude oil prices made investors positive.
In the coming sessions, we expect the index to sustain above Tuesday’s low of 10,440, which is the confluence of the bullish gap area of November 2 (10,442-10,458) and the rising trend line support joining lows of October 2018, and extend the current up move towards our earmarked target of 10,760, as it is a confluence of following technical evidence:
Bearish gap (10,858–10,755) on October 4
200-day SMA placed at 10,760
We expect the Nifty to form a higher base during the current consolidation as the lack of faster retracement in either direction signifies prolonged consolidation in the broad range of 10,300-10,760 amid stock specific action.
We believe the ongoing secondary phase of consolidation would make the market healthy as the current breather has helped the index cool off from overbought conditions developed in the daily stochastic after the recent sharp up move of almost 6 percent from 10,005 to 10,645.
Structurally, the formation of a higher high low after eight weeks of decline highlights a turnaround as rallies are getting bigger (in magnitude) and declines are contracting. The recent up move of 650 points is larger in magnitude compared to the mid-October pullback of 571 points.
Also, the last decline (705 points) is less than the early October decline (896 points). The aforementioned technical evidence makes us confident about revising the support base upward to 10,300 as it is:
50 percent retracement of last up move (10,005–10,645), at 10,325
Current month’s low is placed at 10,342
The Nifty Midcap index has cooled off from its overbought situation that had been formed due to the faster retracement during the recent up move (since it retraced earlier 7 sessions' decline in just 4 sessions).
The elongated up move immediately after a contracted decline suggests a structural improvement. Hence, we believe the ongoing cool-off should be utilised to accumulate quality stocks with improved earnings as we expect the Nifty Midcap to form a higher base during the current consolidation.
Buy Tata Steel | Target: Rs 655 | Stop Loss: Rs 520 | Upside: 12 percent in 6 months
The stock after a strong up move during CY16-17 from Rs 202 to Rs 755 levels, has entered a corrective consolidation in the last 10 months which has helped it to work off the overbought conditions on momentum oscillator and created an attractive entry opportunity.
The stock during the entire corrective trend has formed a consolidation base around the Rs 540 levels as it is the confluence of:38.2 percent retracement of the entire C.Y 2016-2017 up move (Rs 202-755)
The neckline of the previous rounding breakout area of August 2017
The trend line support joining the low of May 2017 (Rs 408) and July 2018 (Rs 493)
The stock has already taken 10 months to retrace less than 80 percent of the previous nine months up move from Rs 408 to Rs 755. A slower retracement of the last falling segment signals strength and positive price structure.
Based on the above technical observation we expect the stock to head higher from hereon towards Rs 655 levels in the medium term as it is the confluence of the 61.8 percent retracement of the previous decline (Rs 755-493) and high of September 2018.
Buy ABB | Target: Rs 1550 | Stop Loss: Rs 1190 | Upside: 20 percent in 6 months
The share price of ABB has been oscillating in an upward sloping channel over past two years (drawn adjoining lows of January - December 2016 of Rs 955 -1018, respectively). Recently prices retraced 80 percent of last leg of up move (Rs 1129-1517), placed at Rs 1206 levels coinciding with lower band of rising channel. As a result, stock formed a higher low, signifying conclusion of ongoing corrective phase.
Going ahead we expect the stock would hold the key value area of Rs 1200 and resolve higher, as it is:
Long term 200 weeks EMA is placed at Rs 1232
Lower band of upward sloping channel is placed around Rs 1160
Among momentum oscillators, the weekly stochastic oscillator has been inching upward after recently recording bullish crossover, indicating acceleration of positive momentum in the short term.
In a nutshell, we believe the stock has formed a strong base around Rs 1200 zone that augurs well for stock to resolve higher and head towards Rs 1550 in the medium term as it is the price parity of the August-September 2018 up move (Rs 1150 to Rs 1517) added to the October 2018 low of Rs 1190 project up side towards Rs 1550 levels.Disclaimer: The author is Head Technical at ICICI Direct.com Research. 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.