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Last Updated : Oct 16, 2018 08:19 AM IST | Source: Moneycontrol.com

Podcast | Stock picks of the day: Remain long in Nifty with a stop loss at 10,300 levels

This setup indicates that bears seem to have lost the dominance gradually and there could be a chance of a trend reversal for the short-term.

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Nandish Shah

The Nifty rose for second day in a row, the first time in a month. It gained 40 points to close above 10,500 levels on Monday. The RSI oscillator on the Nifty and the BankNifty charts has confirmed the positive divergence during the last week, where the price has made new low and oscillator formed a higher low.

This setup indicates that bears seem to have lost the dominance gradually and there could be a chance of a trend reversal for the short-term.

The long-term support derived from the trend line, adjoining the bottoms of Oct 2008(2252) and February 2016(6825) is placed at 10200 odd levels.

During last week, Nifty violated this support but managed to close above that. So, the implication of the trend line support remains intact. Though, Nifty is currently trading below its 20, 50, 100 and 200 DMA.

It managed to close above its 5-days SMA on last Friday and therefore we should not rule out the chances of a sharp pullback from current levels.

The 200-DMA for the Nifty is currently placed at 10,780 odd levels, while there has been an unfilled gap formed in the range of 10755-10843.

We believe that the index could extend the recent pullback towards 10,800, around which 200-DMA and Gap resistance coincides.

During the current October month, the BankNifty has clearly remained one of the outperformers where it gained by 1 percent while the Nifty fell by 4 percent.

RSI, Wave trend and Stochastic oscillators have exited from the oversold zone with positive divergence on the daily charts. During the last week, Bank Nifty closed above its 5 day SMA, indicating short term trend reversal.

A 200-DMA for the BankNifty is placed at 26,090, which can act as a short-term resistance. The support for the index has shifted upward to 24,900 odd levels, which can be kept as a stop-loss in the trading long positions.

We expect Bank Nifty to continue with its out performance in the short-term. In the Derivatives segment also, we have seen long positions being built in the BankNifty Futures’ during the current series.

Foreign institutional investors (FIIs’) also created fresh longs in the Index Options and Stock Futures’ during the last week. Amongst the Options, Puts have been written at 10,300-10,400 levels.

Considering the technical and derivative evidence discussed above, we believe that a short term pullback rally is on the cards and bottom of 10300 levels should not be violated soon.

Therefore, our advice would be go long in the Nifty with the stop loss of 10,300 levels with the target of 10,800 levels.

Here is a list of top three stocks which could give 9-11% return in the next 1 month:

KNR Construction: Buy| LTP: Rs 188| Target: Rs 205 | Stop-Loss Rs 178 | Return 9%

KNR Construction has been one of major underperformer since the last few months, which has fallen nearly 50 percent from the December high and has been in an oversold zone since last many weeks.

Oscillator like RSI is showing positive divergence where the stock price has made a new low and Oscillator has formed a higher low. This setup indicates that bears seem to have lost the dominance gradually and there could be a chance of trend reversal for short term.

On last Friday, the stock price also managed to close above its 5-day SMA, indicating a bullish trend for the short term. We believe that mid-cap and small-cap stocks which have fallen very sharply during CY18 can outperform now. Therefore, we recommend buying KNR Construction for the upside target of Rs 205, and keep a stop loss below Rs 178.

Nucleus Soft: Buy| LTP: Rs 380| Target: Rs 420 | Stop-Loss: Rs 360| Return 11%

After forming multiple bottoms around Rs 340 odd levels, the stock price reversed northwards during the last few days to close above its 5-day moving averages.

The momentum indicators and Oscillators are indicating strength in the stock for the short to medium term. After a sharp rally in the large-cap technology stocks, we believe that the bullishness can spillover to the mid-cap technology stocks.

Therefore, we recommend buying Nucleus Software for the upside target of Rs 420 and keeping a stop loss at Rs 360.

PNB Housing: Buy| LTP: Rs 930| Target: Rs. 1,010 | Stop-Loss: Rs 880| Return 9%

After a steep correction of nearly 35 percent from its August high, the stock price had reached an oversold level during the last week. Oscillator like RSI is showing positive divergence where the stock price has made a new low and Oscillator has formed a higher low.

This setup indicates that bears seem to have lost the dominance gradually and there could be a chance of trend reversal for short term. Therefore We recommend buying PNB Housing for the upside target of 1010, keeping SL at 880.

Disclaimer: The author is a Technical & Derivatives Analyst at HDFC Securities. 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.
First Published on Oct 16, 2018 08:19 am
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