Dharmesh Shah ICICI Direct.com Research
Equity benchmarks maintained positive bias and continued to form a higher peak and higher trough in all time-frames as the index surged to a fresh lifetime high boosted by firm global cues and domestic earnings.
The entire up move in the Nifty after July 2018's low of 10,604 has been well channelled signalling sustained demand at elevated levels.
The previous week’s consolidation has led to the formation of a higher base in the index which is likely to act as launch pad for the next up move towards 11,600-levels being the confluence of the following technical observation:
a.) 138.2 percent external retracement of the entire decline of February- March 2018 (11171-9951) is placed at 11,637
b.) price parity of April-May 2018 up move (9951-10929) in percentage term as measured from June 2018 low of 10,550 is placed at 10,595
c.) a higher band of rising channel (as shown in adjacent chart), placed around 11,560.
The formation of higher high-low on all time-frames indicates a robust price structure. The overall structural improvement makes us confident on upgrading support base at 11200 as it is:
a.) the positive gap area 11210-11167 (on July 27)
b.) 38.2% retracement of recent up move (10935-11390), at 11217
c.) according to change of polarity concept January high of 11172 would now act as key support
Structurally, Nifty midcap and small-cap index have seen an up move of 9% and 7%, respectively, from the July lows. The current rally is larger in magnitude compared to early July pullback while the declines are contracting to highlight a structural turnaround.
However, after the recent sharp up move, some consolidation cannot be ruled out in the broader market. We believe such a breather would help both indices make a higher base formation, which would eventually pave the way for the next leg of the up move (around 7-10%) in coming months.
Thus, any dip from here on should be utilised to accumulate quality stocks as we expect quality midcaps to outshine amid ongoing Q1FY19 result season.
Here is a list of top three stock which could give 11-14% return in next 6 months:
UltraTech Cement: Buy| CMP: Rs 4,241| Target: Rs 4690| Stop Loss: Rs 3965| Return 11%| Timeframe 6 months
UltraTech Cement is the largest player in India with a capacity of ~96.5 MT and market share of over 23%. Within a secular up trend, the stock has undergone a secondary phase of correction.
The recent breakout from the downward sloping channel (as shown in adjacent chart) signifies termination of the secondary phase of consolidation that augurs well for the resumption of the primary uptrend, thereby providing a fresh entry opportunity.
The up move since March 2015 has been captured in a well-defined rising channel (drawn adjoining highs of 2015-16 high of Rs 3398–4130 and 2015 low of 2531).
After hitting a lifetime high (4600) in January 2018 the stock witnessed a gradual corrective decline and tested the lower band of the channel in June 2018.
Since then, the stock has formed a strong base formation around 3600 as it is the 61.8% retracement of the last major up move (3050-4600), around 3640.
The past three month’s price action resembles a Morningstar candlestick pattern on the monthly chart. The occurrence of Morningstar candlestick pattern at the lower band of rising channel shows base formation and accumulation by stronger hands that augur well for the resumption of the primary uptrend.
Time wise, during the recent up move, the stock retraced entire nine week’s decline (4175-3563) in just five weeks. The faster pace of retracement highlights robust price structure that bodes well for an acceleration of momentum, going ahead.
In a nutshell, we expect the stock to resume its primary uptrend and gradually head towards 4690 as it is implicated target of past three months consolidation (4160-3630). The immediate support is placed around | 3815 as it is 61.8% retracement of recent up move (3563-4230)
Yes Bank: Buy| CMP: Rs 382| Target: Rs 424| Stop Loss: Rs 356| Return 11%| Timeframe 1 month
The share price of Yes Bank was trading in a broader range of 275-383 over the past year. It took the shape of a contracting triangle pattern.
In July 2018 the stock recorded a breakout from contracting triangle pattern signalling reversal of the corrective trend and resumption of the fresh up move.
The corrective decline from the July 2018 high of 394 has found support around 360 levels being the confluence of the 50% retracement of the last leg of up move (327- 394) placed around 360 and the previous breakout area which is likely to reverse its role and act as support in the short term.
Among oscillators, the weekly MACD indicator is diverging from its nine-period average, indicating an acceleration of upward momentum.
We expect the stock to resolve higher from here on and gradually head towards 424 in coming weeks as it is the price equality of last up move 342-394, projected from a recent low of 357.
Sanofi India: Buy| CMP: Rs 6150| Target: Rs 6,995| Stop Loss: Rs 5,690| Return 14%| Timeframe 6 month
Sanofi India is a leading MNC in the domestic pharmaceutical market. SIL has two manufacturing sites (Ankaleshwar, Goa) and also exports to 48 countries.
The share price saw a major turnaround in March 2018 as it logged a resolute breakout from multi-year consolidation (3730–4940) during 2015-18.
Prices have been inching northward post retesting aforementioned breakout level (4720), suggesting renewed buying demand at elevated levels. The recent price activity signals an acceleration of upward momentum, providing a good entry opportunity to ride the next leg of the up move.
The stock has been forming higher peak and trough since September 2017. This overall price action has been captured in an upward sloping channel formation (drawn adjoining September 2017 to May 2018 lows of 3940-4720 and projected from January highs of 5151).
Recently, the stock has registered a breakout from the upper band of aforementioned channel backed by rising volumes, indicating an acceleration of upward momentum.
The key support base for the stock is around | 5690 region as it is the 38.2% retracement of the recent up move (4720 to 6298).
Based on the aforementioned technical evidence, we expect the stock to resolve higher from here on and head towards 6995 over the medium term being the measuring implication of the aforementioned rising channel (6050-5100=950 points) added to the higher band of the channel 7000 (6050+950=7000) corroborating with 161.8% extension of up move (3086 to 4950) projected from 3940, placed around 6955.
Disclaimer: The author is Head Technical at ICICI Direct.com Research. 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.
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