Equity benchmark witnessed strong up move since August 23 as buying demand emerges near the major support area of 10,600, but it failed to hold on to gains.
We believe that the temporary breather towards 11,000-10,900 (i.e. 50 percent retracement of the last three sessions up move from 10,637 to 11,141) should be used as an incremental buying opportunity for up move towards 11,200 levels in coming weeks.
In the current context, the index witnessed a sharp bounce after correcting 12 percent over the past 12 weeks. In the process, most of the pessimism has been overdone in the index.
Going forward, we expect the index to continue with its outperformance, so we advise investors to accumulate quality midcap stocks in a staggered manner.
Here is a list of top two stocks which could give 11-16 percent return in the next six months:
State Bank of India : Buy| LTP: Rs 274|Target: Rs 318| Stop Loss: Rs 255| Upside – 16 percent | Time Frame: Six Months
The share price in the last four sessions has witnessed a sharp up move near the key support area around Rs 260-255 validating the presence of buying demand and offers favourable risk-reward set up to ride next up leg.
The key support area for SBI is placed at Rs 260-255. Weekly stochastic has generated a bullish crossover from the extreme oversold territory.
We expect the stock to resolve higher and head towards our earmarked target of Rs 318 as it is 50 percent retracement of past seven-week decline (374–263), at Rs 318.
Supreme Industries : Buy| LTP: Rs 1100.25| Target: Rs 1,225| Stop Loss Rs 1,049| Upside –11 percent | Time Frame: Six months
The stock has registered a trendline breakout joining the highs since May 2018 (Rs1,448) and is seen sustaining above the same in the last two weeks signalling a potential reversal of the corrective trend and offering a fresh entry opportunity to ride the next up move in the stock.
The share price has witnessed a higher base formation in the last 10 months around the major support area of Rs 1,000 levels.
The sharp up move from the support area and improved price structure make us confident of raising the support base higher towards Rs 1,049 levels being the 61.8 percent retracement of the last leg of up move (10,637-11,141).
The stock has already taken more than 18 months to retrace just 61.8 percent of the previous 15 months major up move (Rs 730 to Rs 1,476). A slower retracement of the last rising segment signals robust price structure
We expect the stock resolve higher and head towards Rs 1,225 levels being the 50 percent retracement of the entire decline (Rs 1,476 to Rs 946).
(The author is Head Technical at ICICI Direct.com Research)
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