Pritesh Mehta IIFL Wealth & Asset Management
The corrective period which had been in play after marking a peak of 9,532 came to an end in Thursday’s trade as index staged a swift turnaround from the critical support zone of 9,330-9,340.
An analysis of corrective phases of 2017 also puts forward an interesting theory which came into play in this week’s trade. During all the corrective pullbacks since 26th December 2016 in the ongoing uptrend, the index has not declined by more than 200 points. Recent fall was limited to 191 points.
Also, the confluence of supports around 9,340 also provided much-awaited respite (i.e. first line of defense as per the gann rule of 8 around 9330 and 180-degree move from the peak of 9533 at 9338).
Post a ferocious move, exhaustion of selling pressure in the Midcaps index and with benchmark index within whiskers of re-claiming the previous peak, current momentum is likely to extend towards 9,600 as per the price equality pattern of the previous upmove.
Moreover, the three-digit gann number is placed at 961(0) and two digit gann number appears at 96(00). Forming a large bullish candle, Nifty recouped all losses which it made in past four sessions. Lows of such tall candles usually act as critical support.
Here is a list of top five stocks which can give up to 13% return in short term:
Indiabulls Housing Finance: BUY| Target Rs1140| Stop loss Rs1010| 9%
Indiabulls is showing traits of a typical uptrending counter after it found support around the lower-end of its upward sloping channel. The same coincides with the support of its 35-DMA.
This moving average is acting as a strong support since January 2017. Moreover, the midpoint of the current three-digit gann channel is placed around 101(0) and a 360-degree move from the peak of Rs1,135 also appears around Rs1,000.
There is a cluster of support around Rs1,000 resulted in exhaustion of selling pressure (it marked a low of Rs1,013) as the stock created a base before attempting a rally in Thursday’s trade.
Though it came off in the closing trades from day’s peak of Rs1,072, it provided a higher close compared to the previous session. Based on above observations, traders can buy Indiabulls Housing Finance above Rs1,050 with a stop loss of Rs1,010 for a target of Rs1,140.
REC: SELL| Target Rs186| Stop Loss Rs210| Return 9.2%
REC is showing signs of topping out after the stock has made a reversal from the peak of Rs224. It underperformed the broader market in Thursday’s trade and declined by 2 percent.
A move below Rs203 would result in a breakdown after last month of consolidation. Since December 2016, REC had staged a sharp rally from a low of Rs115 to a high of Rs224.
Failure to cross above the gann number of 225 has resulted in a strong reversal. For now, the risk/return of establishing long positions is less than ideal. It presents a great opportunity for the traders to jump in on the downtrend.
An occurrence of this event indicates further selling and continuation of the downtrend. “We recommend a short on REC June Futs below Rs203 with a stop loss of Rs210 for a target of Rs186,” said Mehta.
ICICI Bank: BUY| Target Rs360| Stop Loss Rs302| Return 13%
On the weekly charts, the stock had been consolidating and facing hurdle around Rs289. Between November 2016 and April 2017, the stock made three failed attempts to sustain above the gann number of 289.
A breakout during the start of the month finally resulted in a strong move on the upside. The level of Rs289 was also the 50% retracement of the previous move from the peak of Rs393 to Rs181.
Post the breakout move, the stock has witnessed a follow-up buying which indicates the inherent strength in the counter. So far in the month of May, the stock has staged a rally of ~14 percent.
Sustenance above Rs289 for few weeks suggests that the stock has moved into a new orbit. Based on above parameters, traders can buy ICICI Bank above Rs315 with a stop loss of Rs302 and a target of Rs360.
L&T: BUY| Target Rs1880| Stop Loss Rs1725| Return 6%
It is currently going through a phase of consolidation at the top of its rally. It is showing the characteristic of a stock which is in a strong uptrend. It is moving higher along with the support of its 5-Weekly EMA since March 2017, wherein every pullback towards this critical moving average has resulted into buying opportunity.
Since last five weeks, the sideways consolidation at the top of its trend can be termed as bullish consolidation. The outcome of such sideways movement is dealt positively during an uptrend.
Moreover, sustenance of Rs1,765 would mean a move above the midpoint of the current gann channel. Also, it will provide much-needed ammunition to provide a breakout from sideways consolidation.
Based on above parameters, traders can buy L7T above Rs1,765 with a stop loss of Rs1,725 for a target of Rs1,880.
TVS Motor: BUY| Target Rs580| Stop Loss Rs525| Return 6%
TVS Motors went through corrective phase since 16th May 2017. However, it could be termed as a sideways correction as it managed to find support around 38.2% retracement mark of the entire rally from the previous breakout point of early May 2017, providing an opportunity to enter the stock.
Uptrending Stocks tend to find support at declines and also tend to recover sharply from such corrective movement. Inability to sustain above the three-digit gann number of 529 saw the stock retracing lower.
Thursday’s breakout move from a short-term corrective channel suggests that the downside move of the stock has come to an end and the stock is likely to resume its previous upmove. Traders can buy TVS Motors above Rs540 with a stop loss of Rs524 and a target of Rs580.
Disclaimer: The author is Head of Technical Research – IIFL Wealth & Asset Management. 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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