Nifty, after taking support from the gap created on September 23, recovered more than 80 points from the low to close with the losses of 38 points at 11,474 levels on September 30. Though the Nifty has fallen nearly 300 points from the recent high to a low of 11,390 levels, the primary trends is still intact as it is still trading above its 200-day SMA. Oscillators and momentum Indicators like RSI and MACD have been showing strength on the daily and weekly charts for the Nifty and Bank Nifty.
The index has formed a major bottom at 10,670 and rallied towards 11,695 recently. The 38.2 percent Fibonacci retracements of the swing is placed at 11,303, which is likely to act as an immediate support going forward.
We have seen Put writing at 11,300-11,400 strike prices, indicating that the Nifty is likely to find strong support in the vicinity of 11,300-11,400. Unless the index closes below it, the trend would be considered bullish for the markets. On the upside, 11,700 would act as an immediate resistance where Calls have been written.
The Bank Nifty has formed a major bottom at 26,643 and rallied more than 4,000 points to touch an intraday high of 30,800. The 50 percent Fibonacci retracements of the entire swing is placed at 28,700, which is likely to act as an immediate support going forward. This support level coincides with the 200-day SMA placed at 28,766 levels.
The Nifty Smallcap index, which corrected nearly five percent from its recent high, has now reached a strong support of 20-day SMA, which is placed at 5,566 levels. The midcap/smallcap indices have also corrected and may see a bounceback from here on.
Considering technical and derivatives factors, we view the recent fall in the market as a correction in the overall uptrend. Our advice would be to use this correction to accumulate longs in the Nifty with the stop loss of 11,300 levels. On the higher side, the Nifty could move to its immediate resistance of 11,700. Any close above 11,700 levels would result in further short covering, which might push it to even 12,000 levels in coming months.
One should accumulate long positions in the Bank Nifty with a stop loss at 28,700 levels. On the higher side, an immediate resistance is seen in the vicinity of 29,800-30,000 levels.
Here are the top three stocks that can return 6-11 percent:
The stock price has broken out on the daily chart last Friday by closing above the resistance level of Rs 1305 levels. It has closed at three month high yesterday with higher volumes. Short term trend of the stock is bullish where it is trading above its 5, 20 and 200 day SMA. Oscillators and momentum indicators like RSI and MACD showing strength in the stock on the daily and weekly charts. Therefore we recommend buying Reliance Industries for the upside target of Rs 1410, keeping a stop loss at Rs 1285.
UPL: Buy | Target: Rs 640 | Stop loss: Rs 580 | Return 6%
UPL has broken out on the daily chart by closing above the resistance level of Rs 598 levels. It also closed above 200-day SMA level of Rs 585 with higher volumes. Oscillators and momentum Indicators like RSI and MACD showing strength in the stock on the daily charts. In F&O segment we have seen long build up in the stock. Therefore we recommend buying UPL for the target of Rs 640, keeping a stop loss at Rs 580.
Quess Corp: Buy | Target: Rs 520 | Stop loss: Rs 440 | Return: 11%
We have seen accumulation in Quess Corp since last few days where volumes are rising with price remaining in the narrow range. RSI Oscillator is showing positive diveragence where stock price is moving in the narrow range while RSI is rising. Stock price formed strong base around Rs 440 odd levels by taking support around there multiple times and bounced back. It closed above its 5 and 20 day SMA on Friday with higher volumes, indicting short term trend turned bullish.Therefore we recommend buying Quess Corp for the upside target of Rs 520, keeping a stop loss at Rs 440.
The author is Senior Technical & Derivatives Analyst at HDFC Securities.
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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