Podcast | Focus shifts to Q4 earnings season; 3 stocks which could give up to 17% return

In the past two weeks, the index has rallied almost 475 points from the March low (9,952), leading the stochastic oscillator to trade in the overbought zone (currently at 90), indicating that the possibility of a breather at higher levels cannot be ruled out.

Thus, a close below Wednesday’s low of 10,355 would lead to pause in an ongoing uptrend. This may lead the index to enter a consolidation phase to cool off overbought conditions.

However, overall bias in the index remains positive hence, any breather towards 10,200 should be used as an incremental buying opportunity, being a confluence of:

a) The lower band of a rising channel containing the entire current pullback is placed at 10,270
b) The 38.2 percent retracement level of the recent rally (9,952 – 10,425) is placed at 10,250
c) As per change of polarity concept, the resistance trend line of the earlier falling channel would now act as support, is also placed around 10200 levels

Structurally, the key point to highlight during the current up move is that the current up move (473 points) is larger in magnitude compared to preceding two pullbacks (362 & 337 points), indicating the structural improvement in overall market structure.

Meanwhile, the Midcap and smallcap indices have risen 7.2 percent and 8 percent, respectively; outperforming the Nifty (up 4.5 percent) by a decent margin.

The midcap and smallcap universe represents a larger section of the market and strong performance of this space reflects renewed investor confidence. As we are entering the Q4 earnings season, we believe the focus will shift to stock specific action.

Thus, we expect the Nifty to consolidate in the broader range of 10,200-10,450 and form a base that would pave the way for the next leg of up move

Here is a list of top three stocks which can give up to 17% return in the next six months:

Bajaj Finserv: BUY| CMP Rs5420| Target Rs6095| Stop Loss Rs5190| Return 12%| Time Frame 6 months

The stock after registering life high of 5790 during September 2017, has entered a secondary corrective phase as it discounted excesses built in the previous rally and factored in concerns over rising bond yields etc.

In the current week, the share price resolved out of past six month’s basing pattern, signalling the end of the corrective phase and commencement of fresh up leg, thus providing fresh entry opportunity.

The price decline from a lifetime high and subsequent consolidation phase over the past six months fulfill all properties of a corrective pattern within a primary uptrend as it retraced the preceding four-month rally just by 50% over seven months indicating robustness in the price structure

Significantly, the consolidation over past six months anchored at the key support of 4800 as it is the confluence of:

a) 50% retracement of the previous up move (| 3801-5790)
b) The long-term rising 52 weeks EMA, which has been held since CY 2013

The stock has immediate support at 5200 as it is the 61.8% retracement of the most recent rally.

We expect the stock to resume uptrend after the current consolidation breakout and head towards Rs6100 in the medium term as it is the confluence of the breakout implication (5450-4800=650 points added to breakout of 5450) and 123.6% external retracement of September 2017 – February 2018 decline (5790-4500) placed at 6095

EIH Limited: BUY| CMP 165| Target Rs194| Stop Loss 145| Upside 17%| Time Frame 6 months

The share price of EIH has been forming a higher peak higher trough on the long-term chart. In January 2018, the stock recorded a breakout from upward sloping resistance trend line backed by heavy volumes and recorded an all-time high of 232.

Since then, the stock has undergone a secondary phase of correction. Currently, it has approached its key value area of | 155 and formed a higher high after 10 weeks correction, assisting the weekly stochastic oscillator to work off the overbought conditions.

Thus, we believe the stock has undergone a healthy corrective phase paving the way for the next leg of the up move towards 192.

Over the past 10 weeks, the stock has retraced 88% of the earlier three week’s sharp up move (146–232). A shallow price correction with elongated time wise consolidation highlights the strong price structure.

We believe the recent throwback has approached its maturity and is likely to resume its uptrend as it is the confluence of:

a) The stock has been sustaining well above the gap area of | 155-156 on January 8, 2018
b) The 52 week’s EMA is also placed around | 150

The overall price structure makes us believe the stock has confirmed the three year long consolidation breakout by retesting it and is now well positioned to accelerate the momentum, thereby providing opportunity to create fresh long position in the range of 158-162 from a medium-term perspective for target of 194 being 50% retracement level of the last leg of decline (232–156)

PNC Infratech: BUY| CMP Rs181| Target Rs205| Stop Loss 166| Upside – 13%| Time Frame 1 month

The share price of PNC Infratech remains in an uptrend forming a rising peak and rising trough on the weekly chart. The stock has rallied to an all-time high of 228 in December 2018. Since then, it has been in a corrective decline for the last three months.

The recent price activity suggests the corrective decline has approached maturity and the stock is likely to resume fresh up move.

The stock has recently rebounded from the support area of 150-155 being the confluence of the 52 weeks EMA and 80% retracement of the previous up move (130 - 228).

The sharp up move in the last two weeks from the support area signals a reversal of the corrective trend and offers a fresh entry opportunity.

Among the oscillators, the daily MACD remains in an uptrend and is seen sustaining above its signal line thus supports the continuation of the positive trend in the stock.

We expect the stock to continue with its current up move and test levels of 211 being the 80 percent retracement of the entire decline (228 – 148).

Disclaimer: The author is Head Technical, AVP at ICICI Direct.com Research. 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.