Our advice would be to accumulate longs in the Nifty with the stop loss of 12100 levels, and any close above 12400 could push Nifty towards the targets of 12735.
In the last technical column, we had suggested investors look into the broader markets.
Our view was vindicated after the Nifty Midcap 100 and Smallcap 100 outperformed with a gain of 2.5 percent and 5 percent, respectively, during the last fortnight. Meanwhile, Nifty rose 1.3 percent.
There are a large number of stocks which have rallied more than 20 percent during the last few days. We stick with our theme that 2020 will belong to the mid and the smallcap stocks, as they vie for investor attention as the large caps consolidate.
Of the 12 sessions in the current January series, beginning from December 27, midcaps have outperformed Nifty in eight sessions and the smallcaps in 10 sessions.
As for the Nifty, it continued its northward journey for the third day on the trot to end the day with gains of 73 points closing at an all-time high level of 12,330.
The Nifty50 has been forming a higher top higher bottom formation on the daily charts. Momentum Indicators and Oscillators have turned positive on the daily charts.
The Nifty50 has been trading in the upward sloping channel and the upper trend line of that channel projects an immediate resistance around 12,370-12,430.
Above 12,430, the Nifty is expected to extend the rally towards 12,735, which happens to be 100 percent Fibonacci extension levels by taking a swing of 10,004 (Bottom: October 2018), 12,103 (Top: June 2019) and 10,637 (Bottom: August 2019).
On January 9, 2019, the Nifty50 opened with a gap and left the unfilled range between 12,045 and 12,132. This range is expected to act as a support for the Nifty.
In the derivatives’ segment, we have seen long build up in the Nifty and Bank Nifty futures during the January series till now.
Amongst the Options, we have seen Put writing at 12,100-12,200 strike prices, indicating that 12,100 will act as strong support going forward.
Considering the technical and derivatives evidence discussed above, we believe that 12,100 has emerged as strong support and unless that level is breached trend for the market would be considered bullish for the Nifty.
Therefore, our advice would be to accumulate longs in the Nifty with the stop loss of 12,100 levels. The immediate resistance is seen in the vicinity of 12,370-12,430 levels, and any close above 12,400 could push Nifty towards the targets of 12,735.
We believe that mid & smallcap stocks, which have already started outperforming the benchmark indices, will continue their outperformance for the coming week also. Money is to be made in the mid and smallcap stocks where a trader should focus on.
Here is a list of top three stocks which could give 12-14% returns in the next 3-4 weeks:
The stock price has broken out on the daily charts by closing above the resistance level of Rs 860 to close at two-months high. Volumes were sharply higher as compared to the last 10-day average suggesting strength in the breakout.
The stock price has created a strong base by forming multiple support around 800 odd levels. Auto ancillary as a sector seems to have bottomed out on the charts and is looking good for the short-term.
Oscillators and momentum Indicators like RSI and MACD have turned bullish for the stock on the daily and weekly charts. Therefore, we recommend buying Automotive Axles for the upside target of 1,010 and keep a stop loss at 825.
After forming multiple supports around 200-Days simple moving average, the stock price has broken out on the weekly chart last week by closing above the resistance level of 176.
The primary trend of the stock is positive where the price is trading above its 20, 50 and 200-Days SMA. Oscillators and momentum Indicators like RSI and MACD have turned bullish for the stock on the daily and weekly charts.
Therefore, we recommend buying SPARC for the upside target of 210 and keep a stop loss at Rs 172.
The stock price has broken out on the daily charts by closing above the resistance level of 114 to close at a three-month high.
The stock price has formed a double-bottom around Rs 100 odd levels. Oscillators and momentum Indicators like RSI and MACD have turned bullish for the stock on the daily and weekly charts.
The short-term trend in the stock is positive where the stock price is trading above its 5, 20 and 50-Days simple moving averages. Therefore, we recommend buying Praj Industries for the upside target of Rs 130, and keep a stop loss at Rs 108.
(The author is Technical & Derivatives Analyst, HDFC Securities)Disclaimer: The views and investment tips expressed by investment experts 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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.